Does it seem believable that legal sales of recreational and medical marijuana were around $6.7 billion in 2016 alone, with that number only continuing to rise as more and more states agree to legalize cannabis?
We are here to explain that this statistic in fact, is 100% true, yet still those that own and run both recreational shops and medical marijuana dispensaries face many challenges because of a refusal of major banks, as well as the federal government when it comes to financial cooperation. Because cannabis is a controlled substance on a federal level, many financial organisations treat legal businesses selling marijuana products as criminals, denying them financial support, as well as a way to safely store their profits.
Furthermore, many dispensaries must run cash only businesses, which can lead to a vast increase in dangerous and frustrating circumstances, which will be discussed in further detail later in this article. There are some ways to maneuver around current laws, methods that are not only legal, but also in benefit of the owner/operator of the dispensary or online shop. These alternative solutions are often referred to as cannabis payment processing solutions, but there are some details to observe when choosing the right one for you and your business.
Keep reading to learn 5 brilliant tips about choosing a cannabis payment processing solution or jump to the bottom of this article and find out who is the BEST marijuana merchant service provider of 2017.
Cannabis Payment Processing Current Laws
Although progress is developing, as of 2017, only around 300 of the 11,000 operational banks will comply with legal marijuana companies or vendors. 300 may seem like a grand and fair number, but these acceptant institutions very often require extra fees or further efforts on the vendor’s side, in order to agree with supporting the company and its decisions.
Federally speaking, cannabis is still part of the Controlled Substances Act, so major banks that often can provide easily accessible financial support and loans, make themselves off limits to any businesses related to marijuana, typically stating that if they are a federally regulated institution they, “don’t process payments for businesses participating in federally prohibited activities”, which of course includes cannabis. If a bank opens its doors to anyone in the cannabis industry, even a company legal on the state level, these institutions put themselves at risk of being seized by the Federal Deposit Insurance Corporation (FDIC), and many of these well-known, financially supportive institutions simply do not want to take the risk.
In fact, JP Morgan and Chase and Bank of America have both stated a clear refusal of having any associations with any company or person involved in the marijuana industry, because they can produce enough profit by other means.
Independent banks seem to be more flexible and willing to cooperate with those related to the legal cannabis market, with some small institutions in Colorado even specifically seeking to support the marijuana vendors within the state, because of the opportunity for both making money, and also assisting the local economy. Technically speaking, although so many corporate, big institutions are terrified of getting involved with cannabis, in 2014 a directive from the Financial Crimes Enforcement Network (FinCen), claimed that banks were actually authorized to service and support businesses with ties to cannabis, so long as they comply fully with anti money-laundering regulations, as anyone would expect.
In summary, it is technically legal for a bank to support a legal marijuana business, so long as they take the necessary steps and regulations into account, but many banks simply choose not to because, for them, it is not worth the risk of the Federal Government getting involved.
Why Large Banks Won’t Process Marijuana
As mentioned above, marijuana is highly illegal on the federal level, even if each state has the right to recognize marijuana in its own way, many regions voting to completely drop any charges related to the medicinal substance. Because banks are federally connected institutions, they also typically rely upon regulations and laws set by the Federal Government, and many institutions believe that if they support something considered illegal in the eyes of the Feds, they are also subject to greater scrutiny and could be investigated, or even legally punished. For banks with high assets and plenty of investments, by accepting marijuana related businesses through their doors, they are not only putting the company at risk, but also the status of the assets and the money of any investors involved in funding the bank. If some trouble was to arise, it could be devastating and global banks like Bank of America, Wells Fargo, JPMorgan and Chase, etc., simply don’t see that the benefits would outweigh the risks.
This, of course, is the personal choice of each banking institution, but it does not make their actions any more fair to the sometimes small business owners that are running legal marijuana operations.
Businesses Are Forced to Work Cash Only (Implications)
For the majority of marijuana business owners, running a cash business is their main option, and even if this solution might not sound so awful, there can be sometimes dangerous implications when all of your profits are being collected with digitally untraceable papers. Many credit card/debit card operating systems won’t even allow a cannabis vendor to set up a payment marijuana processing system under their bank, so as profits rank in higher, the cash register becomes more full. Having plenty of income is usually a great thing, right? Not if you are netting hundreds of thousands of dollars, with no where safe to store it.
It is a fact that cash only businesses are not only at a higher risk of employee thefts, but also at a much higher risk of robberies. Most medical marijuana and recreational cannabis dispensaries hire full-time armed guards, specifically to combat any issues they might have with shady criminals entering the business, willing to hurt those working just to get in on some of the cash profits. A guard might not seem like such an immense compromise, but it does not guarantee safety of the company 100 percent, for example in circumstances where the guard might become outnumbered, and also it often costs a pretty penny to be paying for security at all hours of operation, and sometimes even after the doors have been closed. Crimes are so prominent, in fact, that in 2014, 17% of marijuana dispensaries in Colorado experienced some sort of robbery. In the eyes of robbers, hitting up a gas station might maybe send you home with $50, but if they were to rob a cannabis dispensary, they could easily steal $100,000 on an average profiting day. That is why these criminals see cannabis institutions as a better target, along with their immense holding of paper money.
If the Federal Government would allow banks and financial institutions to cooperate with cannabis vendors and companies, it would actually deter away some crime from areas where the dispensaries are located. With less cash equals a lowered risk for theft or robbery, which can sometimes turn out to be a violent, frightening occurrence. Legalization of marijuana, has already done wonders for pushing weed out of the black market’s hands, helping to lower crime in that aspect, so why not support legality on the financial side and continue to lessen the incentive for criminals to have an easy access way to commit crimes.
Marijuana Payment Solutions Are On the Rise
Marijuana payment solutions are on the rise, because cannabis companies are looking for legal methods to get around the strict banking laws so that they do not have to store their profits in cash, which of course is thoroughly explained above.
Marijuana payment solutions are not only legal and safe, but also can prove to be quite inexpensive, and in the end profitable. There are numerous solutions available on the internet, and can be found using a simple google search, but as with most areas where money is involved, not every company offering “fair services” should be trusted. In order to make your experience with a cannabis payment processing provider friendly and simple, we have generated 5 valuable and knowledgeable tips to make the choice and transaction a breeze.
5 Tips When Looking for a Marijuana Payment Solution
1. Ensure your Payment Processing Company Understands the Complicated Jargon.
Nothing in this world is easy, and that goes for payment marijuana processing solutions as well. In this article we explained that marijuana processing is not an easy task and the last thing you want to do is put your business in the hands of a bucket-shop merchant that does not know how to deal with the legalities involved within the industry.
To process marijuana requires experience and a deep familiarity with FinCEN, BSA, DOJ, CSA and the Cole Amendment as they apply to different financial institutions. It’s important that your payment processing company understands the legal structure of the cannabis industry and more important, knows how to deal with unpleasant situations where legal authorities suspect suspicious activity on your account and may try to freeze your money.
Tip – Look for a provider that understands all legal aspects and will always give you quick access to your money. Its important to use a proprietary gateway that ensures that its credit card processing is stable, secure and uninterrupted. Furthermore make sure they accept Visa, MasterCard, Amex and Discover, and have no a Visa card with no limit.
2. Look for a Company that Offers Variety
Different companies offer different payment processing services. As with most things in life, having a wide variety to choose from is key to accessible flexibility. In general, there are two major groups of payment gateway providers; the first is eCommerce business models which tend to be classed as medium risk businesses. The second is high-risk processors which have been recognized as more chargeback prompt due to the specific products or services they provide. Some of these businesses include gambling, dating, traveling etc. Payment processors that work with these type of industries have a wide range of tools such as card storing, token systems, 3d secure and other fraud protection tools that allow them to monitor transactions and prevent fraudulent ones. These payment solutions offer an addition layer of protection to prevent their partners from encountering problems and unwanted chargeback fees.
Tip – Your Cannabis processing solution should have a well designed system that aims to address issues within the cannabis industry and is compliant with federal and local regulations and laws. Make sure the company can provide a merchant account for any cannabis related business including, eCommerce, CBD and cannabis paraphernalia.
3. Monthly fees, Set-Up Fees and Gateway Fees
Honest companies will likely not charge monthly fees, and they will make that very clear to you ahead of time. When choosing a marijuana payment provider its important to understand the whole picture before you sign any marijuana processing contract. Most providers will charge a fee on every transaction and therefore, set-up costs and admin costs should be free of charge. Also be careful about blended fees. These fees will tend to surprise you later.
In addition, the marijuana industry is still classed as a high risk industry and therefore transaction fees will be higher than many other industries. Look for a cannabis payment processing solution that charges an adequate fee but doesn’t charge additional costs. Don’t pay more than a 6% flat fee + 0.30 cents per transaction. Trust us, the processing company will be making enough money from your transactions anyway.
Tip – Make sure you find a cannabis processing company that has no hidden fees, no termination fee, no monthly fees and don’t pay more than a 6% flat fee.
4. Transparency is the Key Issue.
It’s important to remember that marijuana is still classed as a schedule 1 drug and therefore there are federal and local regulations and laws that a reputable processing company must comply by. When seeking a marijuana payment processing company it is important to ask them how they deal with large volume passing through their system. Many processors will more than happily transact your money, but when your business starts to grow they will leave you hanging. The more transactions that are processed through their gateway, the more they have to account and be responsible for those transactions. Always look for a long term partner that can provide a complete solution and is entirely transparent about all fees and logistics from the beginning.
Tip – When choosing a payment solution, ask them how they deal with monthly volume above $10,000. Also, seek a processor who is anxious to build a long term relationship and not just close the deal.
5. Start Small – You’ll get better support.
We’re all in this fight together. Marijuana payment processing companies very directly rely and work with cannabis vendors and businesses, so they will want to support the small fries as much as possible. Maybe they will also be there to make an income, but a good payment processor will show their appreciation for your business. When working with a processor that cares you won’t get random emails from “Mr. Robot” containing general templates or have to call them 10 times just to get a response.
If you are just starting out and looking for a marijuana processing solution, then don’t be afraid to start small and work with a company that fits your budget and needs. Switching gateways isn’t a pain as switching an eCommerce platform. At first you will want a company that can give you an immediate solution, one that includes 24/7 support, technical support to implement the payment solution on your website and around the clock assistance to overcome any processing barriers. We often see business owners develop an amazing online store on Shopify only to find out that their payment processing company isn’t compatible and will not assist with the setup.
Tip – Choose a company that provides 24/7 support and doesn’t tie you to a contract. It is advised to only commit to a month to month contract.
Final Thoughts About Cannabis Payment Processing Solution
With over 300 banks to choose from its is often hard difficult to know where to start. Here at MarijuanaBreak we have taken it upon ourselves to thoroughly research, communicate and test dozens of cannabis payment processing providers. Our team of experts review companies based on transparency, fees, efficiency, legality and customer support.
Want to find out who ranked #1 on our list and provides a 100% complete solution for top brands in the cannabis industry? Leave your details below and we’ll send you the info by email.