Cannabusiness and Alternative Banking
As marijuana businesses in Colorado and Washington found themselves suddenly without working ATMs last week, it became painfully clear, yet again, that the industry has to find a way out of the banking dilemma created by the conflict between state and federal laws regarding marijuana’s legal status.
The lack of banking services is “the most urgent issue facing the legal cannabis industry today,” according to Aaron Smith, executive director of the National Cannabis Industry Association. In a modern business environment, banking means more than just a safe place to store cash. It means merchant services, including credit and debit card processing, ACH check drafting and payment processing, business cash advances and online transaction processing.
Bills introduced in Congress last session by Reps. Dana Rohrabacher and Ed Perlmutter offered some promise, but both died in committee. In May, Colorado adopted a measure that permits uninsured cannabis financial cooperatives to seek approval from the Federal Reserve to accept credit cards and checks. It has been seen as a largely symbolic gesture, since Fed approval is unlikely.
And so, an alternate universe of banking solutions has begun to emerge. These range from the promising to the fringy, but there may be openings here for investors with the financial nerve to think about what it would take to re-invent banking.
Cashless ATMs have been the go-to solution for many cannabusinesses that do not want to limit their transactions to cash. On-premises cashless ATMs generally take PIN-based cards. Funds are then deposited directly in the merchant’s account.
Meta Payment Systems is the vendor that just pulled out of the cannabusiness in Colorado and Washington last week, but several other vendors remain in the industry. These include, but are not limited to:
- Best Point of Banking is active in California, Washington, Alaska, Hawaii, Maine, Montana, New Jersey, New Mexico, Oregon, Rhode Island, Michigan, Arizona and Nevada and since 1993 has specialized in what it describes as “high risk merchant accounts.”
- GreenStar Payment Solutions is specific to cannabis dispensaries. It opened in Denver in May, but it also operates in Arizona and Washington State.
- Medical Cannabis Payment Solutions is most notable in the public eye for having Gary Johnson, former governor of New Mexico, on its board. It seems to be seeking funding at the moment, and it is not clear that it has any immediate dispensary involvement.
- First American Merchant Funding also appears to be in the bar and nightclub business.
Agrisoft Development Group has added dispensary kiosks to a model that otherwise focuses on seed-to-sale tracking. The on-site kiosks are designed to verify the customer’s identity and eligibility to purchase medical marijuana. It then allows the customer to order and pay for the product with cash or a debit card. The kiosk prints a receipt, which the customer takes to the counter to receive the purchase. Armored vehicles pick up cash at the end of the day and deliver it to the dispensary’s bank.
The kiosks are still in beta testing, but the plan is intriguing because it would offer full seed-to-deposit integration. The company is currently working with banks in Colorado, Washington, Illinois and Nevada. Agrisoft Development is also making a very aggressive play for clients of MJ Freeway and BioTrackTHC by offering them a year’s worth of free service.
Medbox now offers a product that is essentially a vending machine for medication, but which is especially useful in settings such as doctor’s offices, assisted living facilities and prisons because it controls access through biometric identification. It is reportedly also considering adding merchant services and armored vehicles.
Bitcoins, PotCoins and BitMD
Cryptocurrencies have a long history with black market marijuana, of course, and some legitimate bitcoin processors and merchants alike have been reluctant to become involved on either side of the trade. BitMD, a service of Bitcoin Brands, offers ATMs and point-of-sale terminals to medical providers who want to accept bitcoin for transactions. As of last month, however, it had no sales to report.
The cost of alternative banking must be a consideration for legitimate cannabis businesses. Business Week recently raised a caution about a company ominously named Sexy Business Funding, which will apparently lend to almost any business for the right price.
Bankers of last resort are not necessarily an improvement over cash. The variety of integrated services designed to reassure banks of the legitimacy of funds deposited seem more promising, although the services they offer marijuana businesses may be more limited than those available with an unclouded banking relationship. The ultimate solution lies with federal banking reform, but that will not happen soon enough.