A lot of misinformation continues to persist throughout the cannabis industry about finance and payment processing. While new laws permit limited use of payments such as credit cards, many dispensaries may feel like they need to play it safe and stick to accepting cash only. However, this limits the scope and ability of a cannabis business to function. Third-party merchant services for a cannabis business can be an excellent way to manage money and avoid sticky situations. What are merchant services, and how should they be used?
A dispensary has several options available to them for collecting money from customers and using it to fund expenses. As of 2021, cash is still king: the majority of dispensaries remain cash-only, or are limited to cash for cannabis purchases specifically. This brings serious limitations to a business, as cashiers and associates cannot upsell customers, nor can a customer's cart size be larger than the cash they are carrying in their pockets. What's more, cash is liable to human errors like over and undercounting, security issues at each point of sale, and the need for management to go back and review each purchase to discover discrepancies.
Debit cards and bank transfers help to ease many of the problems by eliminating the physical cash in an exchange. These transfers are legal, rapid, secure, and backed by a bank itself. Automated clearing house payments, such as Hypur Pay, are increasingly popular with dispensaries and cannabis businesses.
However, to be able to accept debit (and credit) cards, a business needs a merchant account. This account settles business with banks by providing a go-between, allowing verification of business processes and direct connections to make accounts. Yet establishing a merchant account for a cannabis business is easier said than done, especially since the industry remains in its "wild west" phase where scams or unauthorized accounts remain widespread.
Reputable merchant accounts bridge the gap in payments and trust. These businesses are not, themselves, banks, but because they are a go-between for banks, they allow a cannabis business to take advantage of most bank services, particularly digital payments. The merchant account settles the credit card payment, categorizes it, and passes it off to its own merchant bank, which is independent of a commercial bank. This merchant bank is nevertheless the keystone, working as the go-between to get digital payments moving in both directions, processing and underwriting debit and credit payments. Dispensaries love them because they can accept new forms of payment; banks love them because they eliminate risk; and customers love them because they no longer have to frequent an ATM and carry around $20 bills to buy their favorite strains or edibles.
A third-party processor is similar to, although not necessarily the same as, a merchant connection. Like a merchant connection, a third-party processor will handle debit and credit payments on behalf of a dispensary or cannabis business. Unlike a merchant account, however, a third-party processor does not have the legal authority to provide payments for cannabis. This is because a third-party processor is held to the standards of a credit card company, like Visa, who would prefer for their brand not to be associated with cannabis (for now at least—greater legalization can change their corporate priorities overnight). As such, a cannabis dispensary may find that a third-party processor either cannot legally process payments, or that these institutions are not liable at all for returning payments, meaning that a dispensary might simply forward their receipts and never receive money in return. Third-party processors lack the transparency and accountability of merchant accounts, making them much higher risk for a cannabis business.
New laws and legalization may one day make it no more difficult to purchase cannabis with a credit card than a soda. However, for the moment, dispensaries and businesses must carefully consider their payment options to ensure financial flexibility as well as risk management. Not all payment options, particularly third-party processors, are trustworthy, making them little better than an all-cash policy. A true merchant account negates the risk of debit or credit card payments, making it possible for a cannabis business to enjoy the flexibility, security, and growth potential that cashless payments offer. A reputable merchant account can be the difference between a dispensary developing new customers and lines of business, or stagnating behind the payments of yesteryear.
If you are looking for more financial services for your cannabis business, CannaBusiness Financing offers expert advice when it comes to all things funding. Contact our cannabis industry experts to see how your dispensary can grow to new heights.
Posted by Canna Business TeamFacebook
In an industry that is constantly evolving, Canna Business Financing provides business owners with a reliable source to gather the most up-to-date information. From resources to fund the growth of your business to insights on best practices to scale, look no further!