The Top Cannabis Payment Challenges and How to Solve Them
The cannabis market can be difficult to navigate. Cannabis dispensaries face constant headwinds like high taxes, increasing competition, lack of banking and limited payment processing options.
The federal illegality of cannabis is not merely an inconvenience, it slows down operations and growth. This post covers the top challenges for dispensaries when it comes to cannabis payment processing.
5 payment challenges for cannabis retailers
1. Reliance on cash
Most dispensaries are cash only or cash dependent. Relying on cash exposes dispensaries to heightened risks—including theft and burglary, as well as money laundering.
But beyond the obvious danger cannabis companies face, there are other issues when managing large volumes of cashᅳlike counting, storing, and transporting.
There’s a considerable need for innovative cannabis payment solutions to go around traditional banking restrictions and help dispensaries limit cash. Simply put: cannabis operators need new payment methods beyond cash. It creates a safer environment while allowing them to operate more easily as a business.
2. Strict federal regulations
Federal laws restrict the use of major credit cards. This leaves dispensaries to navigate a narrow financial path. These restrictions on the federal level hurt the ability of cannabis businesses to operate like other businesses. The industry's resilience is evident as dispensaries explore alternative financial services and payment processing solutions that align with both state laws and the limitations imposed by federal regulations.
Right now, you have states like California that have legal cannabis—yet cannabis-related businesses do not have access to traditional banking services because there has never been federal legalization. Until there are changes from the House and Senate that are signed into law, this will be a problem with functionality, as cannabis retailers lack access to the service providers they need.
3. “High risk” categorization
Financial institutions often label cannabis businesses as "high risk," a title that comes with its fair share of issues. This label restricts access to essential financial services, such as merchant accounts for processing credit card transactions, and often results in higher fees.
The impact of this dreaded "high risk" label extends beyond just financial servicesᅳit hurts the perception of cannabis businesses in the broader market. Dispensaries must seek out payment processors and financial providers specializing in high-risk industries, just to make sure they can secure reliable and compliant payment solutions that support their needs.
The road ahead for cannabis dispensaries, though filled with challenges, is also ripe with opportunities. By understanding and navigating the issues of payment processing, cannabis-related businesses can unlock new ways for growth and sustainability.
4. Predatory payment processors
The world of cannabis payment processing, with its regulatory hurdles and banking restrictions, has unfortunately opened the door for predatory practices within the industry.
Certain payment processors, recognizing the desperate need for payment solutions among cannabis businesses, have used this to put unfavorable terms on dispensaries. They often lock dispensaries into long-term contracts that are difficult and costly to exit, coupled with very high transaction processing fees.
This raises the financial strain on dispensaries by upping operational costs. This shows the important need for careful vetting and selection of payment processing partners. Dispensaries must conduct thorough research and seek out processors with clear practices and fair terms, making sure that they find partnership that supports rather than exploits their business operations.
5. Crackdown by major card companies
The crackdown by major card companies like Mastercard, Discover, and Visa on cannabis transactions has sent ripples through the industry.
These financial giants have issued directives prohibiting their networks from being used for cannabis-related purchases. This move highlights the ongoing tension between state legalization efforts and federal restrictions and significantly limits the payment options available to cannabis retailers.
Addressing cannabis payment challenges with strategic solutions
The cannabis industry's response to these challenges has been remarkable. Rather than get knocked down, dispensary operators have turned these challenges into opportunities for innovation and growth. It is difficult for them to operate in a cash-only fashion, lacking access to card payments. The key to dealing with this means they need an approach that combines technology, strategic partnerships, and better operational practices.
Working with Reliable Cannabis Payment Processors
Due to restrictions imposed by major card companies, the role of specialized cannabis payment processors has become more important. These processors offer solutions that ensure compliance while allowing for easy transactions. By partnering with processors that care about security, reliability, and compliance, dispensaries can access payment options tailored to their unique needs.
Minimizing cash transactions
The push towards minimizing cash transactions has led to the exploration and adoption of digital payment solutions. These platforms offer an alternative to traditional cash-heavy operations, enhancing safety and convenience for both dispensaries and their customers.
Digital payments lower the risks associated with handling and storing large amounts of cash and align with consumer preferences for quick and easy transaction methods. As more dispensaries use these solutions, the industry moves closer to achieving operational efficiency and customer satisfaction.
Creating standardized operations for enhanced security
Standardizing operations, particularly cash handling and storage, is essential for mitigating risks and enhancing efficiency. Dispensaries implement strict protocols and leverage cutting-edge technology to manage cash flows securely. These procedures ensure that even as the industry deals with payment processing challenges, the security and integrity of operations are kept.
Embracing the future of cannabis payments
Payment processing in the cannabis industry is complex. Yet dispensaries are forging a path forward. Cannabis reform could open up access to traditional banking services for cannabis businesses.
In the meantime, dispensaries must understand the landscape, embrace innovative payment solutions, and cultivate strategic partnerships.
Make dispensary life easier with PayLabs
PayLabs provides innovative payment solutions tailored to the cannabis industry. Our commitment to offering secure, efficient, and compliant payment options enables dispensaries to deal with their payment challenge.
Request your free consultation today and join the growing number of dispensaries experiencing increased revenue and operational efficiency with our services.
