June 2021 - WebJoint

The State of Payment Processing for Delivery in the Cannabis Industry

Let’s face it — the cannabis industry has a cash problem. Now, too much cash isn’t a bad thing; cash is still king. But, when cash is the only means of doing business – from customer transactions to paying tens of thousands of dollars in taxes exclusively in cash – it quickly becomes one of the biggest bottlenecks and security risks for the industry and its operators.

The cause for this? Federal and local regulations make it difficult for cannabis businesses (especially those that are plant-touching) to access basic banking services and digital payment processing alternatives to cash. With the blooming cannabis industry projected to grow to $41.5 billion in retail sales by 2025, it’s important that as the industry awaits changes in federal cannabis policy, that the private sector works to make existing cash alternatives more safe, compliant, and accessible to cannabis operators.

In this blog post, we’ll do a brief overview of cashless payments, why cannabis delivery services should implement cash alternatives today, and the existing technologies that make payment processing safe and accessible under the current state of cannabis regulations.

Intro to Banking and Cashless Payments in Cannabis

Due to constraints brought on by federal and local regulations on cannabis banking, the cannabis payment processing sector has exploded with businesses seizing the opportunity to solve the cash-only issue of the industry. With this comes many bad actors looking to make a quick buck and disappear (as does any industry), but also comes many promising companies truly looking to establish a safe, secure, and scalable payment and banking solution for cannabis operators nationwide.

Why is this issue so important? Well, it’s an issue of efficiency and security. Without access to traditional banking services, cannabis operators often find it difficult to:

• Have a safe and secure way to store and access their cash in the same way non-cannabis businesses do

• Access capital needed to scale their operations without hefty interest rates through cash advances

• Accept more convenient ways to pay for cannabis like with credit and debit cards

• Pay their taxes and other business expenses

And that’s just the beginning. As a “high-risk” industry that is still federally prohibited, operators can find it hard to also insure these cash assets without having to pay large premiums.

Collectively, these hurdles would undoubtedly make it more difficult for the industry to reach those projections, giving even more credence to calls for a cash-alternative solution sooner rather than later.

Existing Methods of Cashless Accepting Payments + Risk

So if the demand is high for cash alternatives, what cashless payment solutions already exist?

Well, there are a few alternatives to cash cannabis operators can choose from. Currently, non-cash cannabis transactions can happen in a few different ways:

• Automated Clearing House (ACH)/Bank to Bank Transfers

• Have you ever signed into your bank account through a third party to purchase cannabis? If so, you’ve just paid through ACH. ACH is simply a transfer of funds between a customer’s bank and yours (the delivery service). ACH is arguably the most secure method of handling non-cash cannabis transactions in the industry today.

• Cashless ATM Terminals

• If you’re thinking that you’ve paid for cannabis with your debit card before — you’re not wrong, but you’re not entirely correct either. Cashless ATMs are a clever workaround to solving the cash-only issue in cannabis. Instead of customers paying with their debit card, they’re actually “withdrawing” cash directly into your business bank account. Funds are debited from their account into yours equating to the amount of their order.

• Cryptocurrency

• As an emerging technology (and with the future of cryptocurrency use cases in cannabis still hazy), crypto payments are rather rare to come across. However, it is a form of payment that exists and can be used by retailers.

Each of these payment methods, of course, carry their own respective pros and cons. As more established and reputable payment processing companies enter the cannabis market, and as the industry continues to build upon non-cash alternatives, the relative risk in implementing a payment processing solution is better managed.

The Argument for Cannabis Deliveries Going Cashless

So, why should you implement alternative methods of payment processing for your cannabis delivery service? Well, aside from it becoming an inevitable transition your cannabis delivery service will have to make eventually to meet customer expectations, implementing a payment processing solution can benefit you in multiple ways:

• Employee Safety and Risk Management

• Eliminating cash from delivery transactions minimizes the risk of cash theft. At any given moment, whether during daily delivery operations or periodic cash-only tax payments, cannabis delivery staff can be carrying with them thousands (if not tens of thousands) of dollars in cash on their person. ⁣This makes them (and you!) a high-value target for theft. Taking cash out of the equation through cashless payments mitigates this risk and creates a much safer, more convenient working environment for everyone.

• Access Banking Services

• Non-cannabis industries may take it for granted, but access to simple banking services is crucial to the future of the cannabis industry. As bigger, more reputable institutions come into the cannabis payment processing sector, more financial resources like banking become accessible to cannabis operators.

• KindTap, for example, is a closed-loop network providing merchants and customers a compliant way to pay online, thereby removing the friction of paying upon delivery or in-store pickup. By partnering with financial institutions in various states that have compliant cannabis banking programs, KindTap enables a frictionless payment solution for online transactions through a bank account-link and their own credit program.

Moreover, solutions like KindTap are actively integrating with point-of-sale technologies like WebJoint, to seamlessly fit into the customer’s natural purchasing experience and offer a non-cash payment option.

• Increased Customer Satisfaction = Increased Customer Spending

• Customers tend to spend more when they are not only happy with your service but also when they aren’t limited to the cash they have on hand. Today’s consumers pay for almost everything with their debit/credit cards – it’s more convenient and secure than cash. Though debit/credit card payments for cannabis aren’t possible just yet, there’s a reasonable expectation for operators to mimic the convenience factor that comes with it as best as possible. A successful implementation of non-cash payment alternatives will prove to be a great-long term investment for your business.

Future of Cashless Payments in Cannabis

So what does the future of cashless payments in cannabis look like? To be quite frank, it’s hard to tell. Unfortunately, federal legalization is still up in the air and with it, regulations dictating banking services for cannabis operators hang in limbo too.

What we can tell you, however, is that the payment processors left standing will be the institutions that place the operator’s security and accessibility to financial services, as well as the customer’s purchasing experience, at the forefront of their efforts. Existing solutions like KindTap that are thriving in today’s cannabis banking environment, revolutionizing cannabis payments, and blazing the trail towards a federally compliant cannabis payment network.

This week, I had the opportunity to sit down with Cathy Corby Iannuzzelli of KindTap to discuss the rapidly growing sector of payment processing in the cannabis industry, her vision for the future of payment technologies in highly regulated markets, and why cannabis deliveries should implement a payment processing solution for their operation today.

KindTap – the fastest growing payment processing solution for cannabis delivery services.

Q: Can you tell us a little bit about yourself, your experience in the payment processing world, and how you ended up working in the cannabis sector with KindTap?

CI: I’ve been working in financial services and payments for 30 years on the card issuing and merchant processing sides of the business. Much of my career has involved launching payment products when the whole product category was new. Things like debit cards, internet banking, e-commerce and prepaid cards we all take for granted now, but there was a lot of pioneering to bring them to market. About 3 years ago while working for a client in Denver, I became aware of how broken payments were in cannabis. Broken isn’t even the right word – payments simply didn’t exist in the cannabis market. My pioneering spirit kicked-in and I refocused my consulting on the cannabis segment. In 2019 I met the founders of KindTap who had deep cannabis expertise and were focused on the cannabis payments problem, as well. We started collaborating on what has now become KindTap and earlier this year I joined the team full-time.

Q: What problem is KindTap aiming to solve in the cannabis industry?

CI: As we all know and experience today, the payment experience for cannabis is friction-filled, both for the consumer as well as the merchant. For the e-commerce experience, there is no actual “commerce” as payment info is not captured online and there remains massive payment friction upon delivery/in-store pickup. For the merchant, they are capturing pre-order sales with no certainty of pickup or payment, and it’s even worse for delivery when drivers are being sent out to collect cash! KindTap aims to solve all of this friction with a very straightforward payments platform for online and in-store commerce, along with a consumer-level loyalty program for every dollar spent within our network of merchants.

Q: How does the lack of traditional banking infrastructure for the cannabis industry negatively impact cannabis businesses?

CI: Unfortunately this is a major problem that will not go away with one or two bills passed at the federal level. We connect with merchants and consumers on a daily basis, and they all want less physical cash in the system. This is one of the core challenges, and with KindTap we aim to remove that physical cash and bring the industry to the 21st century of digital payments.

Q: How is it that KindTap can provide banking and digital payment solutions to plant-touching cannabis businesses while more conventional banks (Chase,Wells Fargo, BoA, etc.) can’t?

CI: Banks are excellent at managing risk. As long as cannabis is illegal at the federal level, it’s a risky business for banks to serve. When weighing the risk-to-benefit, the cannabis segment is simply not large enough to the mega-banks to make the benefit worth the risk. Smaller financial institutions – where the innovation in cannabis banking is taking place – see a large opportunity relative to their size and are investing in people and processes to manage the risk. KindTap has partnered with financial institutions that have a multi-state license to operate, but yet have the size and innovation to work directly in the cannabis industry.

Q: Up until recently, there has been hesitation among plant-touching operators to transition to digital payment solutions due to regulations, among other factors. How has that changed? What does KindTap do to ensure security and safety of an operator’s assets?

CI: KindTap operates within the current regulatory framework for cannabis banking and merchant processing, on a state-by-state basis with no interstate commerce. We do not operate on what they call “federal rails” which is Visa and MasterCard. Think of us like one of the MSOs: They operate state-by-state with a multi-state/national presence, and so does KindTap. Our security and safety of assets is backed by trusted financial institutions and vendors who are in the business of payment processing, with a long-history outside of cannabis.

Q: Cannabis delivery operators across California use KindTap to process customer payments. What are the benefits of payment processing for cannabis delivery?

CI: Great question, as we love to describe where KindTap shines! Our system collects payment information upon checkout, not at the delivery location, which removes the friction of paying cash upon delivery (or a mobile cashless ATM terminal, only to receive physical cash for your change). The consumer not only gets a more seamless delivery experience but also has the ability to earn loyalty rewards for shopping at multiple merchants within the KindTap network, just like AMEX. The merchant LOVES the ability to remove cash from their system, and delivery drivers can now have a more predictable schedule without having to collect cash at each stop. Everyone truly wins.

Q: What’s the biggest obstacle to implementing payment processing for cannabis deliveries? How quickly could operators implement payment processing like KindTap?

CI: Our system allows for operators to implement KindTap within a matter of days on the back-end, in partnership with WebJoint. The biggest obstacle, frankly, is the previous battle scars of other payment processors and the mess they created for cannabis operators and consumers. Once the operator pays attention to KindTap’s offering, then we tend to move forward with implementation without any issues.

Related: “Payment Processing for Cannabis Delivery Services and Why Cashless Payments are Better”

Q: What does the future of cannabis banking look like for you?

CI: At KindTap we believe the fragmented banking system will not go away anytime soon, especially on the payment processing side where most providers live at the federal level and changing those regulations will not happen overnight. We built KindTap to thrive in the current banking environment, and whenever federal legalization occurs whereby the “federal rails” of Visa/MasterCard enter the picture, then our business will continue to thrive with our planned transition of our platform to that of a federal-level payments platform.

Q: A recent study by Grand View Research projects the legal cannabis market to reach $84 billion by 2028 and leading up to that, the cannabis payment industry is hotter than ever. What’s next for the KindTap team?

CI: We are excited about our growth roadmap for KindTap. You will read later this year our publicly-announced expansion plans and roll-out of our credit and loyalty features, which will quickly solidify us as the leader in cannabis payments and the first payments provider to offer a digital credit solution to cannabis consumers.

Q: What are a few resources you can share with our audience? What are some of your favorite books, podcasts, software, etc. that have benefited your personal and professional growth in the industry?

CI: Great question. Not to sound like a plug, but I actually learn a lot from WebJoint’s content and white papers, which help me to better understand the delivery side of the business more so than other sources.

Q: Lastly, where can our readers find you and learn more about KindTap?

CI: You can visit our website at www.kindtaptech.com or email us at info@kindtap.com.

Month: June 2021

Payment Processing for Cannabis Delivery Services and Why Paying Online is Better