Dispensaries face numerous challenges. In addition to those difficulties faced by any other business, dispensaries also have to deal with the legal gray area of cannabis in the United States. Even in countries where cannabis is legal, like Canada, there are still hurdles, thanks to public perception and perceived risk.
This has meant that the go-to payment option for dispensaries has been cash payments. But those come with their own risks, leading to the search for alternatives.
Why Cash Was the Go-to Option
As hinted at, dispensaries have historically encouraged cash payments primarily because of legal obstacles.
In the United States, cannabis is still a Schedule I substance at the federal level, making it illegal. While it is legal in most states, at least for medicinal purposes if not recreational, that is not enough to make processing payments easy.
Essentially, the fact that marijuana is a Schedule I substance means that payment processors and banks are concerned about legal consequences if they facilitate payments for cannabis. They don’t want to potentially face fines or lose their entire business if laws change or if the federal government chooses to change their enforcement of those laws. Simply put, if a bank is federally insured, it is unlikely to let marijuana businesses open an account.
That makes it practically impossible for dispensaries to accept credit or debit card payments. The result was the turn to the cash.
The Issues With Cash
While cash payments offer a solution that lets dispensaries comply with the law, it is not without problems.
To start, the fact that dispensaries deal in cash is well known, making them a prime target for thieves. If their cash is stolen, they may be out of luck. This also leads to security threats for employees in the store and for the cash when it is being moved.
It is also significantly harder to track cash. It requires excellent record-keeping and a high level of security.
There is also the fact that many people simply don’t keep cash on hand anymore.
On top of that, counting cash takes more time than electronic payments. There is also the issue of tax collection fees.
Some Smaller Credit Unions or Banks Offer Alternatives
Although it is rare, there are a handful of small, local credit unions and banks that will work with dispensaries. These banks want to help dispensaries and other businesses related to cannabis. They also see an opportunity for profit if they can meet an unfilled need.
However, finding a credit union or bank that will work with your dispensary can be incredibly overwhelming. There may not even be an option in your area.
A Bad Solution: “Hidden” Merchant Accounts
Some dispensaries may be tempted to use a “hidden” merchant account. This method involves creating a merchant account for a third party that is not related to cannabis. This would get around the restrictions that banks and POS systems have. After receiving the funds, the third-party account would send them to the dispensary.
Don’t Do It!
As mentioned, this is a solution that you want to avoid. There are several issues.
The biggest is that this method does not entirely comply with payment processing guidelines. That means that as soon as your bank or payment processor realizes what is going on, the account will be closed.
There is also the fact that this method tends to involve very high fees. The customers typically have to pay “convenience fees,” and the merchant typically has to pay over 5%. This makes customers unhappy and eats into a dispensary’s profits without eliminating any risk.
Instead of this method, use one of the others.
One of the most popular alternatives to paying in cash is using a cashless ATM. It’s similar to if a customer withdraws cash from an ATM on a dispensary site and uses it to pay, but in this method, the customer doesn’t have to handle any cash.
The customer does their shopping and then heads to the cashless ATM. They use it to withdraw cash from their account, but instead of physically receiving the cash from the ATM, they receive a receipt or something similar. They can then take this receipt for “cash” to the register, where it gets treated like a cash transaction.
Debit card issuers don’t have a problem with this, as the transaction comes from an ATM, not a dispensary. It is easier on the customers and dispensary, as they don’t have to deal with cash as much.
The caveat is that depending on the cashless ATM, the customer may be entitled to change after their transaction. The dispensary’s employees will give them this change in cash, so there is still some cash required. However, the amount required reduces significantly. POSaBIT, for example, offers Debit Point of Banking with $5 intervals for ATM withdrawals. This means that each transaction would only require up to $4.99 in change.
Also, dispensaries that use cashless ATMs that round up for withdrawal intervals may also have a cash-back policy. Having customers get extra cash back (beyond their change) will require the dispensary to keep more money on hand. It also makes record-keeping more challenging.
Overcoming the Change Challenge
There are a few solutions available to overcome the need for dispensaries to keep change on hand for customers who use a cashless ATM.
One is to include custom tips in the POS system. This lets customers adjust their total so it is a round number, and they then don’t require change. Of course, that will only reduce the need for change, not get rid of it. After all, dispensaries are well aware that not all customers will tip.
The other solution is even better, as it eliminates the need to make change. Some cashless ATM systems can charge customers for an exact amount. POSaBIT calls this Debit to the Penny. The caveat is that for the added convenience, dispensaries can expect to pay slightly higher merchant fees.
ACH Transfers Offer a Solution
There are also a growing number of solutions that offer bank or ACH transfers to let dispensaries get paid without breaking the law.
The most recent point of sale systems that accept ACH transfers will let customers log into the system with their banking information. Then, they can use that to make a purchase. The best solutions will only require a single set-up per customer, then let them make future purchases as well.
Pre-paid Cards as a Solution
Some dispensaries choose to offer pre-paid cards as an alternative to cash. These tend to be an intermediary solution for point-of-sale systems that haven’t worked out how to legally use ACH transfers yet. In this case, the customers would use a bank transfer to load a balance onto a pre-paid card. They could then use that card at the dispensary, somewhat like a gift card.
One challenge of this is that it creates an extra step and gives customers a card to keep track of. Some customers may also not like the fact that they have to keep a balance on the card, as they would likely want that money accessible for other things.
Since pre-paid cards are a more complicated version of ACH transfers with extra steps, a dispensary that offers ACH transfers probably doesn’t want to consider them. There are also variations that let customers fund the card with a credit card.
Cryptocurrencies as a Solution
For years, cryptocurrencies have been offered as an alternative for dispensaries to accept payment. They are not limited by federal regulations and have instant transactions.
However, there are a few important reasons that many dispensaries are hesitant to accept cryptocurrencies.
To start with, cryptocurrencies face as much regulation-related uncertainty as cannabis. This simply compounds the risk of changing regulations appearing later on, significantly affecting the business.
There is also the fact that cryptocurrencies are very volatile. That makes it incredibly hard to track and incorporate them into a business model.
Some Solutions Combine Methods
Some of the best solutions for dispensaries will combine several of these methods in a single point-of-sale system. POSaBIT, for example, already offers Point of Banking (cashless ATM), Debit to the Penny, and ACH transfers and will add support for credit cards soon.
Dispensaries Must Take Care When Choosing an Alternative
Dispensaries should not simply see a system that claims to offer an alternative to cash and decide to use it without doing research.
Reliability and Legality
Some of the companies offering alternative systems do not care about quality or legality and just want to make whatever profits they can. If a system goes against the law or the terms of service of one of the card processors, it could lead to major complications for the dispensary. Unfortunately, many cashless ATMs have had to close due to violating the terms of service of Visa, MasterCard, or others.
Savvy dispensaries will look for strong indications that there should not be any of these issues. One sign is if the system has already been in place for a long time without any issues. POSaBIT, for example, has run payments since 2016 without any interruptions and prides itself on all its payment solutions being compliant as well as secure.
You should also pay attention to your chosen system’s compliance. Look for full compliance with AML and KYC, advanced data encryption, registration as a Money Services Business, and Money Transmitter Licenses.
As mentioned earlier, choosing a system that includes custom tips is a great way to reduce the amount of change a dispensary with a cashless ATM needs to keep on hand. As a bonus, it incentivizes budtenders to work there. Not all POS systems will include these, but the best ones will.
Whether you use cashless ATMs, ACH transfers, or a combination of methods, it’s best to choose a solution that includes back-end reporting. After all, the need to complete all reports yourself is one of the major downsides of cash payments.
Look for a system with the ability to track sales, till reports, and more. Some will even let you track budtender performance.
Other Expected POS System Features
You also want to choose a solution that will offer all of the other features you’d expect from a typical POS system. After all, dispensaries shouldn’t miss out on features like customer profiles or favorites just because they sell cannabis instead of something that is less regulated. Look for features like purchase history, loyalty programs, online ordering, product details, customer queues, custom discounts, and more.
There should also be a convenient way to manage and view everything from one device. That includes reporting as well as the already mentioned features, inventory, and more. This is especially important for larger dispensaries where there is more to manage. Choosing a POS system with the ability to access this management information from anywhere is even better, especially for busy managers or owners who aren’t always in the store.
Most dispensaries start off thinking that they don’t necessarily need a mobile point-of-sale system. After all, keeping everything in one spot helps with organization.
However, portability can come in handy in plenty of situations. It is especially useful for deliveries or curbside pickup. It’s also convenient if you have long lines, as it lets you essentially open an extra point-of-sale system when needed.
You can even just incorporate a mobile POS system into your dispensary’s normal operations. Having budtenders bring the system to customers will make shoppers feel as if they have a more personalized experience, encouraging repeat customers.
The Bottom Line
Most dispensaries find themselves relying on cash payments due to the challenges of finding a bank or payment processor to work with a cannabis company. However, between ACH transfers, cashless ATMs, and other solutions, dispensaries can expand their options. Best of all, many of these solutions include the features you’d expect from any point-of-sale system, from tracking purchase histories to offering online ordering.