Choosing which payment solution to invest in is a big decision with an even bigger impact on your cannabis dispensary. The decision isn’t helped by the fact that the cannabis industry is constantly evolving, and so is the technology used for processing transactions.
Thankfully, we help dispensaries all over North America set up their payment systems and in this article, we’ll share our ideal payment solution system, alternatives, and what to avoid.
In Canada, where the Cannabis Act (i.e. federal legalization) ensures no legal complications for banks and payment processors, cannabis stores are able to accept credit and debit cards, and have access to reliable, fully integrated payment solutions. In the US, however, Visa and Mastercard will not allow cannabis transactions, nor will big banks assume the risk. Finding viable solutions for digital payments at dispensaries has been challenging.
Much has changed in the past year. In this blog, we'll take a look at the solutions that have been popular, and which cashless payment options are still available to U.S. cannabis retailers now.
Digital Payment Solutions for Cannabis Dispensaries in 2024
ACH Payments
ACH or Automated Clearing House is a form of cashless system for businesses and people to directly send and receive payments through their banks. More than 30 billion payments were made using ACH in 2023, with a total value of $80.1 trillion. For cannabis dispensaries, this is hands down the safest and most reliable way of getting payments in 2024.
There are three key reasons why ACH works so well as a payment solution for dispensaries:
- It’s instant. ACH transfers happen instantaneously, meaning your business has improved cash flow and liquidity. Customers also appreciate a quick checkout process, preventing long queues as budtenders wait for payments.
- It’s verifiable: Since the ACH system exists directly between banks, your budtender will know immediately when the payment has gone through and so will the customer. This helps with dispute resolution, financial tracking, compliance, and even customer confidence.
- It’s safe: While no payment method is zero-risk, ACH does stand out as the safest option dispensary owners have at the moment. ACH transactions are instantaneous, encrypted, and have built-in authentication protocols – all of which significantly reduce the risk of fraud.
Cashless ATM
Cashless ATMs (also called Point of Banking) provide customers with a convenient and secure way to access cash. They work similarly to how a traditional ATM works except instead of taking out cash, customers simply pay for their order using their debit card and PIN.
There are some limitations that make Cashless ATM unlike typical debit card transactions, specifically the necessity to charge customers in rounded increments (of typically $1 - $5) and return change like a cash transaction. Most vendors will also pay a transaction fee, added on top of the order total, which can add up over time.
Despite these concessions, Cashless ATM was the go-to solution for dispensaries until payment processors like Mastercard and Visa started cracking down, citing the federal illegality of cannabis. For a period of time in 2023, PIN Debit instead became the favorable solution, but it too was soon profoundly impacted by Mastercard prohibiting the use of its network for cannabis-related charges.
Cashless ATM solutions are making a comeback in 2024. Though it's important to note, not all solutions are equally reliable and robust, some have managed to use alternate networks and redundancies to process transactions, making point of baking once again a viable solution for dispensaries.
PIN Debit
The third most common payment solution for cannabis was PIN debit. Although largely unviable now, PIN debit had some key benefits over other methods including no transaction fees and crucially, the ability to charge the exact order amount instead of rounding up.
But like cashless ATMs, PIN debit too has suffered due to the crackdown on the use of debit cards on cannabis-related purchases. Unfortunately, approval rates for PIN debit amongst dispensaries and users have dropped significantly and have not recovered.
Are Cryptocurrencies (Bitcoin, ETH, Monero, etc) Safe for Cannabis Dispensaries?
Until cannabis becomes legal (or at least restricted rather than illegal) at the federal level, there’s going to be a degree of uncertainty around traditional banking methods. This is why many dispensary owners are discussing using cryptocurrencies as an alternative digital cannabis payment solution.
As of writing this in March 2024, cannabis dispensaries are allowed to accept cryptocurrencies and despite recent dips and crashes, cryptocurrencies (particularly “stable coins” like USDC) are still technically feasible for purchasing cannabis.
But, there are some things you should know if you are going to go this route, including:
- It’s unregulated: There aren’t any clear regulations around cryptocurrencies which makes it sort of the Wild West of payment solutions. Wallet platforms are not banks, they don’t follow the same regulations, meaning they can (and do) go belly up, leaving users with no recourse.
- It’s higher risk: Cryptocurrency transactions are irreversible with no dispute resolution system. This poses a higher risk for both dispensaries and customers as chargebacks or refunds are not possible.
- It’s volatile: The vast majority of cryptocurrencies are volatile and can change in value significantly overnight – it’s often a gamble, especially with popular coins like Bitcoin and Dogecoin and even stable coins.
- It’s complex: Securely storing, transferring, and managing cryptocurrency requires technical expertise that the average person does not have and you’ll most likely need to have an IT person on the job.
- It’s not widely adopted: But perhaps the biggest reason to avoid crypto is that it’s simply not widely adopted. Despite all its hype, cryptocurrencies are nowhere near close to competing with traditional banking methods. On top of this, cannabis shoppers are mostly older adults who are even less likely to be using cryptocurrencies for daily purchases.
So although possible, cryptocurrencies are, in most cases, not a feasible option for the average cannabis dispensary.
How to Ensure the Legitimacy of Your Digital Cannabis Payments Processing Solution
It's important to do your research and choose a digital payment solution that is both legal and secure. Here are a few tips to help you choose the right solution for your dispensary:
- Check for Transparency: Make sure that the processor you choose explains the solution without skipping any steps or details. A simple search shouldn't reveal any surprise/conflicting information or red flags about the platform.
- Look for a Secure Solution: Choose a solution that uses secure encryption and fraud protection to protect your customers' information and ensure the security of their transactions.
- Choose a User-Friendly Solution: Make sure that the solution you choose is easy to use and provides a good customer experience.
- Compare Fees: Consider the fees associated with different payment solutions and choose one that offers the best value for your dispensary.
- Software Integration: Ideally, look for a solution that integrates with all the other dispensary software you use for a seamless experience.
Frequently Asked Questions about Payment Solutions
We get hundreds of questions every week from cannabis dispensary owners all over the United States. Here are answers to some of the most popular payment-related questions.
What’s the Difference Between Cashless ATM and PIN Debit Solutions for Dispensaries?
Both cashless ATMs and PIN debit were once popular types of cashless payment solutions for cannabis dispensaries. The main difference between the two is that cashless ATMs require customers to round up to the nearest $5, which can result in overcharging. On the other hand, PIN debit doesn't require customers to round up their purchases.
However, in 2024, Cashless ATM solutions are making a comeback, while PIN Debit solutions continue to suffer from a high number of transaction failures, making Cashless ATM once again the more viable and popular option.
Are Digital Payments for Cannabis Legal?
The legality of digital payments for cannabis transactions can vary from state to state and depends on what kind of solution you may use for payment processing. However, digital payment processing for dispensaries remains a grey area due to federal illegality and the fact that banks operate at a federal level.
Despite this, many dispensaries have started to accept digital payments as a way to reduce their dependence on cash and provide customers with more convenient payment options. Crucially, if you use a legal cannabis digital payment solution like you'll found through Cova Pay, your dispensary will always remain compliant with all regulations.
How Do I Legally Accept Digital Payments for Cannabis?
To accept digital payments for cannabis, you'll need to choose a payment solution that is reputable, reliable, and compliant with all legal requirements. The reality is, regulations evolve, and the viability and value of individual solutions changes as technology and businesses adapt. Often, the best approach is to employ multiple solutions, like ACH + Cashless ATM, to offer customers choices and avoid interruptions if providers face challenges.
It's a good idea to leverage the expertise and advice of a good dispensary software partner, like your POS provider, to find the most legitimate payment processing solutions with the best ROI for your business.
What are the Risks of Using Illegal Cannabis Payment Solutions?
Cashless payment solutions that are not in compliance with the law can result in serious consequences ranging from interruptions, reputational damage, prohibitive hardware costs, and the waste of time and money for redundant applications and setup. In the worst-case scenario, your dispensary could face legal action and even be shut down.
Do I Need to Offer Cashless Payment Options? Why Not Just Cash?
Offering legal cashless payment options like PIN debit improves customer experience and loyalty by providing quick, secure transactions. Digital cannabis payments also help with achieving compliance with regulations and also streamline tracking processes for easier bookkeeping.
Cash while convenient opens up dispensaries to a whole host of issues from potential theft, keeping change, slower order processing, counterfeits, and so on. Cash transactions are also prone to mistakes in counting as well as figuring out discrepancies when closing the books.
Am I Using a Legal Payment Solution?
If you're unsure about the legality of a particular payment solution, it's always a good idea to consult with a legal expert, reach out to your state's regulatory agency for clarification, or use a tech partner you trust to keep you compliant.
Wrapping up…
Choosing a digital cannabis payment solution is an important decision that can have a significant impact on your dispensary's success. By researching and choosing a legal and secure solution, you can ensure that your dispensary is providing customers with the convenient and reliable payment options they need.
By partnering with a reputable dispensary technology provider like Cova, you can take advantage of the latest technology and stay ahead of the curve as the cannabis industry continues to evolve. We continually evaluate and advise our clients on the best options available to accept cashless payments at your dispensary and grow your business.
