Every retail business is susceptible to fraud, and cannabis retail is no different. Fraud prevention gets even more challenging if you sell cannabis products online or process credit card transactions – or both.
Fortunately, there are steps you can take to mitigate and prevent fraud in your cannabis retail store. In this blog, we’ll take a closer look at the types of fraud that pose you the most risk and show you some simple solutions that could save you thousands of dollars in preventable losses.
What Is Cannabis Retail Fraud?
In retail, fraud generally refers to any attempt to manipulate prices, conduct illegitimate returns, or otherwise steal merchandise or money from the business. Common types of cannabis retail fraud include:
- Employee theft
- Return fraud
- Credit card fraud
- Shoplifting
Employee theft
According to security experts, 90% of losses across the entire cannabis industry is due to internal fraud and employee theft. Without proper training – and without the right security protocols in place – your staff members could easily pocket products or cash from your dispensary.
Return fraud
With return fraud, a customer attempts to return or exchange an item for an illegitimate reason. They often want a cash refund or a refund to a bogus card.
Credit card fraud
Customers can also commit fraud by using a stolen or counterfeit credit card. This type of fraud is especially dangerous for retailers because it can lead to chargebacks, which can cause you all sorts of headaches like penalty fees and lost revenue.
Shoplifting
Shoplifting – or straight-up theft – is also a form of retail fraud, especially if the perpetrator uses tactics like concealing items under their clothes or working with partners to create a diversion.
How to Mitigate Fraud in Your Dispensary
1. Make sure your store’s security is up to snuff.
Virtually every regulated cannabis market in North America requires retailers to include a security plan in their licensing application. So when it comes to preventing shoplifting, hopefully you already have a robust security system that includes cameras, access control, ID verification, and perimeter security.
Other security measures like employee permissions and passcodes for terminals are a critical layer for stopping internal fraud. Permissions allow you to restrict certain actions to managers only and prevent employees from punching in unauthorized discounts for themselves or their friends.
2. Use referenced refunds.
A referenced refund returns the customer’s money to the original payment method that was used for the purchase – instead of to a potentially fraudulent card someone is presenting you, or as cash. This is one of the strongest measures you can take toward preventing return fraud in your cannabis retail store.
4. Conduct regular audits and inventory checks.
Keeping up with your inventory, sales, and customer data is another way to mitigate fraud and reduce shrink. One of the easiest ways to conduct regular internal audits is with reporting directly through your point of sale software.
5. Use a payment processor that can help prevent credit card and online fraud.
If your cannabis retail store accepts credit cards, it’s critical to use a processor with built-in risk management features that can help detect fraud before it happens. For instance, a solution like Cova Pay can generate a unique risk score for every transaction. The risk score looks at factors like how many times the card has been used in a given period and whether the customer’s billing address matches the address linked to the card. If the risk score meets a certain threshold, the system denies the transaction.
6. Use 3DS2 authentication.
You also want to make sure your processor uses 3DS2 technology for payment authentication. 3DS2 allows more data to be shared between the cardholder’s bank and your business – data like the customer's device ID, their transaction history, their shipping address, and more. This way, the cardholder’s bank can also run a risk assessment for the transaction and ask for further proof if something seems suspicious.
3DS2 authentication is also hugely beneficial when dealing with chargebacks. That’s because it shifts the liability for any fraudulent transactions from you, the merchant, to the payment issuer. This feature alone can save you a ton of time, money, and energy in chargeback disputes and penalty fees.
7. Use Cova Pay.
If you’re a Canadian cannabis retailer who processes credit card transactions in-store, through Cova eComm or some integrated eCommerce solutions, Cova Pay can help you streamline the checkout process and provide a safer, more reliable experience not only for your customers, but for your business as well. Cova Pay is fully integrated with Canada’s most trusted point-of-sale, and runs on the same infrastructure powering some of the world’s highest-volume businesses like McDonalds, Uber, and Facebook.
Cova Pay provides the following fraud prevention features:
- Referenced Refunds, returning payment automatically to the original card.
- Risk scoring, with adjustable rules available to deny high-risk transactions.
- Customer profiles to flag any fraud-risk shoppers throughout the system.
- 3DS2 authentication for online transactions, to shift liability to cardholder banks.
With Cova Pay, we’ve created the cannabis industry’s most reliable, robust, and secure payment solution. Over the past year, our clients processed over $45 million in payments with only one chargeback. We’d love to show you how it works and answer all your questions.