Dispensary Payments Banking Laws and Risks

The SAFE Banking Act has been introduced in the senate multiple times but is yet to be passed. However, over time it has laid the groundwork for financial institutions to work with legitimate cannabis businesses. The bill stipulates that a federal banking agency may not request or order a financial institution to terminate a customer account unless there is a valid reason for doing so, and that reason is not based solely on reputation risk. Valid reasons include threats to national security or involvement in terrorism financing.

Large banks adhere to strict rules for working with cannabis companies that find it difficult to find reliable financial partners. Bank audits of cannabis businesses will always include a thorough review of federal, state, and local cannabis regulations. Thus, cash becomes the default payment method, as dispensaries find it challenging to navigate dealing with legitimate banks who do not want to take the risk of going against any federal regulations. But there is no doubt that the economy will benefit from the SAFE Banking Act as it will create more control and balance in the industry needed for ensuring safer access to cannabis.

Even though cannabis digital payments come with their own set of risks, it's still easier than dealing with cash. You don’t have to worry about burglars who are well aware of the fact that dispensaries typically keep large piles of cash on-premises. You don’t have to make those regular trips to banks to deposit cash or make any bill payments in cash. Overall, it is also more convenient for your customers to pay with digital payments, and you’ll earn more revenue too.

Cannabis Payment Risks and Issues

Cash can cause a lot of compliance issues at your dispensary, especially when it comes to tracking and tracing. And untraceable cash handling practices can lead to cannabis inventory issues as well. Moreover, you can’t collect cash online when someone is purchasing cannabis products from your eCommerce store. Thus, a digital payment solution like Cova Pay is ideal as it also allows you to meet customer expectations better. 

At this point, we're still in the wild west of cannabis payments, so some might believe that anything goes. Using a credit or debit card is an attractive option, but there are still risks involved. With credit card payments, banks or authorities could freeze your account and your payments won’t be processed as it takes at least a day for the money to be transferred to your account from credit card processing merchants. Even a temporary loophole in your digital payments solution until federal legalization happens can put your dispensary business at risk. Hence, it is essential to use a compliant dispensary payment solution that adheres to all state and local regulations and facilitates the instant transfer of money to your account.

While dispensaries are considered essential in many states, debit and credit card companies have yet to partner with cannabis companies or other industries they deem "high risk." Visa and Mastercard are not allowed to work with cannabis businesses, as per federal law. The risk of accepting a credit card is not limited to the card company. A few weeks of no revenue can easily ruin a fledgling business, violations of regulations can result in the loss of a license, and your dispensary could easily go out of business. 

How to Navigate Cannabis Payment Risks and Stay Compliant

What many cannabis business owners don't understand is that all transactions in the cannabis industry are considered "high risk" resulting in higher transaction costs and many other limitations. Alternative digital payment solutions like Cova Pay allow cannabis businesses to take accept electronic payments without any “high-risk” fees or restrictions.

Cannabis continues to be a well-funded industry rife with anonymous customer activity, making tracking mandated by federal regulations extremely cumbersome. Financial institutions do not want to risk having their assets confiscated for federal audits and investigations. As such, the banking industry as well as the credit card industry have largely abandoned cannabis dispensaries. However, with today's digital advancements, navigating these federal rules and regulations is not impossible. But you must partner with an advanced cannabis payment processing company that has done its due diligence on federal laws to facilitate compliant and legal cannabis transactions. 

With the recent crackdown on cashless ATMs, a convenient and safe cashless cannabis payment solution like Cova Pay, which includes PIN debit and ACH payments, is ideal for you to keep your dispensary operations compliant and meet customer expectations better. Read here about the alternatives to cashless ATMs for cannabis dispensaries. 

Cannabis digital payments have many benefits, including transactional service offerings such as security, fund bankability, payroll, tax payment, and bill payment, not to mention the rich functionality of a fully digital consumer service platform. We’ll dive into these in the next chapter.