The conflict between federal and state cannabis laws continues to adversely affect the industry across the board. One such area impacted is payments.
The illegality of cannabis has not blocked all dispensaries and other cannabis businesses from using cards. That said, some have been able to find workarounds, such as using other merchant codes to process payments for cannabis, which does not have its own code. Other options businesses have tried include creating shell companies and delving into cryptocurrency.
Either lying, starting a side venture, or just going cashless have primarily been the only choices the cannabis industry has had to work with so far. In June of 2019, multi-state operator (MSO) Columbia Care rolled out a credit card specifically made for purchases at their participating locations. The CNC Card, as it’s called, became the first card of its kind, aimed at curtailing the long-running problem in the cannabis space.
The large-scale roll out came after a successful pilot program of the card in New York in 2018, where basket and purchase sizes increased by 20%.
The cannabis-only CNC Card remains in its infancy. However, its success could serve as a stop-gap solution for an industry so desperately in need of one. The card works just as any credit card would, in large part. Cardholders are subject to annual percentage rates (APR) on purchases between 15.99% and 24.99%, and the card comes with a $38 fee for late payments.
Adam Goers, Columbia Care’s Vice President of Corporate Affairs, explained that the creation of the closed proprietary system CNC Card was so that patients and customers could make easier purchases in-store. Making purchases easier for delivery customers was also a prime focal point as well, he explained.
The VP added that the card aims to provide patients with better access to their treatments. Goers painted a scenario in one of their active states, like New York, where its average patient is a 57-year-old woman. Goers said, “The ability for that patient not to have to use cash, to be able to go forward with this in a delivery situation so that it can be processed before that delivery is made, means that we’re able to give patients better access to their medicine.”
When discussing the CNC Card’s creation, Goers also told The Marijuana Times that it was created in-house and operates on a private network. The card is compliant and is in the process of receiving approval for use in each state.
The CNC Card has already received approval and is available in states like Arizona, California, Delaware, Illinois, Maryland, Massachusetts and New York. When Goers spoke with The Marijuana Times on January 10, 2020, he noted that Florida was in the process of receiving approval as well. During that conversation, he anticipated that the card would launch in the Sunshine State within the next two weeks.
To help bring banking solutions to the industry, Goers said that Columbia Care plans to further the discussion on normalizing bank payments. This may be done through the passage of the SAFE Banking Act, however, its outcome is far from certain. With its doubt on Capitol Hill, Goers believes the CNC Card could provide a potential solution for many in the space looking for a reliable and safe payment option.
Even if the SAFE Banking Act were to pass, Goers forecasted that major credit cards like Visa and Mastercard may hold off on working with the industry right away. As such, the CNC Card could be used for several years to come.
The CNC Card is one option making an attempt at resolving the industry’s long-standing payment problems. Another option, LeafLink Financial, aims to provide licensed retailers with a compliant credit management solution. Doug Gordon, head of LeafLink Financial, told The Marijuana Times that by the close of 2019, their payment solution processed over $60 million in annualized transactions across three territories.
“We are focused on scaling the service across the country to make wholesale cannabis transactions easier and safer for our clients and the industry,” Gordon said of growth plans for this year.
Compliance is Key
Regardless of the method chosen, compliance is critical in maintaining proper relationships with banks and regulators. Braden Perry, a regulatory and government investigations attorney with Kennyhertz Perry, LLC, considers compliance and transparency as keys to maintaining relationships between cannabis companies and traditional banking institutions.
While Perry did not have details on the CNC Card, the attorney touched on the precarious relationship between cannabis ventures and banks, where any infraction can end a relationship. Perry expanded on how a company can build trust with a banking institution. “Independent compliance audits of the company either by a third party or someone not actively involved in your compliance management system will add the trust the bank or credit union has with the company.”
Any rapport building can still lead to nothing due to federal regulations, Perry explained. “But it’s important to remember that [cannabis] still is federally illegal, and the Bank Secrecy Act makes even the state-chartered banks subject to money laundering issues and can make banking a federally illegal substance difficult, if near impossible.”