The cannabis industry is one of the nation’s fastest-growing, with more and more states moving to fully legalize it for medical and recreational use.
The roughly $10 billion market is expected to maintain an average growth rate of roughly 15% through the 2020’s, an exciting prospect for investors and entrepreneurs looking to enter the industry. Governments looking for a lucrative source of tax revenue have also taken notice.
More and more states have moved to fully legalize (21 states now regulate and tax the good for recreational use), including conservative ones like Missouri. However, the legal environment remains ambiguous and risky, since cannabis is still federally illegal as a Schedule 1 drug. Schedule 1 drugs are considered as having a high potential for abuse and no known benefit.
Unless it’s being transported across state lines or into the country, the federal government declines to locally enforce cannabis laws, respecting states’ jurisdiction on the issue. However, its outdated classification of cannabis has kept the industry from full access to the financial system. That means that most legal customers pay for cannabis the same way they always have: cash only.
Cashless Cannabis: A Sticky Issue
While there is great commercial interest in the cannabis market, cannabis businesses from growers to vendors lack full access to the financial system. Since the drug is still federally illegal, many traditional financial services opt not to wade into the market. The risk of federal fallout is too high, even as the legal market continues to expand.
In 2021, only about 10% of commercial banks in the United States serviced the cannabis industry. As the Brookings Institute recently explained,
“A bank can be subject to large fines if it incorrectly reports on its transactions, or if a future bank regulator accuses it of not following the reporting guidance properly. The reporting can be extensive… One small credit union in Oregon that serves marijuana businesses filed 13,500 reports over the past two years for approximately 500 cannabis clients.”
The reporting headaches and legal risks have been enough to keep most banks out, which means most customers can’t pay with a card. However, that’s starting to change.
Digital Payments: Coming Soon?
A number of payment processors have started offering their services to the cannabis industry. While still in its nascence, providers are trying to break through the red tape. They have a simple value proposition: more payment options are proven to increase revenue for stores. It is a well-discussed statistic that average retail spend is higher for card transactions than cash.
While payment processors are staking their claim in the cannabis market, they still face an uphill battle. Without buy-in from big banks and payment networks, the cannabis industry will still struggle to access the financial system, even with card processing.
The truth is that efforts to streamline payments will only make progress on Capitol Hill. The current legal environment is simply too risky and complicated for banks, networks, and processors to navigate. Marijuana is still officially classified by the federal government as ranking among the most dangerous and least beneficial substances, along with hard drugs like heroin, ecstasy, and bath salts.
The federal government generally has a hands-off approach to in-state marijuana consumption. However, until the legal environment becomes less restrictive, the big financial players are likely to stay out.
COCARD: Supporting Members Across Industries
COCARD is no stranger to disruption. We’ve been bringing the payment processing industry into the Digital Age since we started roughly twenty years ago. We’re committed to supporting our clients wherever they set up shop and empowering our member representatives to reach more and more businesses with our powerful solutions.
As the market matures and the legal environment takes shape, COCARD will continue to lead in the cannabis industry, offering streamlined payment solutions. While the market is still overwhelmingly cash-based, we will keep up with the times as the industry gains full access to the financial system. For now, we happily support all businesses with our other offerings, from cutting-edge tools to reporting and cash payment solutions.
Get in touch today to see how COCARD empowers its members and their clients, wherever the market takes them.