The cannabis industry is no longer limited to herb grinders and bong bowl sales. Several states have legalized the purchase and possession of recreational marijuana, causing a cultural and economic shift across the country.
As cannabis growers and dispensaries open their doors, tech-based companies are faced with a new challenge. Financial institutions must now find a way to process transactions while running the risk of federal prosecution.
On A Federal Scale
While medical and recreational marijuana is legalized in several states, THC – the main psychoactive component – isn’t federally legal in the U.S. for now. Under the Controlled Substances Act (CSA), marijuana is a controlled substance, making it a federal crime to possess, buy, or sell it outside of cannabis-friendly states.
Banks are reluctant to work in the marijuana industry for lack of legal clarity and fear of breaking federal laws. Cannabis-related transactions can raise red flags and be mistaken as money laundering by the U.S. Treasury Department.
Until there is nationwide legalization, manufacturers must follow state-by-state guidelines, and work with fintech companies who are familiar with CBD regulations.
Mobile Payment Technology
Despite being a billion-dollar industry, legal marijuana is still widely cash-based. From the time cannabis was prohibited nationwide until now, banks had no means of conducting transactions on a federal level. Many fintech companies are aiming to solve the problem of mobile payments in the cannabis industry.
Mobile payment technology provider Square (SQ) and POSaBIT are welcoming CBD businesses by providing blockchain-enabled payment processing systems. While it attracts legal cannabis retailers, the Food and Drug Administration is issuing warnings regarding food or dietary supplements that contain CBD products.
In the meantime, fintech companies are still in the initial stages of cannabis-focused services. In May, Square launched an invite-only program for a small amount of CBD retailers to test out the new system. While banking services are complicated or impossible for startups, fintech offers a safe payment solution in an emerging state-regulated industry.
The SAFE Banking Act
There is hope for companies that are suffering under the weight of cash-only transactions. The SAFE Banking Act aims to protect financial institutions while they do business with the cannabis industry. The bill ensures that state-legal cannabis businesses have the same access to banking, and shall be treated like any other legal industry.
However, companies and banks still have a hard time distinguishing between state and federal marijuana laws. The U.S. Department of Treasury issued guidelines that explain how financial institutions can conduct business in the cannabis industry without prosecution.
The Perfect Storm For Small Businesses
Stocks for both Square and the marijuana industry has fallen, but this year has still been a turning point for cannabis retailers. As states and entire countries continue to decriminalize cannabis and its components, the industry is expected to be lucrative in the next few years.
With federal decriminalization on the horizon, small business owners continue to boost their marketing strategies. The cannabis industry is still hyper-localized due to state limitations, but this untapped market is ideal for potential cannabis-based startup companies.
Many dispensaries and small cannabis businesses are still limited to cash transactions. As long as regulations are being respected, more mobile payment technology providers will provide hemp-driven financial services in their platform.