Wespay | Erica El Hilali, MBA & AAP | May 18, 2022
The impact of the cannabis industry on the US economy is large and growing and requires standards and best practices for financial institutions to best serve these customers. One of the main challenges for the safety of the industry is finding banking solutions that will reliably provide services as they grow. The industry will grow with or without banking, but financial institutions and payment providers can play a critical role in providing safe options from an unbanked cash system the industry started in. This will make the industry and the larger communities served safer. The Marijuana Business Factbook study shows that the industry’s economy impact is beyond just the sales. There is a 3.5 standard multiplier the industry provides. For every one dollar spent on cannabis, an additional $2.50 is injected into the local economy.
As of 2021, almost a half of a million people are employed by the legal cannabis industry. This number is growing as the industry grows. These employees need more options for payroll and benefits. Numerous payroll providers continue to reject companies working in the industry. More and more are starting to serve the companies and employees of this industry making it safer for employees as they don’t have to be paid in cash, and more compliant as employers are able to offer more benefits to employees.
Additionally, due to restrictions on the type of card payments allowed at cannabis dispensaries, the industry continues to receive a large amount of cash from customers. These heavy cash volumes lead to security risks within the industry. As payment providers find ways to use close loop and open loop solutions to try to offer cashless options there are more options that make the industry safer.
For every type of financial service provided to the industry there tends to be unique challenges and compliance requirements. Being able to stay informed and up to date on these changes requires a different approach than financial institutions have taken in the past. More collaboration and shared best practices are needed as well as forming partnerships with different organizations to gain expertise without having to build it in house or keeping information silos.
One way the financial institutions and payment providers are collaborating to ensure cannabis companies have banking and payment options, is by creating standards and best practices for serving the industry. The Emerging Markets Coalition is currently working on Payment Standards that will be published later this year. They already have published cash management standards being used by Financial Institutions and regulators trying to navigate the challenges of serving this growing and dynamic industry.
One trend many cannabis companies are noticing is Financial Institutions entering the cannabis market without realizing the amount of due diligence and maintenance needed to fully serve these companies in a compliant and scalable manner. Numerous Financial Institutions do not realize the large cash deposits the companies in the industry have and how that can put their deposit ratios off balance. They don’t realize the logistics and importance of strong courier partners, some taking cash in branches which adds safety risks to their branch staff and other customers. They start the program and quickly can’t take on any new clients because they haven’t built out a robust and dynamic program based on industry standards for cannabis but assume they will be just like other companies.
As standards and best practices are set by the industry it will make it easier for financial institutions to provide much needed banking services to this growing industry at scale.
Erica El Hilali, MBA & AAP, is the Head of Account Management at PayQwick based in Calabasas, CA. PayQwick has been serving Cannabis Operators and Financial Institutions since 2015 and has a proprietary compliance framework offering for compliant cannabis financial services. PayQwick is a Premier Associate Member of Wespay.