Physical security is also a concern fintech startups are trying to address. The more banks that come online and enter the space, the safer the people involved in the industry will be. With Mastercard and Visa out of the game, newer software startups have stepped in to ensure small and large marijuana retailers show transparency at every step. Simply moving customers from paper to a digital transaction platform helps dispensaries document their work and stay in compliance with the federal government.
Designing New and Setting the Tone
Stepping into the gray area of cannabis banking required the startup to assemble a mixed team of experts familiar with both traditional cash payments and the digital ecosystem, in addition to those who had experimented with creative payment solutions. Everyone involved needs to know exactly how cannabis is a different beast.
“We want to bring in product, engineering and partnership resources that have experience in large-scale institutions and progressive financial technology. They can take those learnings and apply them to underserved industries. You have to be very creative,” said Ryan Himmel, head of strategic partnerships at LeafLink, a wholesale technology B2B platform for the cannabis industry. For LeafLink, their approach to the problem developed from a practice called invoice financing.
Invoice financing is when LeafLink prepares advance payments for suppliers via ACH, the same way banks process paychecks, and then submits the invoice to the end-point retailer. In facilitating the movement of large amounts of money digitally, the startup is making it easy for these providers to scale. Credit unions in particular have led the charge in adapting fintech, compared to national banks, due to their smaller scale and ability to cater to their local communities.
Likewise, there are many factors that a customer-facing retailer needs to accommodate. “For cannabis retailers, your sales point cannot be the same as a restaurant or hotel. You have state regulations, you have tax reporting and ID verification for your users. So the POS software has to be able to accommodate all those attributes,” says Jessika Wood, head of strategic payment partnerships at Dutchie, a platform that deals with point of sale, e-commerce, payments and insurance in the cannabis industry. No longer just an in-person experience, the Covid- 19 is forcing dispensaries and suppliers to expand and go online to survive.With that, the shopper experience is going digital and setting the standard.
“We kind of set the tone in terms of what ‘complying’ means. As the market matures and things exist in the sky and you don’t see the sky falling, more and more banks are involved,” said Jennifer Yager, senior vice president of anti-money laundering compliance at Valley Bank. Working with multi-state marijuana operators, Valley Bank had to help customers find banks, wallet service providers, and even cash transportation companies willing to touch marijuana cash.
Automation will reduce the number of resources spent on compliance, helping smaller dispensaries who may enter the market at a disadvantage. For these fintech startups, apart from business opportunities, social equity integration is also part of their holistic plan. Many partner with the Last Prisoner Project to help redistribute some of their marijuana revenue to those who have been disproportionately incarcerated due to past marijuana prohibitions. Setting compliance standards also means setting social equity standards and expectations for this lucrative but also historically steeped industry.