Physical security is also a concern that fintech startups are trying to address. The more banks go online and enter the space, the safer the people in the sector will be. With Mastercard and Visa out of the game, newer software startups have stepped in to ensure cannabis retailers small and large show transparency every step of the way. By simply moving customers from paper to a digital transaction platform, a pharmacy can document their work and remain compliant with the federal government.
Redesign and set the tone
To enter the gray areas of cannabis banking, these startups need to assemble a mixed team of experts familiar with both traditional cash payments and digital ecosystems, in addition to those who have experimented with creative payment solutions. Everyone involved should be aware of just how cannabis is a different beast.
“We want to bring in the product, engineering and collaboration resources that large-scale institutions and forward-thinking fintechs have experienced. They can take those lessons and apply them to an industry that is underserved. You have to be very creative,” said Ryan Himmel, head of strategic partnerships at LeafLink, a B2B wholesale technology platform for the cannabis industry. For LeafLink, their approach to the problem developed from a practice called invoice financing.
Invoice financing is when LeafLink makes prepayments for a supplier through ACH, the same way a bank processes a salary and then allocates invoices to the endpoint retailers. By facilitating large sums of money digitally, the startup is making it easier for these suppliers to scale up. Credit unions in particular have led the way 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-centric retailer needs to consider. “For a cannabis retailer, your point of sale cannot be the same as a restaurant or a hotel. You have state regulations, you have tax returns and identity verification for your consumer. So the POS software needs to be able to meet all those attributes,” said Jessika Wood, head of strategic payment partnerships at Dutchie, a platform covering point of sale, e-commerce, payments and insurance in the cannabis industry. No longer just a personal experience, the Covid-19 pandemic forced pharmacies and suppliers to evolve and go online to survive. With that, the buyer experience went digital and set the standard.
“We kind of set the tone in terms of what ‘compatible’ means. As the market matures and things exist in space and you don’t see the sky falling, more and more banks are getting involved,” said Jennifer Yager, senior vice president of anti-money laundering compliance at Valley Bank. Valley Bank partnered with multi-state cannabis operators to help customers find banks, wallet service providers, and even money transport companies willing to touch cannabis money.
Automation would reduce the amount of resources spent on compliance, helping smaller pharmacies to enter the market at a more disadvantaged position. For these fintech startups, integrating social justice is not only a business opportunity, but also part of their holistic plan. Many are teaming up with The Last Prisoner Project to help redistribute some of their cannabis revenues to those disproportionately incarcerated as a result of past cannabis prohibition. Setting compliance standards also means setting standards and expectations for social equity for this lucrative yet historically charged industry.
