➤ CanPay is one of few mobile payment methods serving as an alternative to cash or check.
➤ Until federal law changes, CanPay's CEO does not anticipate big banks or providers will enter the fray.
➤ Do not expect a lot to change on the national level within five years, CEO Dustin Eide says.
Just nine states and the District of Columbia so far permit marijuana recreational use, and 30 states allow it for medicinal purposes. Large banks and card payment networks have stayed out of the multi-billion dollar industry, forcing customers to pay with either cash or check. As a result, mobile cannabis payment efforts have sprouted up.
One of these cannabis payment startups, CanPay, launched in November 2016. The company offers a payment tool through a mobile app that integrates into point-of-sale technology.
When customers go to check out, they make their payment with a single-use code generated within the CanPay mobile app. CanPay then uses the automated clearinghouse to process payments directly through the customer's debit account, making money by charging a 2.00% fee per transaction. The dispensary simply confirms the person's identity and then the transaction is complete.
CanPay operates in 16 U.S. states and Puerto Rico. While adoption within each state varies, the cannabis payments startup is accepted at every dispensary in Florida.
CanPay CEO Dustin Eide, recently sat down with S&P Global Market Intelligence in Austin, Texas, to offer insider insight into the burgeoning cannabis payments industry. The following is an edited transcript of that conversation.
S&P Global Market Intelligence: Was it a challenge to find banks to work with CanPay?
Dustin Eide: Not to work with us necessarily, but it was a challenge to find those institutions that were compliantly banking in the industry. They're open with the regulators, but they are not publicly banking the industry.
Some are open about their involvement with cannabis, but very few of them are. There are about 30 financial institutions that are compliantly banking cannabis businesses and that allow CanPay deposits.
Why are so many financial institutions not public about their involvement?
There is still some concern around reputational risk, although that seems to be declining. Even though these institutions are open with their regulators, they may not want the additional scrutiny and press that comes with publicly disclosing that they're banking the industry.
Frankly, there's not a real reason for them to disclose it publicly because the people that need to know will find out, either through direct outreach or word of mouth within the industry.
What are your impressions of big bank acceptance of marijuana money?
From what we understand, most of the large financial institutions and service providers have a team or a group of people that are paying attention to the direction of the industry. But we have not heard of any major player wanting to move forward — from Visa Inc. or Mastercard Inc. to the First Data Corp.'s of the world or the large national banks such as Bank of America Corp. and Wells Fargo & Co.
You still regularly see news accounts of people losing cannabis-related entities: politicians that receive funds from cannabis entities as donations will lose their accounts at the major institutions because they want to stay as far away from this as possible.
There's interest, and they're paying attention. The industry is probably still too small for them to take on the robust and ongoing due diligence that's required to bank these businesses.
But larger institutions are now doing it. It's not just your small community bank or state chartered credit union. It's bigger, federally-chartered institutions and banks.
When do you believe the biggest institutions will enter the industry?
We are of the understanding that until federal law changes, the large institutions and providers, including the card brands, won't participate.
These are global companies with global brands to protect, and they need to be seen as respecting the federal laws.
Where will "mainstream" acceptance be in five years? Do you anticipate federal law to have changed?
It's a fool's errand to try and guess when that will actually change. There are powerful proponents and opponents throughout and on both sides of the aisle.
The general population has become much more attune to the medicinal benefits of cannabis and comfortable with the legality of it at the state level, but five years is a reasonable time frame to not expect a lot to happen.
The good news is that there is compliant banking. There are legitimate payment services, like CanPay, serving the industry within the current framework.
It's a very entrepreneurial and creative industry. It'll be great as federal law does change, but it's not something that has to change for the industry to continue to grow.
What about the regulatory burden placed on CanPay and other companies in the cannabis industry?
It's one of the most regulated industries you're going to find. For us that means there's an opportunity.
Because of that regulatory uncertainty and challenge, a lot of major players just aren't participating. Without that, CanPay wouldn't exist in its current form.
We've had an opportunity to understand what it takes on the banking side: to comply with federal guidance, to develop relationships with banking partners operating cannabis programs, and to launch our program in a way that that meets the requirements. We have figured out how to operate within this very difficult regulatory environment.
We continually are reviewed by oversight bodies trying to understand how we're operating and making sure that we're doing so compliantly and legitimately. We welcome the oversight. The oversight is important because there are many "solutions" that would potentially do a lot of things that are unhealthy for the industry.
What is your biggest regulatory hurdle?
It's not ours. The real regulatory burden falls on the actual financial institutions that are banking the cannabis industry. Developing those relationships is the critical piece for us to continue to grow and serve more businesses and consumers.