Fintech startups also want to tackle the issue of physical safety. As more banks go online, it will make the sector safer. Newer software companies have emerged to help small and large marijuana retailers be transparent at every step. A dispensary can simply move customers from paper to digital transactions platform, which helps them document their work and comply with federal regulations.
Designing a New Style and Setting the Tone
To navigate into the grey areas of cannabis banking, these startup founders need to have a mix of people with experience with innovative payment options and traditional cash payments. Everybody involved must be familiar with the differences between cannabis and other financial products.
“We want to bring in the product, engineering, and partnership resources that have experienced large scale institutions and progressive fintechs. They can take those learnings and apply it to an industry that’s underserved. You need to be very creative,” says Ryan Himmel, the head of strategic partnerships at LeafLink, a wholesale technology B2B platform for the cannabis industry. LeafLink’s approach to this problem came from invoice financing, a method that allows for the payment of invoices.
LeafLink’s invoice financing allows a supplier to receive upfront payments via ACH. In the same manner a bank would process a paycheck and assign invoices the retailers, LeafLink can also provide invoice financing. These suppliers can scale up by facilitating digital money movements of large amounts. Because of their ability to serve their communities and smaller scale, credit unions have been the pioneers in fintech adaptation.
A customer-facing retail store must also consider these factors. “For a cannabis retailer, your point of sale cannot be the same as a restaurant or a hotel. You have state regulations, you’ve got tax reporting, and ID verification for your consumer. So the POS software has to be able to accommodate all of those attributes,” says Jessika Wood, the head of strategic payment partnerships at Dutchie, a platform that deals with the point of sale, ecommerce, payments, and insurance in the cannabis industry. It’s no longer a one-on-one experience. The Covid-19 pandemic made it impossible for dispensaries and their suppliers to remain afloat online. The buyer experience was digitalized and became the benchmark.
“We’re kind of setting the tone in terms of what ‘compliant’ means. As the market matures and things exist in the space and you’re not seeing the sky falling, more and more banks are getting involved,” says Jennifer Yager, senior vice president of anti-money-laundering compliance at Valley Bank. Valley Bank partnered with multiple cannabis companies to provide assistance to customers in finding banks and wallet service providers as well as cash transport firms that would accept cannabis cash.
Automating compliance would decrease the amount of time required, which could help smaller dispensaries who may be in a less favorable position to enter the market. These fintech startups see social equity as part of their overall plan. A lot of fintech startups partner with The Last Prisoner Project in order to redistribute some revenue from their marijuana sales to former cannabis prohibitionists. This lucrative, but difficult industry is also subject to social equity expectations and compliance standards.