Regulators in Hawaii announced in September that the state's legal cannabis industry would be cashless starting in October. To facilitate cashless purchases, the state informally teamed up with a Colorado-based company, CanPay Debit, to handle these digital transactions.
Buying legal, adult-use weed is largely a cash-only enterprise. That's because big banks and creditors worry that they could be charged for laundering, since cannabis is still a Schedule I narcotic.
Fortunately, the 2014 Cole Memo — which set federal guidelines for states' legal marijuana programs with provisions that, if followed, would prevent federal interference — along with the Department of Treasury's FinCEN guidelines for legal pot businesses, assuaged some banks' fears. Today, well over 300 banks have opened accounts for cannabis-related businesses, but large credit card companies such as Visa and MasterCard — which are linked to some of the bigger banks' checking services — maintain "no marijuana" policies.
So, although licensed cannabis businesses may have some access to banking, customers and patients still rely on cold, hard cash to buy weed.
Hawaii's regulators, however, wanted to avoid cash-only transactions from the get-go. That's because the state is utterly waterlocked. Transporting The Dark Knight-sized stacks of cash between Hawaii's eight main islands would be incredibly difficult, not to mention risky. Hawaii is also considered the most isolated population in the world. The nearest Federal Reserve vault from to Honolulu is a 2,400-mile jaunt across the Pacific Ocean.
CanPay's solution to Hawaii's – and other legal states' money woes – is an app which serves as a digital middleman between a pot shop and CanPay's partnered banking institution, Colorado Credit Union. Customers and patients can sign up for a CanPay account at the company's website, and they can either download the app to their phone or they can complete the sale on a tablet at the dispensary. (Note: the app can only be downloaded from CanPay's website. Mainstream app stores refuse to carry the app since it handles cannabis-related transactions.)
The best part about CanPay's app? It comes with a map feature so customers and patients can locate participating businesses, regardless of which state they're in. For instance, a Coloradan traveling to Seattle, WA could easily navigate to CanPay-friendly pot shops without setting up a separate account.
To better understand how CanPay works and how it may revolutionize the cannabis industry, MERRY JANE spoke with the company's CEO, Dustin Eide, by phone. We happened to catch him just before he embarked on a trip to Florida, where he says CanPay is "taking off." "After next week," he says, "we'll be accepted into every operational dispensary [in Florida]. They've opened up the qualifying conditions, so the patient-count has really been skyrocketing."
MERRY JANE: Can you start off by explaining how CanPay works?
Dustin Eide: The basic premise, from a customer standpoint, is the customer will download the CanPay app from CanPayDebit.com. They first set up their CanPay account, then link it to their existing checking account. Then, when they go into a dispensary that accepts CanPay, they're able to log in into their CanPay account which generates a unique, single-use payment PIN they can enter into a mobile device, and that's how they make the payment. It transfers the payment from their checking account to the business's checking account.
What protections does CanPay offer against hacking or other illegit purchases?
First and foremost, a purchase is secure. You are logging in to your CanPay app each time you want to make a payment. At that time, you get a single-use, random payment PIN for that purchase alone. The moment you use it, that payment PIN becomes unusable, and if you don't use it, it expires within 30 minutes. It would not be possible to guess at that PIN because it locks out after several failed attempts.
It's the kind of security you'd expect a payment app to have, with the added benefit that the unique payment PIN contains no personal identifiable information or banking data that you transfer between yourself and the merchant. So, it's actually more secure than paying with a debit or credit card which has your fixed account number that someone could write down to make illegitimate purchases.
Buying weed can be a touchy subject for some people, especially those with sensitive careers or judgy friends and family. How does CanPay protect people's privacy?
CanPay doesn't know what you purchased. We only know where the purchase was made. Part of our transparent payment solution is that the dispensaries and retail shops do business in their own trade name. The business's name will show up on a consumer or patient's bank statement. There's no getting around that in order for it to be a legitimate payment solution.
How many people are using CanPay?
CanPay launched publicly last November. Since that time, CanPay has reached thousands of users across the country in seven states. That growth rate is accelerating rapidly.
You mentioned CanPay works by linking to a pre-existing checking account. How does that get around the big banks' policies against marijuana-related transactions?
Everything falls under federal banking regulations, right? The reason that financial services and banking exist for state-regulated cannabis businesses is because of the Cole memo, which was issued to bring financial services and banking into the cannabis industry. Our platform is built on top of compliance with financial institutions.
Our backend financial institution [Colorado Credit Union] is compliant with the federal guidelines for banking cannabis businesses and offering services to them, and also we require each one of our accepting dispensaries and retail shops to also be banking in a compliant cannabis banking program. Every business related to the cannabis industry is banking under the federal guidelines issued through the Cole memo. It's not an attempt to circumvent anything. CanPay is built around compliance.
We're using the automated clearing house, or H2H network, which is a bank-to-bank transfer network, essentially. In that network, the financial institution that vets the transactions through the network is the one responsible for the compliance aspect. So, in our case, our financial institutions are fully aware of these transactions, and they're submitting them knowing that.
The CanPay website has a list of participating dispensaries in various states. Is this list up-to-date?
We add [to it] all the time, as soon as new dispensaries come online. It's a constantly-updating list. The fact that we're able to list the participating dispensaries and retail shops across the country that accept CanPay, that's another element of being fully transparent and being a legitimate payment service. If you've ever reviewed other solutions that may be offering their services to the cannabis industry, in most cases they do not list who they work with on the cannabis dispensary side. Typically, that would indicate someone in their payment chain [i.e. a bank or creditor] does not know they're doing cannabis transactions.
For us, that's a matter of transparency and legitimacy: you can't hide what you're doing or who you're serving. It's not the way business should be done. It's not the way payments should be done. We're trying to provide the industry with service that brings them from the gray market to the legal operating market where they have a normalized payment solution, where they don't have to hide behind a legal entity or some third-party payment provider. They can do business in their own name, they can talk about CanPay, they can tell people about it. Everyone in our payment chain knows these are cannabis-related transactions and have been approved to offer our services to these businesses.
As you've gone into new states, like Hawaii, have you encountered any legal or financial obstacles along the way? Or has it been smooth sailing?
[laughs] Working in the cannabis industry, I'd say you're running into obstacles hourly, if not sooner. There are extreme challenges to operating a payment solution that is federally illegal but is state-legal. Without the Cole Memo and FinCEN guidance, CanPay's services wouldn't be offered. That's the only guidance that a payment or banking solution should be built around for this industry. It has to be.
So, yeah, there are lots of complications, but we've undergone rigorous due diligence by our financial institution partners. Reviews at the state regulatory levels. Absolutely, we've been through a lot of conversations with those kinds of people, with people who are very interested in ensuring that only legitimate solutions are available to cannabis dispensaries because of conflicting federal and state laws.
How does CanPay generate profit through its services?
Just like shopping anywhere else, there is no cost to the customer to make a payment. The merchant pays a transaction fee for each purchase. If the PIN is used, the merchant pays the transaction fee. If the PIN isn't used, there's no cost to the merchant. That makes it very easy for the cannabis dispensaries to jump on board and start to build out their CanPay customer base.
Do you plan to expand to other countries like Canada?
Because of the financial network we've built CanPay upon, it's strictly a U.S.-based service at this time.
Do you have any other plans for CanPay's future?
We've created a payment network that currently allows face-to-face transactions. We're also in the process of allowing online payments either for in-store pickup or even for delivery. For example, in Florida, they can deliver across the state. Patients can go to a website and order their medicine, and pay for it with CanPay at that time, rather than waiting to pay for it when the delivery driver arrives. That way, if I order something online, I pay online, or if I order in-store, I pay there. We're expanding the payment capabilities of CanPay to meet the industry wherever payments are accepted. There are a number of states – many, many states – are allowing pre-order, where you order online, and you can pick it up in the store. Whether you can pay for it online is market-specific, if that's allowed. But many states have a model where you can go to a website, create an order, and pick it up in the store.
A lot of businesses are attempting to find a Visa or MasterCard solution even though those companies prohibit cannabis-related transactions from going through their networks. CanPay wants a stable payment solution that is not subject to shutdown upon discovery. That means cannabis dispensaries can go ahead and get their customers set up for CanPay knowing it's a low-cost payment service that's going to be around a long time – and it's free for their customers. Even if cannabis becomes federally legal, we anticipate we'll still have the lowest-cost payment service for dispensaries and retail stores.
For more on CanPay, visit the company's website here
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