Guest Post: Cash Management in the Cannabis Industry

Jeff Foster, Co-Founder, Jane, LLC
Interviewed by Vinnie Fiordelisi, Sr. Director of Corporate Communications, Jane, LLC

For nearly two decades, Jeff Foster has worked with some of the world’s largest retailers and financial institutions to define, design, and implement e-commerce and retail payment processing and risk management solutions. Here he shares some advice and insights on cash management and financial services in the cannabis industry.

What is the state of cash management in the cannabis industry?

It’s a real mess. Employee theft is even higher than in bars and restaurants. Many of the dispensary owners we talk to say it’s as high as 10-15% of sales. Robberies are a real threat. The cash reconciliation process is time-consuming, costly, and susceptible to human error. But the biggest issue is it’s almost impossible to run a multi-million dollar business with all cash.

What are the common problems you hear from dispensary owners when it comes to them doing business effectively and simply?

The cannabis business has the most complicated legal and regulatory framework in the history of retail and many of the dispensary owners are first-time entrepreneurs. Combine these two things, further complicate it by a lack of banking and a business that is bustling seven days a week, and you find it extremely difficult to navigate this constantly evolving landscape.

What challenges do dispensaries face as it relates to financial services?

What challenges don’t they have? Very few have access even to depository banking, much less checking. Most cannot process credit or debit cards legitimately so they are on a strictly cash basis. So imagine having to make payroll, pay rent, or buy hundreds of thousands of dollars worth of product without the ability to write a check or send a wire. Most of the dispensary owners we talk to spend as much as 25% of their time simply managing this process. With full access to banking and financial services those same tasks would take almost no time at all.

Where do the federally regulated banks stand on working with cannabis businesses?

Marijuana is still a Schedule I drug, selling it is a felony, and the Bank Secrecy Act prevents banks from taking deposits known to be a result of a crime. This obviously makes the landscape particularly treacherous for a federally chartered bank.

I do believe more and more banks will get involved in the marijuana business. We are seeing it with the financial institutions we are working with in Colorado for our Triple Play program. There is too much momentum and popular acceptance to put the genie back in the bottle. So it is important for marijuana retailers to be prepared. Banks that do accept cannabis businesses are going to be very cautious and only accept clients that are unquestionably above board and fully transparent.

Any final advice for dispensary owners?

Yes, for dispensaries accepting Visa and MasterCard, my advice is to stop unless and until you have signed a contract that includes the name of the bank. I’ve been in payment processing for almost 20 years and our other company currently processes over $3 billion annually in Visa/MasterCard for some of the largest retailers in the world, so I have some knowledge on the subject. There are very few sponsor banks in the U.S. who will knowingly accept a merchant in the cannabis business and both Visa and MasterCard strictly prohibit utilizing a bank outside of the U.S. for domestic transactions.

Unfortunately some dispensary owners have been led to believe that if they have a terminal and their deposits show up in the bank that “it’s working.” Well that may be true, but I can nearly guarantee there is a break in the chain somewhere and that broken link can lead to fines in the hundreds of thousands of dollars and expulsion from the Visa/MasterCard network for life…just for a start.

Banking is coming. Credit card processing is coming. Dispensary owners need to focus on running their businesses within the framework established by the Department of Justice, the Financial Crimes Enforcement Network and their state and local laws regarding the sale of marijuana. If they do that, and remain patient, they will be first in line as legitimate financial services finally arrive.

Jeff Foster is co-founder of Jane, LLC, a Sponsoring level member of NCIA since July 2014. For nearly two decades, Jeff has worked with some of the world’s largest retailers and financial institutions to define, design and implement e-commerce and retail payment processing and risk management solutions. Jeff co-founded Jane after recognizing the overwhelming need for cash management and financial services solutions in the legal cannabis industry. As an innovator in financial services, Jeff is a sought-after expert and speaker. He has been quoted in numerous publications including; The Wall Street Journal, Business Week, The Financial Times, The Washington Post and The Washington Business Journal and has appeared on Bloomberg Television and ABC News. Jeff also speaks at countless financial services and cannabis trade shows globally, where he advocates and educates on everything from strategy and trends to best practices.