Seeing an opportunity to address the multi-billion dollar cannabis industry’s needs for payments processing, alternative payment companies are diving in to fill the void.
Though cannabis sales are legal in many states, the market is underserved by legitimate processors who treat such sellers as high-risk. If cannabis sellers can get a bank account, they would likely be priced according to the perceived risk of their operations.
According to Frontier Financial Group, the legal cannabis industry will generate almost $11 billion in sales in 2018. For perspective, that’s double the size of the revenue that Danish company Lego sold last year and over 50% bigger than the projected $6.8 billion in revenues Spotify, the world’s biggest selling music streaming service, expects to generate this year.
Since the cannabis industry sits between a federal ban and states’ legalization efforts. most banks don’t want to take on the risk of working with them. This means that most stores must either accept cash only or use some type of workaround solution ranging from cashless ATMs, to dedicated cannabis networks and even cryptocurrency.
Cannabis is also considered a high risk industry due to higher levels of fraud and chargebacks.
The challenge all high risk businesses face, which includes industries such as firearms, gaming, adult entertainment, and even e-commerce, is that they pay higher processing fees, experience longer holds on receiving funds, and expect sizeable reserves to be withheld from sales to pay for potential fraud. Further, not all payment processors want to work in high risk industries so that often means working with specialty vendors who can dictate pricing and terms.
This post was originally published here