CanPay Makes ACH Electronic Payments a Reality for Legal Marijuana Merchants

Recreational marijuana is now legal in a growing number of states, but cash remains the dominant payment method. Now, however, CanPay, a Littleton, Colo.-based payments provider, has developed a digital payment option that allows legal marijuana retailers to directly debit a consumer’s checking account from the point of sale.

Typically, merchant-acquiring banks and processors won’t offer credit or debit card acceptance to marijuana merchants for fear of running afoul of federal law, which still classifies marijuana as an illegal substance even though 26 states and the District of Columbia now allow merchants to sell cannabis for medicinal or recreational purposes. CanPay’s service allows financial institutions complying with federal guidelines for providing banking services to cannabis merchants to offer an alternative to cash-only purchases, says Dustin Eide, CanPay’s chief executive.

CanPay is an app consumers load onto their smart phones from the CanPay Web site. Consumers can open an account through the CanPay site or app, which is available for Apple and Android users, by entering their bank routing and checking account numbers.

To make a purchase, customers click on the app and enter the amount of the purchase. A single-use token in the form of a QR code is generated and sent to the customer’s app. Tokens expire after 30 minutes. To complete the transaction, the merchant enters the amount of the purchase into the CanPay terminal, then scans the QR code on the buyer’s phone into the terminal.

Transactions are cleared through one of four financial institutions in CanPay’s network. The financial institution debits the consumer’s checking account through the automated clearing house network and routes the money to the merchant. All merchants are charged a flat fee plus a fee that amounts to 2% of the transaction, says Eide.

CanPay began quietly rolling out the service in September. The company, which processes the transactions, has signed 15 marijuana retailers in Washington and Colorado so far. “We saw the lack of banking and the strict regulations around banking in this industry as an opportunity to bring a payments solution to this merchant segment,” Eide says.

CanPay declines to reveal average ticket size or the number of apps downloaded. But Eide says the company is “seeing good week-to-week and month-to-month increases in transaction volume.”

Financial institutions servicing cannabis merchants tend to be community banks or credit unions, Eide says. CanPay worked with the financial institutions in its network to develop its solution. “We only work with financial institutions that are compliant with federal guidelines for banking marijuana merchants,” Eide says.

One of those is Safe Harbor Private Banking, a division of Partner Colorado Credit Union . “We’ve partnered with CanPay because we see similar values between our approaches to helping cannabis retailers,” Safe Harbor Private Banking president Sundie Seefried said in a news release. “We both hold transparency, security, and legitimacy as priorities in this emerging market. These businesspeople aren’t criminals, but in some instances, they are still treated as such. CanPay and Safe Harbor are working together to change that.”

With voters in California, Massachusetts and Nevada approving ballot initiatives in the Nov. 8 elections to legalize recreational use of small amounts of marijuana (Arizona voters rejected a similar measure), CanPay plans to approach prospective merchants in those states about offering its payment option, Eide says. Besides Colorado and Washington, Alaska and Oregon are the other states that earlier approved the sale of recreational marijuana, along with the District of Columbia. More than 20 states allow medicinal marijuana sales.

Even though federal banking regulators in 2014 gave a cautious OK to financial institutions to serve the cannabis industry in states where it is legal, most banks and credit unions are staying way. Bankers cite the continuing conflict between state and federal law, a conflict they say won’t be resolved until Congress gives clear approval for the provision of full banking and payment services to the marijuana industry.