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POSaBIT Systems Corp., a payments processor specializing in cannabis merchants, and Dutchie, a software provider to more than over 6,500 cannabis businesses, late Thursday lauded the Trump administration’s decision to reclassify cannabis to a Schedule III drug as a move that could finally open the door for cannabis merchants to accept credit and debit cards. Some observers, though, doubt that will happen on a significant scale.
POSaBIT chief executive and co-founder Ryan Hamlin said in a statement he hopes the reclassification will encourage “financial institutions to modernize their approach to cannabis” and eventually lead to “more normalized payment acceptance, including expanded access to card-based solutions.”
Dutchie chief executive and chairman Tim Barash added in a separate statement that the reclassification will “bring in large institutions and services across the business and banking world, allowing this major U.S. industry to have the same support as the rest of our economy.”
The move from Schedule I, which covers more-restricted substances, may have spurred optimism among payments providers that the door for card acceptance by cannabis businesses will be open more widely. But the odds of that happening any time soon are slim, contends Cliff Gray, principal at Gray Consulting.
One stumbling block, according to Gray, is that Schedule III drugs are controlled substances that typically require a prescription. That makes the drug legal to possess with a prescription, but illegal to possess, distribute, or use without one. The drugs are also subject to strict federal and state laws such as the Controlled Substances Act.
The move to Schedule III may remove some of the stigma around cannabis, but it falls short of legalization at the federal level. That federal stigma has historically prevented most banks, processors, and the card networks from supporting payments for the industry. Nevertheless, some financial institutions such as credit unions, community banks and some regional banks, including Raleigh, N.C.-based First Citizens Bank, enable payments for cannabis businesses.
“Close but no cigar,” Gray says. “Cannabis is legalized in some states but still not at the federal level.”
Even if the federal government were to legalize cannabis, questions remain as to how much volume the card networks could actually pick up, as payments providers serving the industry have established alternative payment rails that consumers trust, such as Co-Op Pay Network, an independent debit network developed by Co-op Solutions and CanPay, a cannabis payments platform. That system routes transactions through the automated clearing house.
“There are a lot of hybrid payment rails in the market [that don’t run afoul of federal law] because the market forced it,” says Gray.
