Physical safety is also a concern that fintech startups are trying to address. The more banks that go online and enter the space, the safer the people involved in the industry will be. With Mastercard and Visa out of the game, newer software startups have stepped in to ensure that small and large cannabis retailers show transparency at each step. Simply moving customers from paper to a digital transaction platform helps a dispensary document their work and remain compliant with the federal government.

Designing Anew and Setting the Tone

Wading into the gray areas of cannabis banking requires these startups assemble a mixed team of experts familiar with both traditional cash payments and digital ecosystems, in addition to people who have experimented with creative payment solutions. Everyone involved needs to be aware of exactly how cannabis is a different beast.

“We want to bring in the product, engineering, and partnership resources that have experienced large scale institutions and progressive fintechs. They can take those learnings and apply it to an industry that’s underserved. You need to be very creative,” says Ryan Himmel, the head of strategic partnerships at LeafLink, a wholesale technology B2B platform for the cannabis industry. For LeafLink, their approach to the problem was developed from a practice called invoice financing.

Invoice financing is when LeafLink provides upfront payments for a supplier via ACH, the same way a bank processes a paycheck, while then assigning invoices to the endpoint retailers. In facilitating large sums of money movement digitally, the startup makes it easier for these suppliers to scale. Credit unions in particular have led the charge in adapting fintech, compared to national banks, because of their smaller scale and ability to cater to their local communities.

Similarly, there are many factors that a customer-facing retailer has to accommodate for. “For a cannabis retailer, your point of sale cannot be the same as a restaurant or a hotel. You have state regulations, you’ve got tax reporting, and ID verification for your consumer. So the POS software has to be able to accommodate all of those attributes,” says Jessika Wood, the head of strategic payment partnerships at Dutchie, a platform that deals with the point of sale, ecommerce, payments, and insurance in the cannabis industry. No longer simply an in-person experience, the Covid-19 pandemic forced dispensaries and suppliers to evolve and go online in order to survive. With that, the buyer experience went digital and set the standard.

“We’re kind of setting the tone in terms of what ‘compliant’ means. As the market matures and things exist in the space and you’re not seeing the sky falling, more and more banks are getting involved,” says Jennifer Yager, senior vice president of anti-money-laundering compliance at Valley Bank. Partnering with multi-state cannabis operators, Valley Bank had to help customers find banks, wallet service providers, and even cash transport companies who were willing to touch cannabis cash.

Automation would reduce the number of resources spent on compliance, helping out smaller dispensaries that may enter the market in a more disadvantaged position. For these fintech startups, other than a business opportunity, integrating social equity is also part of their holistic plan. Many partner with The Last Prisoner Project to help redistribute some of their cannabis revenue back to those who have been disproportionately incarcerated due to past cannabis prohibition. Setting compliance standards also means setting social equity standards and expectations for this lucrative but also historically fraught industry.