On November 4th, 2020, the eyes of the world were on the United States. On the date, 15 states of the American Union voted to permit and legalize the use of cannabis/marijuana for recreational use.
This was on the back of almost all the states in the Union permitting the use of cannabis for medicinal usage.
While many investors and big businesses, including celebrities are looking at this industry. Of numbers are anything to go by, we are looking at the industry touching more than $100 Billion by the end of 2021.
The American State of Colorado is leading the way. California too has come on board and is aggressively pushing for new businesses in this niche.
However, not all is well when it comes to the cannabis industry.
The Challenge of Getting Established Financial Institutions to become part of the Industry:
It should be pointed that being a grey area that suffered because of Federal Prohibition and age-old stigmas have made financial institutions look at this industry with suspicion.
This means that everything from raising funds through bank loans, setting up fintech payments, and giving credit to cannabis businesses is far tougher when compared to any other area of business.
This also means that businesses in the cannabis niche are termed high-risk accounts.
If businesses in the cannabis industry are looking at marijuana delivery credit card processing, they have only a select number of financial institutions that are coming to their aid.
The result- most businesses in the niche can be termed as grossly underbanked and dependent on cash-only transactions. This is adding to a lot of strain in terms of positive customer experiences.
How Tech Companies are coming to the help of Cannabis Businesses:
The number one outcome of being dependent on cash is that it leads to a lot of thefts in the industry. This makes it more prone to crime and regular run-ins with the law. This adds to the loss of credibility in an industry that is already struggling for acceptance.
Tech companies are blazing the trail for cannabis businesses. They are bringing two critical components under one roof-
- Regulatory Issues
- Fintech Solutions
In other words, the market gap between finance and cannabis businesses is being overcome by the tech companies that are using their expertise to offer payment solutions, extend credit facilities and work with banks to cover finances for the businesses in the niche.
They are helping establish digital transparency and compliance to ensure that the regulations are being followed to the T! This is not only helping cannabis businesses in improving their payment options, but also adding to the customer experience.
The Future of Fintech in the Cannabis Business: What we can expect?
There is no doubt that the cannabis industry is still struggling in a major way when it comes to organized finance in 2021.
Just for the record, out of a total of 10,000 banks and financial institutions in the United States, only 700 work with cannabis businesses in one way or another.
Yes, tech companies are trying to fill in the gap, but they can only do so much unless bigger names like Visa and Mastercard come forward with integrated payment solutions that do not end up exploiting cannabis business owners in terms of higher transaction fees and service charges.
Compliance becomes a key issue primarily because of the cash-heavy nature of the business. It not only adds to administrative hurdles but also creates a lot of compliance issues.
With incomplete paperwork, tax submissions, and income certificates, the industry stands the risk of once again deteriorating into an entity that is borderline illegal. Government intervention and the confidence of the financial systems are important for the industry to flourish.
The Bottom Line:
The three main challenges of the industry in this space are- digital payments, banking support, and regulatory compliance. Once these issues are taken care of, there is no reason to disagree with the fact that the cannabis industry can outshine America’s total agricultural output handsomely.