What is the Worst Weed Business Niche to be in Right Now?

What is the Worst Weed Business Niche to be in Right Now?

cannabis merchant accounts

The Safe Banking Act could put an end to high-risk merchant processing for hemp and CBD.

An interesting tidbit that floated under the radar this past week was a lawsuit filed against delivery service EAZE over their merchant processing.  To sum up the story, a smaller competitor who is not happy with some of EAZE’s business practices filed a lawsuit around money laundering and fraud claiming that EAZE’s merchant account are set up under shell companies with false credit card descriptors in order to avoid detention and authorities.  EAZE has responded that they don’t run credit cards and that all transactions are run by the dispensary or delivery service.  They are probably right on that point, but Pandora’s box has been opened on how dispensaries and deliveries get around regulation and set up their merchant accounts.  As part of discovery for this lawsuit, many vendors on the EAZE platform may have their merchant accounts subpoenaed and studied, hence, opening the door on a shady secret in the industry.

That secret is that dispensaries, deliveries, and until recently CBD companies, could not legally run credit cards or have merchant accounts.  Now, many of these places DO RUN CREDIT CARDS, but the merchant accounts are set up under “different” descriptors and shell companies, hence hiding the true nature of the transaction.  In general, cannabis and CBD companies can get merchant accounts if they set it under a different auspice and fib a bit on the application.  They had to find work-arounds but now there will be new pressure on Visa and Mastercard and issuing banks to stop looking the other way on these accounts and crack down.

Which brings me to my point of this article, by far the worst niche to be in the cannabis space is high-risk merchant processing for cannabis and CBD companies.  Not only are you going to have your name on these applications that are getting reviewed by the Federal court system, but you also have the SAFE BANKING ACT making it’s way through Congress at a rapid clip.

The SAFE BANKING ACT will allow cannabis businesses to have bank accounts and financial services from banks just like any other business as long as it is a state-licensed operator.  This means that dispensaries can finally put their millions of dollars of cash in a bank, get checking accounts, and have regular payroll and HR services.  The other part it will allow for is that it opens the window for cannabis and CBD companies to get legitimate merchant accounts, swipe machines, and credit card processing rates like a regular business.

Why would any company agree to 5 to 7% fees and all sorts of monthly charges, when they can go and get a 1 or 2% regular merchant swipe rate from their local bank.  The accounts will all be super low risk as chargebacks from signatures at dispensaries will be at historic lows (who charges back an ounce of Blue Dream after you signed for it?) and they will be Federally protected. That means their will be banks and services competing for all those credit and debit card swipes all day at your local dispensary.

The credit card gray and black market set up may all get blown up with the EAZE lawsuit, and the coming SAFE BANKING ACT makes the workout around merchant service set ups with high swipe fees all but obsolete.  What will be the competitive advantage of a shell company set up or a high-risk set up that will charge you triple the swipe fees and monthly charges?  You can just walk into the bank that you have your checking account with and ask for a credit card machine for your business.  Too much work, sign up with Apple Pay or get a legal Square account and off you go to safe credit card processing.

You also won’t have to worry about Paypal and Venmo shutting down your account either. Accept Visa, Mastercard, and Paypal with regular merchant processing fees as long as you can show your state license on all 3 applications, you will be fine and approved. The bank will no longer be at risk for losing its US banking license or access to the SWIFT transfer system if the SAFE BANKING ACT passes.

This entire niche was created because a group of people making money had a super high pain point (credit card processing for state legal weed) and a group of aggresive problem solves came up with creative solutions to solve that problem and make money doing it.  In Lean Startup terms, it solved a major pain, and people will pay a premium (higher fees) to have the pain solved.  Well, that pain point will disappear with the SAFE BANKING ACT and their will be a race to the bottom as banks compete for vendors.

If you are a merchant processing middle man or setting up merchant accounts with high fees, your days are numbered, plan accordingly.

CREDIT CARD FOR WEED? READ THESE..

CREDIT CARD AT THE DISPENSARY

WHY CREDIT CARDS CAN’T WORK FOR WEED, CLICK HERE.

OR..

CREDIT CARD FOR CANNABIS IN CANADA

CREDIT CARDS FOR CANNABIS IN CANADA, CLICK HERE.

High & Marijuana Blog | Cannabis

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