The medical marijuana industry took another leap forward last year as two states voted to legalize medical use of the drug, lending more legitimacy to the thousands of businesses that sell pot in the U.S.
But weed entrepreneurs in the now 18 states where medicinal cannabis is legal are struggling to expand, weighed down by the fact that most banks and credit card companies refuse to deal with dealers.
Enter Lance Ott, a cancer survivor and founder of the financial consulting firm Guardian Data Systems, which launched a service last year that lets people buy medical marijuana from dispensaries online using a credit or debit card.
“There’s a marijuana industry evolving that is underserved by the banks and merchant service providers,” Ott told The Huffington Post. As a result, he said, most medical marijuana dispensaries accept only cash, creating safety concerns for customers and tax headaches for merchants.
Using Guardian's Gateway service, buyers, who are pre-approved members of state-licensed dispensaries, can link a credit card to the site, view what merchants have in stock, pay for pot online and, in states where home delivery is legal, receive orders at their doorstep.
PayPal, Square and most other transaction processing firms refuse to offer such services to cannabis shops, thanks in large part to pressure from the federal government.
“Treasury hasn’t explicitly told banks and merchant service providers that they can’t work with [medical marijuana dispensaries], but they’ve basically sent a strong signal that they frown on that activity,” said Brian Vicente, an attorney with the medical marijuana law firm Vicente Consulting. The Treasury Department declined to comment.
The National Cannabis Industry Association estimated last year that half of dispensaries nationwide lacked a bank account.
“You have folks who want to be out of the shadows, and they’re now being forced into cash-only businesses,” Aaron Smith, the organization's executive director, told American Banker this week. “No other legal industry finds itself in that situation. None.”
Some dispensary owners have found ways around revealing that they sell marijuana in order to get banks to accept them as clients. But owners have reported a recent crack-down by financial service providers who are increasingly reluctant to work with dispensaries in the aftermath of votes to legalize pot in Washington and Colorado.
Three-year-old Guardian began offering its payments service to dispensaries roughly six months ago and is now working with around 20 pot businesses, according to Ott. The company charges such merchants higher interchange fees than it charges traditional clients because it considers dispensaries to be high-risk. "They can get shut down at any moment," Ott said.
Hilary Bricken, a Seattle attorney specializing in marijuana law with Canna Law Group, said she expects that the pot businesses that do survive won't soon forget which financial companies once rejected them as clients.
An analysis by Sea Change Strategies, a research firm for non-profit organizations, estimated that the medical marijuana market could expand to $8.9 billion by 2016.
“When the tide turns in favor of dispensaries," Bricken noted, "the banks and other merchant service providers that had a no-cannabis policy are going to be kicking themselves."
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