The 4 Best Cannabis Payment Processing Companies For Dispensaries

The old adage “Cash is king” isn’t as true as it used to be. However, many cannabis dispensaries have been able to successfully operate on a cash-only basis. Installing an ATM machine on the premises provides a convenient way for your customers to withdraw the funds they need to pay in cash, as most people no longer carry large sums of currency with them at all times. Cash-only transactions eliminate processing fees, account fees, and the risk that your account will suddenly be shut down. You also won’t have to wait several days for funds to reach your account, which can be very handy if a steady cash flow is critical to the success of your business.

At the same time, handling large sums of cash creates its own set of headaches. Having all that money lying around will make you a prime target for thieves, so you’ll have to invest heavily in security measures such as safes and lockboxes to protect your money. You might also need to hire armored cars to transport your funds to the bank. The biggest disadvantage of running a cash-only dispensary, however, is that you’ll earn less money in sales than you would if you offered additional payment methods. Study after study has shown that your number of sales and average ticket size will both go up significantly if you offer your customers an alternative way to pay you than just the spare change in their wallets.

ACH transfers have become more popular in recent years, with many businesses as a lower-cost alternative to expensive credit card processing fees. Funds are transferred directly to you from your customer’s bank accounts, offering a cashless and contactless payment solution. Transaction fees are typically much less than those for credit cards. ACH payments are particularly well-suited to eCommerce businesses, giving customers a convenient alternative to entering their debit card information.

Unfortunately, this convenience doesn’t translate quite as well in a retail setting. Because there’s no physical payment card involved in making an ACH transfer, your customers will have to download and install a third-party mobile app (Aeropay is currently a popular choice) on their phones and enter their banking information before they’ll be able to make a purchase. While inconvenient for a one-time purchase, it works quite well for repeat customers. Another consideration is that approval for ACH processing requires a lengthy underwriting process before you can start. This process is separate from the one required to be approved for a merchant account using credit and debit cards.

PIN debit payments have emerged as one of the safest, most convenient payment methods legally available to cannabis merchants. With this method, your customers can use their regular debit cards in your store, authenticating their identity with a PIN. However, setting up a PIN debit payment system that’s fully legally compliant requires a lot of additional work on the part of your provider. For this reason, relatively few providers currently offer PIN debit processing for cannabis businesses. Transaction fees will also be higher than those for low-risk transactions, reflecting both the higher risk involved with cannabis products and the additional costs of setting up a compliant payment network.

While PIN debit is a very convenient payment method for in-person use, you won’t be able to use it for eCommerce sales. Customers cannot enter their PINs online, and running the card as a credit card is not allowed at the present time. We recommend setting up a BOPIS (Buy Online, Pay In-Store) payment system if you plan to accept online orders at your dispensary.

With all the thorny legal issues plaguing other, more traditional, payment methods, it’s no surprise that many dispensaries would turn to cryptocurrency payments as a way to get around these hurdles. On the surface, accepting Bitcoin and other digital currencies seems like an easy way to avoid high transaction fees and legal restrictions.

Unfortunately, cryptocurrency also comes with some very significant disadvantages. Relatively few providers offer support for this payment method, but the biggest impediment is that the wild volatility in the crypto market can put your business at serious financial risk. While offering crypto as an alternate payment method for occasional use is probably safe, we don’t recommend relying on it as your only non-cash payment method.

Point of Banking payments allowed customers to withdraw money from their bank accounts to pay for their purchases. Also sometimes called a “cashless ATM,” a point of banking solution allowed your customers to use their debit cards to access their bank accounts. Like a traditional ATM, disbursements usually had to be in $5.00 increments. However, a point-of-banking machine didn’t disburse actual cash. Instead, funds were transferred directly to the merchant’s bank account, with any excess being refunded to the customer in cash.

On the downside, point-of-banking machines were very expensive. Most were only available through leasing contracts and could cost as much as several hundred dollars per month. You’d also have to pay transaction fees to your processor, although they were typically lower than those for credit card transactions.

Despite their high cost, point-of-banking solutions were one of the most convenient and efficient ways to offer customers an alternative to cash payments. However, the machines could easily be reprogrammed to disguise both the nature of the product being sold and even the merchant’s identity. For these reasons, Visa, Mastercard, and the major card-issuing banks all withdrew support for point-of-banking machines in December 2022. Unless these restrictions are lifted in the future, cashless ATMs are no longer a viable payment method for your dispensary.

The question inevitably comes up: Why not just use Square? The company is extremely popular with small business owners, offering predictable flat-rate pricing and month-to-month billing. Unfortunately, it doesn’t currently accept cannabis merchants. Although the company now has a trial program for CBD businesses, the additional risks and legal complexities associated with marijuana sales make it a no-go at this time. Using Square to process cannabis sales explicitly violates the company’s Terms of Service, and you will get shut down when (not if) the company figures out what you’re really selling.

PaymentCloud is one of our favorite high-risk merchant account providers and a great choice for CBD businesses. However, the company does not accept cannabis merchants at this time, primarily due to the fact that it’s currently illegal to accept credit cards as payment for cannabis products. Should cannabis be delisted as a Schedule I drug in the future, we anticipate that the company will open its services to dispensaries.

Alaska-based Naturepay is a small provider that specializes in serving the cannabis industry. The company claims to allow credit card processing for cannabis businesses, despite the legal prohibitions discussed in this article. While it’s not clear exactly how Naturepay is able to accomplish this, it most likely involves deliberately miscoding cannabis transactions — an unsustainable tactic that will get you shut down when you eventually get caught. If that risk doesn’t deter you, the flat 5.95% + $0.30 per transaction fee for all credit card transactions might. On the plus side, Naturepay offers month-to-month billing and supports alternative payment methods such as ACH transfers and PIN debit payments. The company’s experience in working with the cannabis industry makes it a good choice for dispensaries, as long as you pass on the credit card processing option.

Another small provider that specializes in serving the cannabis industry, Hypur offers an app-based ACH payments service that works for retail and eCommerce businesses. The company has an excellent website, with numerous educational resources and clear explanations of the issues confronting the marijuana industry. Unfortunately, we’ve found a disproportionate amount of negative feedback from both merchants and customers alleging technical difficulties with the company’s app. Until Hypur is able to fix the bugs in its payments solution and offer a reliable way to pay for cannabis purchases, we can’t recommend it for your business. Hypur was recently acquired by POSaBit Systems Corp.

As discussed above, any cannabis-derived product containing more than 0.3% THC is still classified as a Schedule I drug under federal law. While the alternative payment methods we’ve outlined above will give you secure noncash options for your customers, you won’t be able to accept credit cards until the day finally arrives when Congress acts to reclassify cannabis products and take them off the Schedule I list. The bad news is that, while delisting cannabis will make it possible for dispensaries to accept credit cards like any other business, the cannabis industry is likely to remain in the high-risk category due to the other factors described below.

Cannabis deliveries and eCommerce sales are also hamstrung by the fact that it’s illegal to ship cannabis products through the US Postal Service — even within a state that has legalized these products. Major private shippers like FedEx and UPS have also refused to ship cannabis products, leaving dispensaries to rely on small, private shipping firms that are willing to work with them.

At the moment, many states have acted on their own to legalize cannabis for medicinal purposes, recreational use, or both. This has created a bewildering menagerie of often-conflicting state laws that cannabis merchants must comply with. While compliance is relatively straightforward for a local dispensary that only sells its products in person, it can be extremely challenging for an eCommerce business trying to sell in multiple jurisdictions where cannabis is legal.

Chargebacks are a known risk for just about any type of business, but the chance of experiencing one is much higher with cannabis products. While there are many reasons why a customer might decide to file a chargeback, the perceived lack of medical effectiveness of cannabis products is one of the most probable. For example, a customer might purchase medical marijuana from a dispensary to treat anxiety. If they feel that the product doesn’t work for them but can no longer return it, they might resort to filing a chargeback to get their money back. While chargebacks are most commonly associated with credit card payments, the other payment methods we’ve described above also have mechanisms for customers to dispute a purchase after the sale.

The first and most important thing to know about the current state of marijuana law in the United States is that cannabis products (defined as having 0.3% or more of tetrahydrocannabinol, or THC) are still listed as Schedule I drugs by the FDA. Under federal law, it’s illegal to possess, use, or distribute these products — period. Also, the Supremacy Clause of the US Constitution (Article VI, Paragraph 2) explicitly states that federal law will take precedence over conflicting state law. While that should settle the argument, the fact is that the federal government has generally declined to enforce the law in states that have chosen to legalize marijuana or to challenge conflicting state laws in the courts. At the same time, efforts to delist cannabis as a Schedule I drug have made little progress to date.

While you can still register a marijuana dispensary and obtain a business license to operate in a state that has legalized cannabis products, your bank and credit card processor have to comply with federal law. Credit card associations must operate under the same constraints, which is why Visa and Mastercard have policies stating that they won’t allow their cards to be used for cannabis purchases. As we’ve discussed above, this restriction prevents dispensaries from legally accepting credit card payments for cannabis products. (Note that ancillary products, such as water pipes, etc., don’t have this restriction.)

One possible workaround that you may be considering is to obtain an offshore merchant account that will allow you to accept credit card transactions without routing the transactions through a US bank for processing. Our advice here is simple: Don’t do it! Even with a merchant account in a country that has legalized cannabis, the act of transferring funds from the sale of cannabis products in the US to a foreign account and then back into your local business bank account violates federal money laundering statutes. You would be subject to criminal liability, meaning that if prosecuted and convicted, you could face the possibility of prison time in addition to having your business shut down.

Another serious legal issue — particularly for eCommerce dispensaries — is that it’s still a felony under federal law to ship Schedule I drugs (including marijuana) through the US Postal Service. This is true even if you’re just shipping within the borders of a state where marijuana use is legal. Likewise, most major private carriers (such as FedEx and UPS) won’t risk violating the law by shipping your cannabis products. If you want to accept online orders from states that have legalized cannabis products, you’ll have to hire a private courier service that specializes in working with the cannabis industry. Otherwise, you’ll effectively be limited to accepting online orders for in-person pick-up at your dispensary.

You’ll need to confine your search to providers that are actually willing to provide payment processing services for cannabis merchants. Unfortunately, the majority of providers — including many high-risk specialists — don’t accept cannabis businesses at all due to the legal issues we’ve discussed above. Some well-known high-risk providers accept CBD merchants, but not actual cannabis businesses. At the moment, most of the providers that will accept a cannabis dispensary are small firms that have only been in business for a few years and specialize in serving the cannabis industry.

The underwriting process required to get approved for a merchant account can be tedious for any merchant, but it’s particularly difficult if you sell cannabis products. Nonetheless, completing underwriting before you start processing credit card sales can save you from having your account suddenly shut down once you’ve started using it. You should be skeptical of providers offering “instant” approval of your merchant account, as they often defer this critical step until after you’ve already signed a long-term contract.

As with any high-risk industry, transaction processing costs are going to be significantly higher than they typically would be for a comparable low-risk business. Providers offering credit card processing for cannabis merchants typically use a flat-rate pricing plan, with the average rate for retail sales being around 5.95% + $0.30 per transaction (or more than twice the going rate for low-risk businesses). As discussed above, however, we recommend that you avoid credit card processing for actual cannabis products due to the high risk of having your account terminated. The good news is that ACH and PIN debit solutions typically involve significantly lower processing rates, as you won’t have to pay interchange fees to the card-issuing banks. In comparing different providers, be sure to also factor in the impact of recurring and incidental fees on your overall costs.

Another additional “expense” that most high-risk merchants have to contend with is a rolling reserve. That’s where your processor withholds a certain percentage of your funds every month until the reserve is met. While you’ll eventually receive all your money, rolling reserves can create serious cash flow problems for a small or newly established business.

We prefer month-to-month billing arrangements that don’t lock you into a long-term contract or force you to pay an early termination fee (ETF) if you close your account early. However, cannabis merchants will often have to accept both a long-term contract (typically for three years) and an ETF. Be aware that almost all long-term contracts include an automatic renewal clause that extends your contract, typically for one-year periods at a time.

Since you’ll be selling cannabis products out of a retail location, you’ll need some type of processing hardware to process and track transactions. Unfortunately, your needs will be very different from other businesses, which can get away with a simple countertop terminal or a mobile POS system. You’ll need a system that can handle cash and PIN debit transactions, as well as provide the analytical data you need to run your business efficiently. We recommend that you invest in a specialized cannabis POS system that will keep you compliant with the laws of your jurisdiction. These systems aren’t cheap, but they’re currently the best option for cannabis dispensaries.

In researching dozens of merchant account providers, we’ve found that high-quality customer service is the real secret ingredient that separates the merely average providers from the truly outstanding ones. Customer support issues occur more frequently with cannabis and other high-risk merchants, so you’ll want to pay particular attention to a provider’s reputation in this area.

Yes. Depending on the payment methods supported, you will need a merchant account to ensure that funds from your transactions are deposited into your business bank account. For US-based merchants, this account will differ from a traditional merchant account in that it will not include support for accepting credit card payments.

No. Cannabis is still listed as a Schedule I drug by the FDA, making it illegal to purchase it using a credit card, even in states that have legalized it for medicinal and/or recreational use. The major credit card associations have also prohibited credit card sales of cannabis products in the United States. Note that these restrictions do not apply in international jurisdictions that have fully legalized cannabis products.

As of this writing, the following payment methods are available to cannabis merchants in the US: (1) cash, (2) PIN debit, (3) ACH transfer, and (4) cryptocurrency payments. Note that point-of-banking solutions (i.e., “cashless ATMs”) have been shut down and are no longer available.

ACH payments use the Automated Clearing House (ACH) network to transfer funds directly from the customer’s bank account to the merchant’s account. ACH payments are easiest to set up for online payments. In-person ACH payments will require a smartphone app that your customer must download and set up in advance of making a purchase.

Cashless ATMs (or point-of-banking solutions) allow customers to withdraw money from their bank accounts and transfer it directly to a merchant’s account instead of being dispensed as cash. Due to concerns about potential fraud, the credit card associations and major card-issuing banks shut down the use of cashless ATMs in December 2022, and they can no longer be used for cannabis sales.