A debit-card payment company launched by a Colorado-based entrepreneur is aimed at cannabis retailers as an alternative to cash, the mainstay of the industry that received a huge boost in California with the January launch of recreational pot.
“Conducting business in a highly regulated industry can be expensive and frustrating,” said CanPay in its note to retailers. The company launched in 2016. “When it comes to accepting payments from your customers, you can still only accept cash. You know your customers want to pay with plastic and you’ve tried to open a merchant account to accept credit cards, but were either rejected outright or had your account shut down a short time later.”
North Bay banks have consistently expressed resistance to banking any business in the cannabis trade because the products remain illegal under the federal Controlled Substances Act.
“CanPay is the legitimate and stable electronic payment solution you’ve been searching for,” the company said. “By utilizing a proprietary network of financial institutions and technology partners that know exactly what kind of business you are conducting, we are able to process electronic debit payments at your stores.”
The free CanPay app is designed for smartphones. The company charges merchants about 2 percent of each purchase. CanPay, based in Littleton, Colorado, was founded by Dustin Eide. Colorado legalized recreational cannabis in 2012.
The service allows for cashless delivery of cannabis or purchase in a dispensary, Eide said, for face-to-face payment in person. “We are operational in over 50 dispensaries around the country.”
“It’s not using a debit card from Visa or Mastercard,” Eide said. “Those card networks prohibit transactions” for cannabis. “This is its own debit network. The customer downloads the CanPay app. We’re not allowed in the iTunes store or Google Play store,” he said. “Then they link their CanPay account directly to their checking account” the way debit cards are linked to a checking account.
“When they go in to make a payment or have a delivery with CanPay,” Eide said, “the money begins to transfer from their checking account directly to the cannabis business’s checking account.”
CanPay is not a payment intermediary. “We don’t receive the funds at all,” Eide said. The money “stays within the financial institutions. We are using the ACH network (National Automated Clearing House). CanPay never receives the money — a critical difference,” he said. “We are not storing everyone’s funds. It goes from the customer to the financial-services network to the dispensary.”
The money is processed by Safe Harbor, a credit union based in Denver that is “fully aware that these transactions are related to the cannabis industry,” Eide said. He seeks to insure that clients using CanPay operate in compliance with state laws governing cannabis business.
The CEO of Partner Colorado Credit Union, which operates Safe Harbor Private Banking, is Sundie Seefried. The credit union reported nearly $1 billion in 2017 transactions relating to cannabis.
On Jan. 4, 2018, Jeff Sessions, the federal attorney general, rescinded a 2013 memo from Deputy Attorney General James Cole that had suggested deferring to state law on cannabis prosecution except for large-scale criminal enterprises.
Partner Colorado Credit Union is regulated by Colorado’s Department of Regulatory Agencies. The credit union has assets of about $350 million, according to Mark Valente, deputy commissioner in the Division of Financial Services that handles credit unions. There are 37 credit unions in Colorado and roughly 100 banks.
“Partner Colorado is a state-chartered credit union,” Valente said. “The Division of Financial Services is the primary regulator. They really serve a purpose” in the cash-burdened cannabis industry, he said. “Colorado’s marijuana businesses have a cash-flow problem. There’s too much cash flowing in. They have nowhere to put it.”
Colorado regulators view Partner Colorado Credit Union as a financial-services vehicle to make the industry safer for business owners and their employees. “Money-management concerns at these marijuana businesses — there’s so much money coming in and out,” Valente said. “There are so few places banking them. Some of them need armed security guards just to handle all the cash. They use cash to pay their bills and even their taxes. We see it as a safety and soundness concern.”
Partner Colorado Credit Union is able to “get the money off the streets and into the system where it can be tracked,” Valente said.
Rescission of the Cole memo has raised concerns in Colorado and every other state where cannabis has been made legal under local laws, including California, though it remains illegal under federal law.
“The Cole memo was leading guidance for Safe Harbor and other institutions accepting marijuana deposits,” Valente said. “In Colorado, our state attorney general as well as the district (U.S.) attorney released their own opinions on it, which gave the industry a little more comfort level.”
Colorado’s U.S. Attorney Robert Troyer issued a statement on the same day Sessions rescinded the Cole memo. “The United States Attorney’s Office in Colorado has already been guided by these principles in marijuana prosecutions — focusing in particular on identifying and prosecuting those who create the greatest safety threats to our communities around the state,” Troyer said. His statement makes no assurances that cannabis businesses won’t be prosecuted.
Colorado Attorney General Cynthia Coffman, in office since 2015 and a candidate for governor, defended the state’s cannabis businesses in interviews in January, noting that hundreds of millions of dollars have been invested in businesses considered legitimate under Colorado law.
“A lot of banks avoid dealing with the marijuana industry,” Valente said. “They’re afraid they’ll get prosecuted for engaging in drug trafficking or money laundering. That’s why so few institutions handle this industry. We’re closely monitoring Safe Harbor and other institutions like that.”
CanPay relies for its business on continued operation of Safe Harbor services of Partner Colorado Credit Union.
“All CanPay merchants do business in their trade name,” Eide said. “They’re not doing it as CanPay.”
CanPay operates in several states including Colorado, Washington, Oregon, Florida, Maine and California. CanPay already works with Harborside dispensaries in Oakland and San Jose. Under federal law, cannabis cannot be transported across state lines.
“As the market solidifies,” Eide said, “you’re going to see more institutions step up” to create banking opportunities. “We anticipate more banking coming online, but it is very sparse in California. It’s already a huge market,” he said.
But that was before the cannabis-policy shift announced last month by Sessions.
“We’re trying to make things safer,” Eide said. “It’s not safe for people to be paying in cash. There is banking, it’s just very limited.”