If you’re not making mistakes, you’re probably not trying anything new. That said, the most important thing is to learn from past mistakes and not repeat them. This holds true for cannabis payments. There are plenty of sketchy cannabis payment solutions out there, but using them can have dire circumstances. We hear plenty of horror stories from people who used different cannabis payment schemes before they found us – let’s learn from them!
Off-shore processors can cost you millions
“I ended up with $1.3 million in overseas reserves in Russia.”
There are numerous merchants in the cannabis industry who end up with money tied up in overseas reserves. While most of the people we talk to end up with anywhere from $30,000 to $120,000 in overseas reserves, the worst case we heard of was $1.3 million in Russian reserves.
How does this happen? In this instance, the merchant runs an e-commerce site and accepted credit card payments for cannabis. To have this option, they opened a merchant account overseas, one which required a certain percentage of rolling reserves. A variety of payment providers offering cannabis credit card processing have this requirement to protect themselves.
However, as the merchant gets more disputes and chargebacks, those rolling reserve requirements can increase. So instead of needing to keep 20% in reserves, that number can climb dramatically, particularly as they start getting more chargebacks and disputes.
Hypur is different. All our payment processing is done by American banks, so your funds are never sent offshore. We also reduce incidents of disputes or chargebacks because we can check that there are sufficient funds in the account at the time of purchase. Plus, most of our merchants never even need to worry about rolling reserves for cannabis payment processing.
Uncollectible accounts receivable
“We had $10 million in our accounts receivables.”
Managing B2B payments is particularly complicated in the cannabis space because most transfers aren’t done using traditional means. As a result, it can be hard to keep track of payments requested and which businesses still owe you money. This became so bad for one business we spoke with that they ended up with $10 million in their accounts receivable.
Hypur helps ensure that this never happens to you. Our B2B payment platform makes it quick and easy to send and receive payments electronically. Plus, with invoice and payment tracking, you can clearly see when requests were made and when you can expect payment. You can even get reminders and notifications to streamline your process.
Work-around solutions are not sustainable
“We are cycling through different providers offering cannabis credit card processing.”
It’s a good idea to have redundancies, with plenty of payment providers just in case one goes down. However, one merchant we spoke to has gone through three different credit card processors in the past six weeks. Each credit card cannabis payment solution has gone down, leading them to the next and the next.
While they’re able to find additional cannabis credit card processing, it’s clear that this is not a feasible long-term payment solution. Each time that they sign on with a new cannabis payment processor there are signup fees, reserves, transaction fees, and sometimes even personal guarantees. In fact, there are additional perils to using credit cards in the cannabis industry.
Hypur never requires personal guarantees from cannabis businesses. Our model is sustainable and reliable, with a much lower likelihood of going down. As a result, once you start offering Hypur, you won’t need to continually search for additional payment methods, and your customers will enjoy the consistency.
Work-around solutions can put you at risk
“Our ATM was cited for money laundering!”
Because cannabis has a long history of functioning as a cash business, it’s standard practice for dispensaries to have ATMs in their establishments. However, this has gotten some people into serious trouble. That’s because many people lie about the placement of the ATM, claiming that it’s “in a flower store” or a similar tale. Some dispensaries even partner with shady cannabis payment processing providers who convert the ATM to cryptocurrency. Either of these “solutions” can amount to money laundering, complete with all the serious consequences that you might imagine.
Hypur allows your business to take cash out of the equation. Going cashless has a range of benefits, including reducing your cost of cash handling and risk. Customers never need to hit the ATM before making a purchase, because Hypur lets them pay directly from their bank account.
Losing your bank account
“My bank account was shut down!”
This is one of the most common issues that we hear about. Numerous businesses have had their bank accounts closed once the financial institution discovers the kind of business that they’re doing. We’ve even heard of Tier III MRBs losing their bank accounts!
The reason for this is that banks and credit unions want to minimize their risk, and there is a lot of risks involved in banking a product that is still federally illegal. While some financial institutions are willing to bank the industry, too many businesses try to lie about the nature of their transactions. As a result, the banks and credit unions find it safer to simply close those accounts.
Hypur was built by bankers, for bankers. Our first customers were the financial institutions who were ready to bank the industry. By making it clear what the transactions are, and where all the funds come from, it’s easier for those banks and credit unions to report suspicious activity and maintain your MRB bank account.
Cash is often better than bartering
“We were paid with a box of pre-paid VISA gift cards.”
Without reliable ways to send or receive payments, cannabis businesses can get very creative. While cash is still a popular payment method, other businesses have told us about more unusual ways to pay. One business explained that they have received over $4,000 in pre-paid VISA gift cards, wrapped together with rubber bands and placed in a box in the mail.
This is inconvenient for both the sending and receiving business. Just imagine needing to head to your local convenience store to buy pre-paid cards to pay for business transactions. This simply isn’t scalable, reliable, or a viable long-term cannabis B2B payment solution.
Hypur makes B2B cannabis payments quick and easy, as well as trackable and sustainable. You can send payments to your partners, even if they aren’t using Hypur. Similarly, you can request payments from your value chain without them needing to join Hypur. That said, once they see your B2B payment dashboard, they will probably want access to all the reporting and features.
The dreaded MATCH List
This is a worst-case scenario for many merchants. We have met business owners who have ended up on the TMF (or MATCH list), the blacklists from VISA, Mastercard, and American Express. If you end up on these lists, you not only lose your merchant account but could be unable to get a merchant account again in the future. Even if cannabis is legalized down the line, this consequence would stay with you, tied to your social security number and business tax ID.
While there is an appeal process for getting placed on these lists, they can take years to settle and might not end up with the outcome you’re looking for. The more often you use a disreputable cannabis payment solution, the higher your risk of getting placed on this list. So, the example above of cycling through different providers becomes even more treacherous.
Hypur helps to protect you from this situation. Because we take compliance seriously, Hypur is fully transparent with our financial institution partners. They are aware of the types of transactions, meeting a much higher reporting and compliance standard. As a result, you are less likely to be found lying to the financial institution or engaging in behavior that goes against your underwriting agreement.
Everyone makes mistakes, but hopefully, now you will be able to learn from these cannabis payment mistakes and avoid those same consequences. If you’re unsure about your current cannabis payments solution or marijuana bank account, give us a buzz and we will help you avoid some common pitfalls.