Picture yourself in a dispensary with $100 in your wallet. Now picture yourself in a weed dispensary with a bank card in your wallet, which the shop will gladly accept. In the first case, you are limited to buying $100 worth of merchandise. In the second, you’re limited only by what’s in your bank account.
Legal cannabis still runs largely on cash. Discussions surrounding this problem often focus on security concerns: Having substantial cash on hand makes both customers and business owners fat targets for thieves. But for dispensaries, there’s another big downside: it leads to less revenue.
Dispensaries have tried all kinds of workarounds, from rotating through merchant credit-card accounts until the banks pull the plug, to installing an ATM out front. Some hook up with payments companies that specialize in cannabis, but most of those are full of friction; for starters, each customer typically has to sign up with the same company, and the process can be burdensome. On top of that, most of those companies use “digital wallets,” which customers have to refill.
Treez, an Oakland-Calif. provider of merchant solutions for cannabis dispensaries, thinks it has solved the problem with its new product, Treez Pay. Unlike most payment services, Treez Pay doesn’t make use of a digital wallet. There’s not even an app to download.
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A one click operation
Upon checking out online, the user gets a text. First-timers have to tie their bank accounts to it, but after that, it’s a one-click operation, much like PayPal or Venmo. Once the bill’s paid, customers either wait for their delivery or head to the dispensary, where their order will be packaged and ready for pickup.
“There’s a hodgepodge of solutions out there, and developing your own is very costly,” said Marc Matulich, founder and CEO of Airfield Supply, a large dispensary in San Jose that recently signed on with Treez Pay. “We went with Treez Pay because it eliminates a lot of cash handling both for us and for our customers.”
Treez was able to solve many of these problems by signing on with Stronghold, a San Francisco-based developer of payments systems. Stronghold conducts stringent diligence reviews on dispensaries to ensure that they are fully compliant with all regulations and fully transparent in their accounting. In doing so, the banks it works with on the back end are assured that they won’t get into any trouble. And since those banks aren’t providing services directly to cannabis merchants, they’re safe in that way, too.
It’s that infrastructure that enabled Treez Pay to remove so much of the friction that exists on other platforms. Even signing up is relatively simple. While most payments systems require users to enter checking account and routing numbers for their banks, Treez Pay has users simply sign in with the same login information they use to access their banking accounts. “It’s really just a couple of clicks,” Matulich said. Most other services “are just really clumsy.”
It also tends to increase customer spending, Matulich said. Airfield started using the system on June 4. Since then, customers using the service have consistently spent an average of 40% more on each purchase, compared to customers paying with cash. When a customer has access to their entire checking account, rather than whatever they have in their pockets, they tend to spend more.
The service also appeals to both delivery drivers and pickup customers,” he added. “You don’t have to have cash on you, and you don’t have to have cash at your house.
Treez had been working on the new service for about a year, according to chief strategy officer Shareef al-Sissi. It was serendipitous that it rolled out in April, just as dispensaries were scrambling to reduce physical contact between employees and customers. Dispensaries are “looking for ways to get people in and out the door as quickly and safely as possible while maintaining social distancing,” he said.
None of this would be a problem, of course, if cannabis were an ordinary industry with had access to banking services. Thanks to pot’s federally illegal status, that’s still impossible for most of them.
Banks are worried they’ll be held liable for facilitating illegal business until pot is either legalized nationwide, or Congress passes a bill like the SAFE Banking Act which would indemnify banks working with the industry. (The bill has stalled in the Senate). Credit-card providers like Visa and MasterCard also have rules prohibiting the use of their products in weed dispensaries, again thanks to federal illegality.
“We got to 40% almost overnight”
Treez’ el-Sissi is a dispensary owner himself, CEO of Garden of Eden in Hayward, a Bay Area suburb. Already, he said, about 40% of his customers are using Treez Pay. Another 40% pay in cash, and 20% percent pay using some kind of card in-store. “We got to 40 percent almost overnight,” he said.
Garden of Eden’s experience is similar to Airfield’s. The average customer purchase is just under $100, according to el-Sissi. That’s a 20% jump over what it was before it started offering Treez Pay a couple of months ago.
So far, about half of Treez’s approximately 150 dispensary customers have signed on to offer Treez Pay. Only about 10 of them have made it through the arduous diligence review. el-Sissi said he expects most or all to pass muster. “We think it will permeate our customer base over the next few months,” he said.