You know the cannabis industry has come a long way when the state of Utah is naming an approved payment provider for pharmacies that sell medical marijuana.
Marijuana remains illegal at the federal level, hindering the industry’s ability to conduct financial transactions, but Colorado-based CanPay continues to chart new territory. The largest legitimate payment network for cannabis retailers and consumers, CanPay was recently named by Utah’s Division of Finance as an approved payment provider for pharmacies selling medical marijuana statewide.
Marijuana is legal for medical and/or recreational use in 38 states, but major banks and credit card providers remain unwilling to work with companies that sell it. Smaller credit unions and niche payment companies have stepped up to provide access. In the second quarter of 2024, a record 831 banks and credit unions reported that they had active involvement with marijuana companies, according to the Financial Crimes Enforcement Network (FinCEN).
What CanPay is doing in Utah, despite that state’s reputation for conservative living, is perfectly legal. By using a state-chartered bank in Utah, CanPay is operating under state banking regulations, which exempts it from oversight at the federal level. It’s not illegal for a Utah-chartered bank to handle payments for dispensaries in Utah.
The ACH Exception
CanPay’s processing of ACH payments for dispensaries is more of a gray area, depending on the local jurisdiction. Some processors have argued that because ACH transactions are not run on traditional card network rails, they may not violate any issuer’s card network policy. Or they may just be willing to test the system.
“There are millions of ACHs that get processed every day, and finding a dispensary in all that is not something most banks are equipped to do,” said Don Apgar, Director of the Merchant Payments Practice at Javelin Strategy & Research. “In other words, it’s easier to get lost in a bigger crowd.”
Congress has considered legislation that would reschedule marijuana and make it easier and safer for dispensaries to conduct financial transactions. The SAFER Banking Act, which has been kicking around in Washington for a while, would provide cannabis businesses access to essential banking services and protect financial institutions that serve such businesses from federal penalties. It remains stalled in the Senate, but passage of legislation in this arena might allow the marijuana payments industry to flourish.
“Businesses like CanPay are operating in this somewhat gray area and rolling the dice that nobody shuts them down, but with the hopes that Congress will eventually allow card payments,” Apgar said. “If CanPay can quickly pivot into a card platform with their current installed base, that would give them a significant lead on the rest of the industry.”
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