Not waiting for SAFE: A payment firm's plan for growth

Even after years of momentum toward legalizing cannabis on a federal level through the SAFE Banking Act, the timeline for its passage remains hazy at best — but there's still ample room for innovation in the states that have legalized weed.

So many companies have entered the legal cannabis market that some such as Chicago-based Aeropay are starting to form alliances. 

Aeropay supports account-to-account payments, or transfers directly between bank accounts, covering more than 2,000 banks. There are some limitations, since the interstate transfer of cannabis is still mostly illegal, hindering cross-state e-commerce purchases.

In late August, Aeropay entered a collaboration with Dispense, a cannabis e-commerce software firm, to let dispensaries accept cashless payments at checkout. Earlier in August, Aeropay partnered with Flyhi, a home delivery service for cannabis. Another partnership with the cannabis point-of-sale company FlowHub, signed earlier in 2022, added more than 1,000 dispensaries to Aeropay's network. 

All of this is happening without the legal cover of the SAFE Banking Act, which has passed the U.S. House of Representatives six times but has never been approved by the Senate.

"When cannabis companies are asked about what they want to see in terms of regulatory changes, most reference the SAFE Banking Act," said Dan Muller, Aeropay's founder and CEO. "However, dispensaries don't have to wait for the SAFE Banking Act to pass to access reliable banking service." 

Without federal legalization, many banks and card companies have avoided the weed industry in the U.S., but Muller contends it's possible to partner with technology companies and work with financial institutions in cannabis-legal states for digital account-to-account payments.  

"Compliant solutions and quite frankly better solutions already exist within banking for the cannabis industry," Muller said. "The SAFE Banking Act would likely bring more banking opportunities to the industry, but there are already banks and credit unions working with cannabis businesses." 

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But A2A payments allow Aeropay to avoid using card rails, thus staying clear of card network policies that limit how cards can be used for weed payments. 

Visa in late 2021 alerted merchant acquirers about the use of "cashless ATMs," which imitate card readers, saying the technology violates Visa's rules. Cashless ATMs, which pot dispensaries have used for years as a workaround against card prohibitions, simulate a debit card payment by initiating a cash withdrawal from a debit card. The merchant simply keeps the funds the consumer withdrew (minus any change owed). Cashless ATMs are used for about $7 billion in weed sales per year, according to Bloomberg. 

"Not being able to take Visa would definitely be detrimental if they were to follow through with a serious crackdown, but it would be hard for them to weed out cannabis vendors from any other vendor as in almost all instances," said Alex Carll, a director at Canna Advisors, a consultant to the cannabis industry, who added the stores he's worked with have not had issues with taking payments through cashless ATMs over the nine months since Visa's warning. 

Visa did not return requests for comment. In an email, Mastercard's public relations office said an ATM by definition is a machine that dispenses cash. "The concept of making a transaction appear as a 'cashless ATM' in order to sell an illegal product is deceptive in nature and does not meet Mastercard standards for legality and transaction transparency." 

Mastercard said it has reminded its merchant-acquiring clients to ensure that retailers are properly coding their point-of-sale terminals and transactions. Mastercard, Visa and American Express all support cannabis payments in Canada, where it is legal on a federal level. In the U.S., the federal government is not challenging state laws that legalize marijuana sales. "Given this complexity, we continue to monitor the situation, see guidance from regulators and inform merchant acquirers of any new developments," Mastercard said. 

Even though Aeropay doesn't support card payments, the company issued its own alert about pressure from the card brands on the "educational" part of its website.

In other merchant categories, A2A payments are seen as a cheaper alternative to credit card acceptance. For Aeropay, which includes a two-hour compliance registration form on its site for onboarding merchants, A2A payments are a way to demonstrate safety and legal clarity. 

"At the state level, regulatory changes have added awareness of recommended payment methods, including bank-to-bank transfers, that could help operators make decisions that keep their employees and customers safe," Muller said.  

The emergence of financial services providers that specialize in cannabis, such as Safe Harbor, has also created a sense that it is possible to avoid cash while using digital payments and A2A transfers safely, Muller said.  

"The ability to accept payments for online delivery orders, especially, has had an enormous impact," he said. 

Fintech partnerships are a key for cannabis firms to expand payments and services, said Yuri Vanetik, general counsel for the cannabis firm Golden Ark.  

"It's going to further streamline the industry and make it easier for people to transfer funds. And it's going to bring both the cannabis industry and crypto more into the fintech world. Because fintech is ultimately the virtual version of an ATM," Vanetik said. 

And while the SAFE Act remains in limbo, that won't always be the case.

"The genie is out of the bottle and we expect federal banking regulations to finally accept the new paradigm and become consistent with the states that are increasing in number," Vanetik said