The legal pot industry braces for a 4/20 spike in payments

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As the cannabis industry has inched toward legitimacy, it hasn't abandoned its roots. And that includes the infamous pot smokers' "holiday," April 20.

A huge spike in payments is expected this year. Tracking presale volume against prior years, cannabis technology company MJ Freeway projects $80 million in sales on 4/20, up 48% over a year earlier and up 300% over an average day. By comparison, avocado sales on Cinco De Mayo in 2017 totaled $54 million, and pizza sales during the Super Bowl in 2018 totaled about $300 million.

The legal cannabis industry is becoming like any other merchant category, in need of processing variable payment volumes, migrating consumers away from costly payment methods, and tying payments to business functions like marketing and inventory.

"From a B2B standpoint, we see that brands want to capitalize on this holiday in a big way," said Ryan Smith, CEO of LeafLink, a New York company that provides order execution, CRM and other services for the cannabis industry.

Cannabis has always been an industry that succeeded in spite of its stigmas. While regulations have loosened in many states, banks largely stay away from providing credit or financial services to dispensaries, forcing them to use alternative payment methods if they don't want to exclusively take cash.

The political climate is also turbulent. On the conservative side of the aisle, Attorney General Jeff Sessions has called for crackdowns, while former House Speaker John Boehner has joined the board of legal cannabis company Acreage Holdings. Among Democrats, Cynthia Nixon, a candidate for New York governor, has made cannabis deregulation a central part of her platform.

Jeff Sessions' posturing aside, the trend is toward more deregulation, more dispensaries and more transactions.

This creates pressure to come up with a more mature method of processing to handle the general growth and the periodic spikes as new markets open, or around "holidays" such as 4/20. The prevailing workarounds for handling payments, such as cashless ATMs or special cryptocurrencies, may not be enough to handle the volume on their own.

"One of the big costs is the overhead of having to manage payment security and other business functions such as the day's transactions and reporting," said Jason LeBlanc, director of business development for MTRAC, a subsidiary of Global Payout, a San Diego-based company that offers e-wallet and mobile apps for businesses in high-risk industries.

Global Payout hopes distributed ledger technology can solve the industry's payment problems. It just introduced a blockchain-supported system from GreenBox that records transactions in dispensaries. The product is designed to reduce theft and power cashless payments to the dispensaries from consumers, and from the dispensaries to vendors, staff and other partners, working similar to a digital P2P transfer.

GreenBox offers software that underpins point of sale terminals and self-service kiosks, tailored for specific industries. The technology it's providing to Global Payout and MTRAC also integrates payments with other business services with reduced overhead. IBM has pushed a similar use for blockchain in the cannabis industry.

MTRAC is still not in the market with a dispensary, though LeBlanc said once a few businesses are operational, the ease of distributed ledger system over a cash-heavy model should become apparent.

"The biggest challenge is to get companies to buy into it," LeBlanc said. "Convincing business owners that the blockchain makes it easier to manage than cash … is an education process."

LeafLink has raised funds to boost its resources to handle sudden upticks in payments the cannabis industry as more states deregulate the market.

LeafLink's tracking has noticed the 4/20 spike has created a new sales holiday — 3/20, the day when dispensaries start stocking up in anticipation of the 4/20 sales surge.

Retail dispensaries buy "like crazy" about a month before 4/20 to comply with the number of purchases that can be made over time. For example, LeafLink’s Colorado retailers spent 50% more on LeafLink in March than they did in February, which matches the trend from 2017. LeafLink offers "deals" tied to the online ordering and payments for dispensaries starting on 3/20. Sales this year were up 31% for featured products over those that were not featured—another benefit for automated tracking and transactions, according to Smith.

"In particular, deals on edibles saw large increases in sales, with some more than double the order volume of the previous week," Smith said. "3/20 is the new Cyber Monday."

One dispensary, Olive Tree Wellness, also of San Diego, has stuck to cash, mostly to avoid credit card fees, which it says are 8%. Its on-premise ATM prints discount offers on the receipts for repeat visits to cut payment fees for ATM use, said Carlos Gutierrez, a spokesman for Prime Harvest, in an email. He added that his business provides incentives for new and returning customers to drive up payments volume.

"There is a definite spike of sales on 4/20," Gutierrez wrote. "It’s like Halloween for cannabis consumers."