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EconMan
2.7kA micro conversion with those interested in this subject -- weed economics.
For those who don't know, I'm in the payments industry and specialize in "high-risk" merchant accounts so naturally we've done a lot of cannabis and related work thus far. Many cannabis business managers seeking the ability to accept legitimate payments, do not seem to grasp that marijuana is a Schedule I substance and **IS** illegal in the USA and its territories, and IS the subject of dozens of various abatement legislation. Furthermore, the plethora of "war on drugs" treaties has even Canadian banks obliged to follow US federal law, so we are being swamped with Canadian business seeking payment accounts backed by, ironically, an american bank, yet denominated in Canadian dollars.
This is a real email I wrote and sent out earlier today (to a rather annoying and nagging prospect) driving the point (and my frustration) home.
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Hello, I'm in charge of the technical aspects of our system, and perhaps a bit of an economic perspective is in order. First, lets be clear on what our "services" primarily do here -- we try and find you a Sponsor Bank **willing** to **risk** financing **illegal** economic transactions. Notice I said illegal. That is exactly what they are. They are federally illegal transactions, and the risk exposure for us and the banks is enormous. One executive order from the POTUS (or one bad court case) is all it would take to bankrupt my company and our sponsor bank network. Yes, they/we are paranoid. In the USA, technically, any "contract" (like a visa/mc sale) is unenforceable if the contract itself breaks Federal law. Since, marijuana and its derivatives are illegal -- and seriously "Schedule I" so! -- it is entirely possible that EVERY payment made related to marijuana could be held null and void making collecting on said debts legally impossible and forcing mass-refunds to consumers.
So NOTHING on our website applies to the sale of illegal goods. Nothing. Meaning, we have no "brochure" and nothing on our website is not necessarily applicable at all to what you're doing. Furthermore, nothing on anyone else's site does either. We are all figuring it out as we go along, and we are ALL taking considerable personal and professional risk playing in this unknown sandbox at this time. Again, one little "executive order" bankrupts us, and all of our sponsor banks. The potential liability is enormous. Already, we have Canadian customers who are banned from entering the USA just because they make their living in the cannabis industry (in Canada!). Federally, this is very far from settled right now.
So what are our formal services in this (if we did make a brochure for it)? We find you a reputable sponsor bank, then find a payment gateway and processor that will take you so financial payment transactions can be made and managed on our otherwise legitimate network with resulting periodic deposits made to your account. Then we hope and pray the Feds play nice. If you already have your own American bank willing to do these transactions at a reasonable rate, then you don't need us. If you do not, then you do need us. The rest -- execution of an actual payment transaction -- is a commodity.
There are absolutely zero guarantees or warranties being made whatsoever in this space because no guarantees or warranties can be made. Anyone who does make them is either a fool or a crook. We could get you up and running today and a number of external entities can choose to shut you down and seize your deposits tomorrow, completely outside of our control or even our prior knowledge.
I'm more than happy to discuss the normal capabilities and virtues of our system, it's limitations, and general options of commercial payment mediums, but until you have a valid merchant account from a sponsor bank and network, it's all moot and theoretical. What you are "buying" from us is friendly access to our network of sponsor banks (we have a reputation in "high-risk" anyway) who are known to seriously consider a legally risky enterprise relationship.
Hope this helps. Feel free to contact me for any reason. -
BobCat
1.7kAlready, we have Canadian customers who are banned from entering the USA just because they make their living in the cannabis industry (in Canada!). Federally, this is very far from settled right now. — EconMan
Just to prove how fluctuating and fluid the situation is note this Oct.9th U.S. government updated statement.
Link to Official Website of U.S. Department of Homeland Security
A Canadian citizen working in or facilitating the proliferation of the legal marijuana industry in Canada, coming to the U.S. for reasons unrelated to the marijuana industry will generally be admissible to the U.S. however, if a traveler is found to be coming to the U.S. for reason related to the marijuana industry, they may be deemed inadmissible. -
EconMan
2.7kGood thing we're all buying aromatherapy vapes for natural herbs like eucalyptus, lavender, and basil :wink: lol — AsUwish
LOL. Yes. Indeed :)
But anything political-economic has "unintended consequences", and here one consequence of total legalization will be a further demarcation of such things into other "high-risk" categories. Right now for instance "tobacco" is less risky than weed itself, but once legalized, the actual bank-risk of weed I suspect will become relatively small -- "returns" for our weed clients are about 10% of our client average including "low-risk". The incidence of fraud is no higher than aggregated data averages.
I wonder about the causality of this? Is weed so awesome no one "thinks" according to the "walmart model" of "if I'm not satisfied, return it"? Or culturally (black-market) are we trained to "think" one should not have strong expectations of quality?
Regardless, I suspect many an advocate of legalization in 20 years will be talking about the "good ol days" of Prohibition. Fun thoughts while taking my first few vapes of the day! -
EconMan
2.7k
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To the Cloud
568Do you know anything about how it has changed for legal states ? I got buddies from the Marines who were doing private security as cash handlers. They made shit money and didn't really care much about the operations they worked for, just a hired gun.
How has this changed ? I know it can't still all be in cash in private vaults especially with how many states that are recreational now. -
EconMan
2.7k
Sorry for the delay....
There is just so much risk involved. You're a merchant. Imagine if everything you have ever sold was declared illegal and therefore the credit-card "contracts" are now null and void! Everyone is du a refund and now your bank says pay us back.
Federally, this is precisely how it is. We all are taking some serious risk, but all pioneers do.
One of my clients has their entire life-savings invested in their dispensary, and a change of attitude in Washington could blow the whole thing. This is what has the national banks spooked. But there are really no "legal states" because it is illegal Federally. Sessions could bankrupt me, my merchant banks, and my clients tomorrow on a whim. Fortunately, Trump has publicly over-rode him and says to him it is a "state's rights" issue. But until Congress acts, it will never really be legal. In every state where it is "legal", there are no protections from being fired for pissing positive, and all businesses that do any business with the Fed gov, MUST must have an antidrug policy and this almost always requires drug tests. It is why Canadian Banks are not doing it. They do too much business with legitimate US correspondent big banks, and since 90% live within 100 miles of the US border, our bullshit impacts them since there is so much between border
Have you ever seen Scarface and the money-laundering scene? That's a bit like the Banks we are talking about. Canada increased the demand for merchant services AND the supply of banks willing to do this is relatively small. Hence, a seller's market (the bank "sells" the credit to the merchant).
One client pays Interchange +9.5%
I was shocked when he accepted it. I was embarrassed to offer it. Apparently it was the best deal he could find. He had had a hot-check conviction 10 years ago, and and every bank he went to declined him except two. Ours and another and we were much cheaper. They wanted interchange +15% :vomit: -
martinstraka8282
285Interesting read.
Here in Canada we've been able to order online for years but i always wondered what kind of risk these merchants and I the consumer were taking.
Stories are already popping up in the news of people being denied entry to the US just for admitting to having smoked pot at any point in their life, let alone working in the industry.
I had interviewed on one of the Govt positions and the first thing they told me in the interview was to be prepared to never be able to travel to the US again if i took the job.
What a joke. -
EconMan
2.7kHere in Canada we've been able to order online for years but i always wondered what kind of risk these merchants and I the consumer were taking. — martinstraka8282
You're referring to Medical Marijuana. That is a much easier sell to the banks. First, there is a prescription from a physician which gives some credibility. In Canada it was 100% legal. No problem.
Now consider Georgia where it is a problem. MM sort of exists here. "Registered" patients are immune from prosecution for possessing it but it is still a crime for them to buy it because it is a crime to sell it (in Georgia). So they stay in the black market
Stories are already popping up in the news of people being denied entry to the US just for admitting to having smoked pot at any point in their life, let alone working in the industry.
Yes. Happened to a client's marketing director... she answered the questions honestly and now I guess this lovely nice lady is banned from the US for life? So stupid. -
martinstraka8282
285
I was actually referring to the non medical, ID only online sales that have been happening in Canada for years now before legalization. I never did bother with my prescription because it was too easy otherwise and most people I know were doing the same. They were almost all based out of Vancouver.
These non medical companies could only accept e transfers and even changed their recipient info a couple times, so it always struck me as a bit sketchy. -
EconMan
2.7kThese non medical companies could only accept e transfers and even changed their recipient info a couple times, so it always struck me as a bit sketchy. — martinstraka8282
Absolutely! Very Sketchy. Totally illegal and a violation of MC/VISA/AMEX/DISC rules.
But I appreciate the info.
A colleague is adjunct academic like me, and w are currently working on a sort of "silk road" research paper. Because of my position in payments, I could get some good data and it is a challenging but fun work to try and isolate the portion of "silk road" transactions from the regular? I even got funding for it from, ironically (since they are a competitor), Bainbridge/PayPal. So as part of our research, he has been "buying" stuff on the internet and paying with paypal. Most recently, a 1g Stiiizy pod for $160 :scream: In CA they are $75 at a dispensary.:worry: -
martinstraka8282
285
Yes, definitely illegal but still incredibly popular because of the price gouging from the Government on legal sales. They're galvanizing an illegal market because of it. $70 for 1/8th of the good stuff in my local govt. shop!
I did at least consult with my in family lawyer before wading in to it, but I was assured that the risk was minimal or non existent for the consumer. From what you're saying, it sounds like the risk for them could have pretty extreme ramifications. -
EconMan
2.7kFrom what you're saying, it sounds like the risk for them could have pretty extreme ramifications. — martinstraka8282
Yes. I agree with your lawyer on the consumer side.
On the merchant side, the ONLY way to have done that was fraud -- they got a merchant account for X but sold Y with it. Add to that illegal transactions, and they risk serious trouble. Don't know about Canada, but people go to jail every year here for this crime. The banks LITERALLY consider it fraud and they prosecute violating merchants to "send a message". A chiropractor in Georgia just this year was sentenced to 6 years -- he used his merchant account contracted for his medical office on his vape-store. -
EconMan
2.7kYes, definitely illegal but still incredibly popular because of the price gouging from the Government on legal sales. They're galvanizing an illegal market because of it. $70 for 1/8th of the good stuff in my local govt. shop! — martinstraka8282
I completely understand. The primary point of legalizing weed is to REMOVE the negative impacts of prohibition -- violence, corruption, gateway drugs -- and the IDIOT politicians should have hired a first year Econ student to tell them that won't happen if you tax it so high so its "government" price exceeds the blackmarket price.
I'm hearing mixed reviews from canadian friends and clients... and it seems anecdotally to me that people's buying experience significantly depends on what part of Canada one lives in? -
martinstraka8282
285
The buying experience has been very different across the country from what I've heard. Some places you were pretty much SOL on day one. Some provinces were online only I believe. The Yukon was actually one of the most well prepared. Its mostly been the pricing that consumers have complained about and the absurd packaging. One pre-roll comes in a plastic and cardboard package you would expect a set of headphones to come in. Concentrates and Edibles are also not legal yet either, so it's basically just flower and some type of tincture or oil that is legal.
I've only been to the store once and I much prefer the pre-legal online experience. In store you don't get to see any of the product, only lists of product to choose from. Their E-commerce site is even worse as they have a fraction of the product and the site itself doesn't function correctly. The gentleman that helped me could not weigh in on anything and told me he knows nothing about pot other than what I saw on the listing sheet.
Many wrinkles to iron out and I really hope one of them is pricing. If they don't come down, the black market is going to be alive and well. The Govt. was getting slammed on social media pretty hard the first couple days. -
EconMan
2.7k. Its mostly been the pricing that consumers have complained about and the absurd packaging. One pre-roll comes in a plastic and cardboard package you would expect a set of headphones to come in. — martinstraka8282
OMG! I've hear a lot about the packaging... one vid showed a whole shopping bag and she only bought 7 grams. lol Wayyyy oversize containers. Talk about plastic! -
martinstraka8282
285
Yup plastic central, it's almost too much to believe until you see it. I'll take some pictures and post them next time. -
EconMan
2.7kI would enjoy that. And I'll try and find this vid from youtube for you.... he condensed his entire purchase into ONE of their plastic bottles (without packing) and had five containers left over. Then some of the stuff he got was "bubble-wrapped" :cry:
The hilarious thing of course is we tend to think of Canada as environmentally conscious, etc..... but on this one they jumped the shark.
I have a client who runs a dispensary in Toronto, and he is complaining about the (1) taxes (2) how "micro" too many of the regulations are -- like font size of the labels. Don't get me wrong, he is happy. But happy in the sense when you were expecting an RX8 for your birthday but received a Miata. -
martinstraka8282
285
I believe it after what i saw. I could have packed an oz in my 1/8th case easily. The Government up here is really leading the charge on reducing waste aren't they. Gives us all a great example to mimic.
Its disheartening from an environmental perspective as well as likely driving up costs to the consumer. -
EconMan
2.7kIts disheartening from an environmental perspective as well as likely driving up costs to the consumer. — martinstraka8282
It is. And duh government! The whole point of legalization (besides that pesky individual liberty thing) is to kill the black market.
I remember in grad school from a political economy class studying the "cheese traffickers" in the former Soviet Union. There was two places to get cheese. Government stores or the blackmarket. Guess which one had better (like not rotten) cheese. The government launched a "war on illegal cheese". So the Supreme Soviet decided to relax the entrepreneurial restrictions and permitted non-government cheese to be legally sold but only at government approved stores, where they could "regulate" it. Well, the buying public quickly figured out it was "expensive" and the "cheese traffickers" quickly figured out the government was not reliable for payment.... it did not end well. -
EconMan
2.7kFor those interested in this subject, this is THE challenge right now getting merchant accounts for people with flower related businesses. Fascinating actually.
Standard merchant bank contract that unfortunately too many people sign. It deals with "cause" with respect to contract termination. This one little word, "FEDERAL", if left in means the merchant bank can seize all receivables of the merchant at anytime they want!
"(ii) any failure by merchant to comply with all applicable laws, rules and regulations, whether local, state, federal, or by private regulatory association or body..."
WTF!:scream: How anyone who fancies themselves a professional payments person would let their client sign such a thing is evil or a moron. You CAN negotiate with the banks. Even their contracts. don't let them overly push you around. Notice I said overly :) -
EconMan
2.7kSessions being gone and loudly gone is seen by bankers as a positive development, and I predict they will be re-assessing their risk profiles soon as a result.
https://www.youtube.com/watch?v=ECMsPJ66WmA -
EconMan
2.7k@To the Cloud... posting this reply here to a more appropriate category.... the tangent has nothing to do with the MV1.
We've looked at doing it like you state , without having to put money down, but it's not feasible with the rate the credit card processors would charge us to put recurring charges on cards. So instead we just have the customer buy it ( to serve as a deposit) It works like a rental if you return it under the trial period .Also we've got lifetime trade ins for store credit, since most people love their vaporizers and want it for more than a few months. — To the Cloud
Yeah. Also the fraud component. If your Merchant Bank knew, they would almost certainly not like that. Just had a client where the bank made them remove their "no questions asked 90 day money back guarantee" ("made them" in the sense if they wanted a good rate and fee structure).
Something to consider. I try and encourage ALL my clients who utilize recurring billing to do so to the extent possible via ACH/EFT (e-check). The fees are considerably less and the protection for the merchant is much greater. I have a cannabis client who sells a subscription service where people sign up for monthly deliveries that are "surprises" -- 1 out of 50 orders are quadruple value, 1 out of 10 are double, and the rest normal). They were paying 7.5% on cards and we got them down to 2.9% FOR CANNABIS! , mostly via ACH. The risk to the banks is less with ACH, and therefore they are more daring with it.
Another thing oddly few businesses utilize, is the "wallet" functionality of whatever payment gateway they use. (a stored-value card and most loyalty programs use an e-wallet, PayPal is a giant wallet). Some cool marketing programs can be done with it, and without much IT work. -
EconMan
2.7kWOW. I'm starting to think the new e-cig policies coming from merchant banks will soon become worse than for cannabis accounts.
Here are the new minimum underwriting requirements. Much worse than for vape stores. This is an amazing development. For those interested:
E-cig Underwriting
Definition
The purpose of this policy is to ensure compliance with government regulations for merchants selling tobacco or E-Cigarette products (including Vaporizers) in either card present or card not present environments. Several states have begun to require E-Cigarettes be sold in the same way and under the same rules as traditional tobacco. These rules, best practices and laws require those selling such products process, ship and interact within the laws of Federal, State and Municipal law.
Enhanced Risk Review
Accounts will be subject to a more thorough risk monitoring evaluation and periodic review based on processing activity, chargeback levels, marketing claims and other factors.
Specific Requirements – Card Present:
Card present merchants:
● The merchant principal must have a FICO score of 600 or more.
● The merchant must check ID for any face to face sale to confirm the purchaser is 18 years of age or greater.
● The merchant business must not sell any merchandise on the prohibited list.
● Merchant must not sell products that will alter the Cigarette to increase nicotine levels.
● All e-liquids require child safety caps.
Specific Requirements - Card not present (US only):
In addition to requirements for card present merchants:
● Merchant principal must have a FICO score of 700 or more.
● Reserves are required and begin at 10% to the approved monthly volume
● Website must be complete upon presentment of the merchant account by the ISO or Agent. Website Requirements
● Age statements must be present on each page (pop up to enter)
● Age Verification present on check out (box must not be preselected)
● Website must not contain the word Tobacco unless it is stated as a flavoring only
● Website must have terms and conditions, FAQs, privacy policy, return policy
● Website must have a page stating where and how the merchant will and will not ship according to local, state, and federal law. This section must be updated quarterly or as the law changes.
● Merchants must deliver with adult signature required on all sales.
Required Documents In addition to the standard requirements the following documents are required at time of submission:
● Merchant application including MOTO/Internet questionnaire
● Photo ID, government issued, for the signer
● Processing statements - 3 months most recent and consecutive
● Bank statements - 3 months most recent and consecutive business bank statements
● Business financials or tax returns –
• 2 years’ for monthly volume >$150,00 card not present or > $250,000 card present
• Include Profit & Loss, Balance Sheet and Cash Flow Statement
● Articles of Incorporation in good standing
● Fulfillment agreement if third party
● Exhibit A - E-Cigarette Product Addendum for Canadian card present merchants, if applicable
● Exhibit B – E-Cigarette Statement of Compliance for US card not present merchants Reserve Requirements Reserve terms are set at the discretion of Underwriting and may be modified at any time based on risk and/or business need. -
EconMan
2.7kYes. Volatility in prices up the chain. My favorite coffee is Indonesian. I once lived there. Anyway, it is so cheap there. The growers get the least, the middlemen get the most, and the politicians win no matter who wins and loses. My understanding -- and this is hearsay from business clients and friends in legal states -- that there is this same volatility and economies of scale so that big players naturally eat up big players, to the point that a regular person finds it difficult to enter the business.
That's how pharm be came "Big Pharm, and how tobacco became "Big Tobacco", etc. Markets, even black markets, perhaps especially black markets?, have their institutions.
