Tech companies carve niche in cannabis industry
Some tech startups are finding a way to serve the marijuana industry despite limits stemming from federal laws that outlaw the substance.
And those startups are finding customers in Pennsylvania, which in 2016 legalized the use of medical marijuana.
One, called CanPay, is capitalizing on the restrictions that hinder interactions between banks and medical marijuana companies.
The Colorado-based company addresses a problem many dispensaries are facing: The need to operate on a cash-only basis because of the hesitancy among financial institutions to do business with marijuana-related entities.
CanPay has created an app that allows dispensary customers to transmit payments from their checking accounts, said the company’s CEO, Dustin Eide.
Patients enrolled in CanPay first link the app to their checking accounts. When they buy recreational or medical marijuana, the funds are transferred from the customer’s checking account to the dispensary’s checking account at one of 25 financial institutions that are partnering with CanPay.
CanPay is free for customers and patients but dispensaries pay a transaction fee that is comparable with the fees paid by traditional retailers, Eide said. He declined to identify CanPay’s partners, noting that they have nondisclosure agreements.
“They are openly banking in the cannabis industry with their regulators, but they are not necessarily promoting it publicly that they are serving the industry,” Eide said.
Customers can link CanPay to a checking account at any U.S. financial institution. But dispensaries must work with financial institutions that are following guidance from the Financial Crimes Enforcement Network, Eide said.
If a dispensary loses its bank account with the financial institution for any reason, it also loses access to the CanPay network.
“So our role in that is really providing an electronic payment service to dispensaries that are validated as compliant by their banking institutions,” Eide said.
The company currently operates in 14 states and plans to add more, Eide said.
Almost half of the 31 dispensaries operating in Pennsylvania accept CanPay, including Knox Medical in Hanover, which also accepts cash.
“CanPay streamlines the transaction process for customers unaccustomed to carrying cash or who may not have a debit card with them at the time of purchase,” said Scott Klenet, a spokesman for Knox Medical, which is based in Miami. “We have received positive feedback from patients using CanPay and intend to continue offering it as a method of payment at forthcoming dispensaries in the state.”
Another startup is LeafLink, which aims to streamline how dispensaries and retailers purchase inventory.
The Los Angeles-based company, which recently launched in Pennsylvania, is working with 20 dispensaries in the commonwealth. The dispensaries can place orders, request samples and send messages to other growers and retailers on LeafLink’s online platform.
Because the cannabis industry is so new, it doesn’t have legacy processes and structures built in to its supply chains, said Ryan Smith, CEO of LeafLink, which was founded in 2015.
“A lot of times startups are going into something that’s more established and really trying to change how things are operating and disrupt it,” Smith said. “But for us right now, we are in this unique position of getting to set a standard for our clients.”
The company currently serves over 700 brands and 2,200 retailers across 10 states, including Oregon, Colorado and California.