In the cannabis industry, cash is king. While some states have legalized production and sales of marijuana and other cannabis products, card payment processing companies such as Visa and Mastercard have steered away from the industry as long as the federal government still views the drug as illegal.
Still, all-cash transactions can be problematic for cannabis industry professionals, particularly as they relate to security concerns associated with transporting and safekeeping large amount of cash.
The issue is familiar to Ryan Hamlin, CEO of Kirkland-based POSaBIT, a startup that enables cannabis industry businesses to conduct card payment transactions with the help of cryptocurrency — a digital currency often regarded as a type of asset or investment.
After leaving a 16-year career at Microsoft to launch PlaceFull, a startup that offers online reservation services for events and locations, Hamlin’s entrepreneurial drive and need for a new business challenge led him to consider his next startup foray into the payment solutions space. While attending a few cannabis conferences in Seattle, Hamlin, who also dabbled in cryptocurrency, believed the cannabis industry needed a physical Point-Of-Sale (POS) system and card payment processing solution.
Hence, POSaBIT was launched.
According to Hamlin, here’s how POSaBIT works: A customer looking to purchase cannabis products can swipe his debit or credit card at a cannabis retail store’s POS system, purchasing a type of cryptocurrency called Litecoin from POSaBIT. From there, the customer can choose to spend the Litecoin on cannabis products at the store or elsewhere.
“(It’s) no different than if you went to a cash machine, and you pulled out $40,” Hamlin explained. “It’s not required that you spend this $40 in the store. You can keep that money if you want to go next door and buy some Subway sandwiches or whatever.”
For each transaction using POSaBIT’s card payment system, customers pay a flat fee of $3 to $3.50. On the cannabis retailers’ side, they are charged between 1 and 3 percent per card transaction. According to Hamlin, the rate is on par with the card processing charges for other industries. Square, a major card processing solution provider for all types of industries other than cannabis, charges 2.75 percent per transaction.
With the convenience of card payment, customers tend to spend more in stores — two and a half times the average cash sale, according to Hamlin.
“It really is a nice win solution for the merchant because they’re not having to pay high transaction fees,” Hamlin said. “But yet (they’re) getting the benefit of having a payment solution.”
Developing a clever workaround to enable card payment for the cannabis industry is tricky because of the differences between federal and state law governing the cannabis industry. On top of that, POSaBIT operates in the cryptocurrency space, an emerging and fast-growing industry for which lawmakers are playing catchup to enact legislation.
Hamlin hired attorneys from Perkins Coie who specialize in the cryptocurrency space and worked with the Washington State Liquor and Cannabis Board, as well as the Department of Financial Institutions, to ensure compliance. When Senate Bill 5264 was introduced in 2017 to prohibit the use of cryptocurrency to purchase cannabis products, Hamlin testified against the bill at a hearing in Olympia, arguing, “virtual currency, including Bitcoin, are transparent, auditable, and provide businesses with an added level of safety by removing cash from the system.”
According to Hamlin, POSaBIT has a Money Transmitter License (MTL) and is audited annually by the state. The company also is registered on the federal level, which means it is required to report suspicious financial activity.
“The really important part for us is that we wanted to build a solution that was fully compliant,” Hamlin said. “We spent the first year making sure everything we were going to build was compliant.”
Although POSaBIT is only four years old, the company has made some significant financial moves. Last year, POSaBIT acquired DoubleBeam, a cloud-based POS system and card payment processing provider for the hospitality and food industry. Later that year, POSaBIT went public and is listed on the Canadian Securities Exchange (CSE).
Today, the company serves approximately 140 customers operating in the cannabis industry in six states. In POSaBIT’s second quarterly earnings, released in August, the company reported more than $2 million in revenue from digital assets processing services for the first half of 2019, a 230 percent increase from the same period a year earlier. The company was projected to process well more than $100 million in transactions for the cannabis industry by the end of 2019.
The constantly changing federal and state laws surrounding the cannabis industry present an interesting circumstance for POSaBIT. On one hand, if more states legalize marijuana, POSaBIT can expand its reach further. On the other hand, if marijuana is legalized on the federal level, the cryptocurrency-based payment solution developed by POSaBIT would be rendered pointless. Hamlin responded to the hypothetical situation optimistically.
“It’s a pivot opportunity, meaning we will already be in, hopefully, thousands of stores when that day happens,” Hamlin said. “The only difference is, now, we will just process cards straight for cannabis.”
Aside from offering a payment solution for the cannabis industry, POSaBIT is developing and offering a business analytics platform. Hamlin pointed out that relationships with the cannabis industry and the data it possesses regarding transactions that make POSaBIT a valuable company in the multibillion-dollar cannabis industry.
For now, the company is focused on expanding its product offering to more states that have legalized marijuana.