Fintech Innovation Opportunities for the CBD Sector Post 2018 Farm Bill
Cannabis is no longer just a budding industry. The introduction of 2018 Farm Bill has completely changed the industry’s business landscape in America. Many cities across the country now have more retail CBD stores compared to Starbucks stores. Experts are hopeful that the industry may finally fulfill its huge economic potential, as more states consider legalizing CBD for recreational or medical use. In 2019, legal retail CBD sales nationwide were well over $11 billion. Many CBD retail outlets or dispensaries have left behind the image of the college dope dealer, and have gone upscale with expensive décor, well-educated budtenders, and sophisticated displays.
Though many things have changed, the industry remains to be rooted in the past in terms of a critical business aspect. When it comes to handling payments, it has always been over-dependent on cash. Unfortunately, the payments and banking system hasn’t done a great deal so far to keep pace with the thriving industry. Naturally, the industry is ripe for fintech innovations right now.
Interestingly, even after 2018 Farm Bill, there is considerable shared state-federal regulatory power over the CBD industry. As a result, it still remains to be highly regulated. All participants in the cannabis supply chain are still required to account for every bit of their inventory. In order ensure compliance with this policy, most of the suppliers and retailers rely on sophisticated point of sale and inventory management software. However, the compliance mandate comes to nothing for them because cannabis-related businesses in the country still can’t have their bank accounts. Most of their payments are still cash-dependent, including payments from customers, and payments to suppliers, employees, and even tax payments. This is not only a huge administrative burden but also undermines necessary compliance with relevant laws.
The Controlled Substances Act is still applicable to cannabis, and it is still illegal under federal law. As a result, businesses operating in the cannabis space are not allowed to have bank accounts in federally chartered banks. Similarly, transactions related to any purchase or trade of CBD is not allowed on the Visa network. This means that businesses are not able to have official credit cards.
Movement of the cannabis business to the digital landscape, however, is certainly in the joint interest of the government as well as the industry. In the current cash-based system, it is extremely difficult for the government to collect taxes and detect illicit transactions by individuals or businesses. Introduction of electronic payments in the industry will increase business volume, make lives easier for the business owners, and help generate greater tax revenues.
With opportunities to provide solutions in both payments and compliance, the industry can be a goldmine for fintech over the next few decades. As the sector is likely to remain regulated for some more years, fintech can play a pivotal role in managing the industry’s finances and operations to help it grow sustainably. Some states have designated certain organizations to enable taxation and tracking through their products. Several point-of-sale providers have already made their way into many retailers’ registers. Also, some payment focused organizations have initiated efforts to digitize the entire payment flow, covering retail payments to suppliers, tax payments, and everything else.
There is no denying the fact that the cannabis genie has finally come out of the bottle and it is not likely to go back in. Right now, the greatest challenge for the industry is to make it as seamless as other retail segments by creating a better payment experience. This is where fintech innovations can make a serious difference by ensuring compliance, reducing the cost of handling cash, and providing consumer convenience. Cannabis enthusiasts can find out more from Veritas Farms.
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