DES PLAINES, Ill.—A new company is offering a closed-loop payments system to cannabis businesses to help eliminate their need to handle large amounts of cash.
Should it work, it would address one of the primary drivers of interest by marijuana-related businesses in developing relationships with credit unions.
VertePay, headed by William Drevant, allows consumers to make purchases at cannabis dispensaries by using their driver’s license or state marijuana ID card. Consumers simply swipe the plastic—preloaded with funds—instead of handing over cash.
“This alleviates one of the biggest issues marijuana dispensaries face, the problems that come from handling large amounts of cash,” said Drevant. “It will also help with improving documentation of transactions at dispensaries.”
Transaction documentation is a concern not only from state authorities who oversee the marijuana industry, but also from financial institution regulators for FIs working with pot dispensaries.
Little Access To FIs
Marijuana businesses across the country face the difficult problem of gaining access to banks and credit unions, and to the payments chain, due to concerns over risks associated with the pot trade. Regulators, even in states where cannabis is legal, have frowned upon banks and credit unions working with the cannabis industry due to the fact marijuana is illegal on the federal level. Outside of a handful of banks and credit unions openly serving the marijuana industry, often pot dispensaries get an FI account, and within less than a year are asked to leave.
William Drevant
A credit union in Colorado, The Fourth Corner CU, has been chartered to serve marijuana businesses in that state, but has yet to open its doors because it has not received approval from NCUA for share insurance coverage. Some analysts think that The Fourth Corner—which had hoped to open for business in January—will never gain share insurance coverage and therefore never open for business.
But Drevant expects VertePay, by taking a lot of the cash out of the daily transactions, will help marijuana businesses operate more effectively and safely without direct access to an FI, and with lower security costs and fewer fears of being targeted by criminals.
“Risk is certainly an issue,” said Drevant, noting that some dispensaries pay as much as $12,000 a month for security at the shop and for armored car services.
One marijuana business in the western U.S., reportedly, even buried some of its money in the desert.
Money Loaded Onto ID Card
Drevant explained that customers enroll in VertePay either at the dispensary or remotely via the VertePay website, and then take their driver’s license or state marijuana ID card to a currency exchange business, or to a local convenient store or grocery store.
The customer then loads money onto the card for a small fee, generally $1 to $2, and the funds are transferred to a financial institution participating in VertePay. The money is placed into a “suspense” account, and when the customer makes a purchase, funds are then transferred from the suspense account to the dispensary’s account. The dispensary pays a swipe fee, generally the same amount merchants pay for debit cards.
VertePay has yet to launch, as medical marijuana businesses in Illinois have not opened for business, but are expected to begin sales later in the year. The state approved medical marijuana sales early in 2015.
“We have had a great deal of interest from dispensaries and cultivators in this state,” said Drevant, who added the service will likely expand to other states where marijuana is sold. “We have talked with other state regulators, as well as with dispensaries and cultivators across the country.”
VertePay, Drevant explained, also makes the transactions more secure. “Each transaction creates a report—who bought the marijuana, how much, how much was spent . . . which the state wants sent to them on a regular basis. And, a picture of the person is taken each time, so if it does not match the photo of the person on file, the transaction is rejected.”
Currently one bank is participating in VertePay, with two others considering the program. VertePay is partnered with Best Inc., an Illinois firm that writes software platforms for check cashing.