Nearly two decades after individual states began allowing cannabis to be used for medicinal purposes, many licensed dispensaries still can’t accept credit or debit cards because payment processors won’t take them on as clients.
They also have trouble getting loans from traditional banks, where cannabis companies are viewed as high-risk clients.
Ever since the Controlled Substances Act was signed into law in 1970, federal regulators have grouped cannabis together with some of the most restricted drugs in America, such as heroin and LSD.
This classification, known as Schedule I, is reserved for drugs the government believes have no known medical benefit and a high risk of dependence. Manufacturing, buying, selling and possessing Schedule I controlled narcotics without specific authorization is a federal crime.
As long as cannabis remains classified under Schedule I, nearly every dollar earned by the industry could be construed as the proceeds of a federal crime.
This legal status has kept the cannabis industry trapped on the fringes of the U.S. financial system, even as retail revenues grew to an estimated $30 billion last year.
But this could all change now that President Donald Trump has ordered the Justice Department to fast-track the reclassification of cannabis.
Once it’s completed, cannabis will be classified under federal law as Schedule III, along with regulated pharmaceuticals like anabolic steroids and Tylenol with codeine.
The primary goal of the fast-tracked reclassification plan is to “increase medical marijuana and CBD research,” according to the order.
But experts and dispensary operators say the coming status change could be a watershed moment for the cannabis industry, paving the way for dispensaries and growers to access traditional banking services, get loans and process electronic payments.
Cash only
Elad Kohen is founder and CEO of The Flowery, a cannabis company that operates 26 stores across Florida and New York. The company employs about 600 people, said Kohen, but it still can’t process credit or debit card payments for cannabis.
Instead, the business is forced to operate in cash, creating a constant security risk for its employees.
“You’re dealing with paper, which makes you a target” for crime, Kohen said. If a dispensary is robbed, “most of the time they rob you for cash, they don’t rob you for product.”
The reclassification of cannabis could transform Kohen’s cash-based operation by lowering the barriers that keep digital payment processors out of the cannabis market.
With an electronic paper trail of revenues and expenses, dispensaries would look more credible and verifiable to banks and potential lenders, said Amiyatosh Purnanandam, a professor of finance at the McCombs School of Business at the University of Texas, Austin, and an expert in corporate finance.
Longer-term, it could make it easier for cannabis companies to get financing and grow.
At stake are billions of dollars in revenues and potentially…
Read More: Cannabis reclassification could end dispensaries’ financial exile
