The $61 billion cannabis industry is getting its first dedicated digital payments platform
- Valley Bank unveiled plans for Valley Pay at Money 20/20 earlier this month, with aspirations to migrate cannabis business’ cash usage to a secure, web application.
- The platform operates as a digital wallet, seeking to serve cannabis dispensaries, growers, testing labs, armored car services, wholesalers, and other CBD/hemp businesses.
In 2020, Americans purchased $18.3 billion in cannabis products, up $7.6 billion from the previous year. The vast majority of those transactions happened in cash, and as we round up 2021, that might finally begin to change. Valley Bank, a New Jersey-based bank with $41 billion in assets, has announced that it is launching the country’s first digital payment platform designed specifically for cannabis-related businesses, called Valley Pay.
With Valley Pay, the bank wants to migrate cannabis business’ cash usage to a secure, web application, “easing the burden on cannabis operators who are reliant on cash transactions today.” The new platform comes as part of Valley Bank’s push for cannabis banking, a project it calls its Cannabis-related Business (CRB) banking program. The bank says the program is designed to give legal cannabis enterprises access to banking solutions that will help them effectively grow and manage their business. Valley Bank wants to work with cannabis dispensaries, cultivators, testing labs, armored car services, wholesalers, and other CBD/hemp businesses.
Today, it is legal to buy and sell cannabis in 18 states. The cannabis industry in the US was worth $61 billion at the end of 2020, and that is projected to rise to $100 billion by 2030. Couple that with the fact that, in 2020, Gen Z and Millennial cannabis sales went up by 127% and 46% respectively, and you might find yourself wondering why digital payments took so long.
The answer lies in the legal hurdles that plague the path to banking the cannabis industry. Still illegal under federal law, the cannabis trade, in states that have legalized it, is maturing and growing. However, banks are still reluctant to serve them, fearing heavy compliance regulations or federal punishment. Without the presence of banks in the ecosystem, state-compliant cannabis businesses have been unable to accept credit cards, receive loans, set up deposit accounts, write checks, run payroll or pay taxes. Without banking, the industry has been forced to work with a tremendous amount of cash — it has been common practice in the industry to pay salaries and taxes in cash — leaving it vulnerable to money laundering and presenting a safety hazard. Some argue this may even render American industry uncompetitive in the race to global cannabis competition.
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Valley Pay is essentially a dedicated digital wallet that will allow the various players in the industry to complete digital transactions. The platform is expected to launch a pilot program in the coming months.
“This new digital payment platform is the first of its kind servicing the critical payment needs of cannabis-related businesses,” says Stuart Cook, Valley’s Chief Digital Product Officer. “We see the reliance on cash and existing payments options as a big problem and have set out to help create a solution for our customers that is convenient and safe.”
A digital wallet works as a relay, connecting to a user’s bank account to pay and receive money from cannabis transactions. Users download the application, connect it with their checking account, transfer funds to the wallet, and that’s that. The only real threat to the program comes from card companies entering the space, but as of now, they remain reluctant.
“We fully anticipate that at some point the card companies will enter this space,” Cook told Tearsheet. “However, we don’t see that as a threat, rather an evolution, and maturity in the industry.”
“The benefit of our program is that when/if that day comes, Valley Pay will be enabled to operate along the same rails, providing convenience to our clients and their customers.”
The future for the industry, Cook agrees, is cashless, saying it could potentially be as frictionless as paying for an Uber. He believes moving digital with payments will allow merchants to better understand and incentivize their customers, and focus on increasing their lifetime value. “In the future, we expect to see the importance and sophistication of loyalty programs to be more closely tied to the payment,” he said.
The Secure and Fair Enforcement (SAFE) Banking Act seeks to help change how the industry is banked. It passed through Congress in April 2021 and awaits a vote in the Senate. According to the bill, "[t]he purpose… is to increase public safety by ensuring access to financial services to cannabis-related legitimate businesses and service providers and reducing the amount of cash at such businesses." The bill will serve to help state-legalized businesses navigate banking in the federally restricted space. It will enable businesses to benefit from banking services, as legal businesses in other industries do, and have access to key financial solutions like accepting digital payments, incorporating cards, and accessing lines of credit.
If the Senate passes the bill and President Biden signs it into law, the act specifically prohibits federal banking regulators from punishing banks for operating in the cannabis industry. Under it, the industry would also be exempt from money-laundering laws, as earnings from the legitimate sale of cannabis products will not be considered proceeds from unlawful activity.
In this fog, Valley Pay could be a light of hope. The firm embraces niche banking as a key part of its business -- offering tailor-made solutions to specialized businesses is a part of its greater philosophy. Over the years, Valley Bank’s focus has ranged from subsets of commercial real estate to middle-market business banking to professional groups. “Cannabis banking is similar in the sense it provides an opportunity to solve a specific problem and cater to a market that is in desperate need of better banking services,” Cook said.
Headquartered in Wayne, New Jersey, Valley Bank is the principal subsidiary of Valley National Bancorp. It serves over 200 locations throughout New York, New Jersey, Florida, and Alabama. Earlier this year, the bank acquired Leumi, a subsidiary of Israel’s Bank Leumi.