Normalization of retail payments and merchant services will open the door to a new era of cannabis e-commerce. When consumers can use a credit card to order their cannabis delivery or pickup online sales will multiply. A major driver of this shift will be consumers having more convenient payment options at checkout and also being able to transact on traditional credit. 71% of consumers prefer credit and debit card payments today for security and convenience.
Payment Preference from 2016 – 2019
Source: 2020 Findings from the Diary of Consumer Payment Choice
Updated language in the latest version of the SAFE Banking bill specifically references retail payments and if passed, provides the opportunity to normalized payment processing for retail operations. We think the current draft’s language gives this possibility good odds. Regardless of whether it is this year or the next, the eventual change in the payments landscape will be consequential to the cannabis industry as a whole.
There are already industry specific ecommerce platforms catering to the cannabis industry today, such as Dutchie and Weedmaps. But there are also traditional retail focused platforms already being used both inside and outside of the cannabis industry in the US and Canada.
Shopify is an all-in-one platform that can handle everything from the website to inventory management and online payments. Users tend to like it because it is a single place to manage everything they need to run their ecommerce business. Shopify’s plans include domain names, SSL certificates and website hosting. One major downside to Shopify is that they charge a 0.5% fee to process payments through any 3rd party payment gateway. Dealing in cannabis, even after legalization, is likely to remain “high risk” for financial service providers, which means you’ll likely need a 3rd party payment provider to help you transact with customers.
WooCommerce is an ecommerce platform built for WordPress. It’s open source, meaning that nearly anyone can add new feature options to their menu of plugins. But customizability often means complexity. You’ll need to host your own website on WordPress but this means endless options for customization.
Verdict: Shopify for small businesses and those wanting a turnkey solution. WooCommerce for larger businesses with in-house marketing, website, and for multi-state operators.
Whether you are looking for simplicity or your needs are more complex, there are a few website building and hosting solutions that can integrate with the various ecommerce platforms.
WordPress is a very popular solution with robust options. Design and layout elements can range from simple to complex but the options are virtually limitless. Many professional website developers build on WordPress so if you plan to do it yourself there may be a learning curve. WordPress integrates with WooCommerce via an available plugin and they have thousands of widgets available.
Squarespace tends to be used by first time builders or when a minimalist or simple design is in order. With Squarespace your website is easy to set up and maintain and it integrates easily with Shopify’s ecommerce platform. The options for customization are limited. If you choose to build on Squarespace you can link to Shopify to manage the ecommerce and inventory side.
Wix is another popular platform that is comparable with Squarespace. Like Squarespace, it has limited options and features but is simpler to use for personal bloggers or small businesses. Wix also has a third party partner program (like the Shopify app store) that allows for customized features and payment functionality.
The other major component of ecommerce is the payment gateway, which is used to channel payments transactions between your ecommerce site and a payment processor. Today cannabis retailers either have the option for consumers to pay with cash or Cashless payments upon delivery or pickup. US Retailers can also accept ACH (aka bank-to-bank transfer) based payments at checkout.
As normal retail credit card and debit card payments become available, processing will likely be limited to payment processors already dealing in “high risk” (Visa/MasterCard term) payments.
Payment gateways enable merchants to accept card data through a 3rd party, which makes PCI compliance easier. PCI establishes rules and requirements for holding or processing payment card data securely. As cannabis merchants move toward accepting credit card payments, Merchant-level PCI compliance will be a requirement. Most merchants will need to reach Level 4 or Level 3 PCI compliance, which is completed through a self assessment questionnaire.
Merchant Services – Generally means traditional credit and debit card processing.
MID – A Merchant ID or “MID” is a unique identifier that allows you to access your payment services.
Chargeback – When a customer disputes a transaction that shows up on their credit card statement, which could be due to fraud or other reasons. Merchants should always seek to reduce chargebacks in order to get the best rates and keep their merchant account active. Chargeback rates over 1% can result in high fees or even shutdown of processing service.
Payment Card Industry (PCI) Compliance – Any merchant or tech company dealing with payment card data must maintain PCI compliance. Generally, as more of your own systems transact or possess card data, the more sections of the PCI-DSS will apply to those systems
Payment Gateway – A service that compliantly handles sensitive payment card data and may even keep the card number on file for future payments. Usually integrates with your ecommerce platform.
Payment Processor – A technology company that electronically processes payments and provides payment authorizations on transactions.
Issuing Bank – The bank that issued the consumer credit or debit card.
Merchant Acquirer / Acquiring Bank – The financial institution that settles with the merchant and assumes some degree of settlement risk.
ISO – An organization that works with acquiring banks to acquire merchant relationships, process payments, and maintain portfolio compliance with card network terms.
E-Commerce Platform – A service, such as Shopify or WooCommerce, that enables online ordering. Merchants will need to link their online payments via their payment gateway. For example: Authorize.net integrates with Shopify.
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