What do you do when you have a very successful and popular product (marijuana) that is legal in some places but has been classified as a Schedule 1 drug by the federal government since 1970? You cannot, therefore, rely on any national institutions as business partners. One of the most prominent examples is payments and payment processing; even after recreational cannabis was legalized in 21 states and decriminalized in another dozen or so, cannabis has largely become a cash business. That is a problem for both consumers and businesses in an increasingly cashless world. Smoakland is currently beta-testing a credit card payment method for its customers. The key, it turns out, is cryptography.
“You’re not actually purchasing cannabis with a credit card,” says Jeff Dillon, managing director of Marketing at Smoakland. “You’re purchasing crypto, and then we immediately use the crypto to purchase cannabis, before cashing the crypto back out. That way, your credit card company knows users are purchasing crypto. Crypto doesn’t give a shit what you do with it. For my purpose, and for the purpose of the customer, [the payment processor has] no idea what’s going on.”
Of course, cannabis is a higher-risk market, and Smoakland expects customers to pay slightly higher processing fees, but the team believes customers are willing to do so in order for the company to rise in a blaze of convenient glory.
“Two to three percent is standard for e-commerce, if you open a Shopify account or something like that. We are probably around 5% with high risk. If we were to open a porn site, it could be even higher than that. We’re a little bit lower, because there’s still a physical transaction. Anything involving crypto is deemed high risk, and you’re going to be charged a higher rate for the risk,” Dillon explains.
The Smoakland team claims to be on the cutting edge of this technology and wishes to keep its cards close to its chest in terms of who the exact payment processor is.
According to the company, it is noticing fluctuations in average order size throughout the month and is hoping that offering credit cards will help smooth out its peaks and troughs a little — but also make its products available to customers who require them. It plans to launch its credit card service on April 20th, also known as 4/20, which has become synonymous with marijuana for a variety of reasons.
“We’re seeing this cash crunch, and a quasi-recession that we’re going into. You can really see that between pay periods the difference in average order size varies. I’m starting to kind of pick up on this trend: The first and 15th, people have a lot more money to spend, and the average order sizes are higher,” Dilon explains. “It’s in beta currently, and we hope to go after a full rollout for 4/20 to capture that market. So that’s a big push, trying to have credit cards available then, because it’s an off-week. People get paid on the 15th. Being able to offer credit cards for people who are on a bit of a tight budget, that’s even better.”
Of course, the Smoakland team is aware that the products are being used recreationally, but it believes it is on a larger mission, describing its product as a “essential, critical medicine for people.” The company is putting pressure on prices, among other things.
“In Oakland, you see our billboards and banners around,” says Dillon, comparing his company with Fred Franzia’s Two-Buck Chuck wine selling out of Trader Joe’s. “Franzia went to Paris and realized there’s great wine sold at normal prices. We do the same thing for cannabis, as the home of the $49 ounce.”
It’ll be interesting to see whether Smoakland will be able to keep its payment processor up and running in the midst of a complicated set of pressures on the financial institutions, but the company isn’t overly worried, and suggests that the SAFE banking act is putting its thumb on the proverbial scales in the favor of what it is doing.
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