Marijuana, Going Cashless?

Going Cashless in Hawaii Rests on Uncertain Future of Industry There and Potential Legal Challenges to Come

On September 12, Hawaii Governor David Ige and state Financial Institutions Commissioner Iris Ikeda announced what they called a banking solution for the marijuana business in the state that will allow Hawaii’s medical cannabis dispensaries to access financial services and use a cashless payment system via an app.

This banking solution makes Hawaii the first in the nation to have a cashless dispensary system.

In a statement released from his office, Ige said that the new cashless system enables the state to focus on patient, public and product safety while allowing commerce to take place. “This solution makes sense. It makes dispensary finances transparent and it makes it easier and safer for dispensaries to serve their patients and pay their employees and vendors,” he said.

The state will work with Colorado-based Safe Harbor Private Banking, a division of Partner Colorado Credit Union that will provide limited and temporary financial services for Hawaii’s cannabis dispensaries. CanPay, a debit payment mobile application, will process sales transactions at retail dispensaries.

Hawaii’s eight dispensary license holders have agreed to being cashless operations by October 1, 2017. Maui Wellness Group, LLC dba Maui Grown Therapies and Aloha Green LLC, the state’s two operational dispensaries, have opened accounts with the mainland credit union and have begun using the mobile debit payment application.

The remaining six dispensaries are now at different stages of development and varying stages of the approval process. What remains to be seen is how quickly – or if – other dispensaries in other states adopt this same sort of system.

Dispensaries will be able to use the payment system for payroll, taxes and payments to vendors. Officials hope that, when the temporary agreement between the Colorado credit union expires, a Hawaii banking institution will step up and take over the program.

“It is our hope that a Hawai‘i-based financial institution opens accounts in the future. For now, we are appreciative of the mainland credit union for stepping in,” Ikeda said in a statement.

After making the announcement, officials and dispensary owners were quick to point out that this does not mean that all transactions would now have to be cashless. Both the CanPay app and cash will be accepted as forms of payment. “We’re not going to turn away anyone who wants to pay cash,” Brian Goldstein, CEO of Manoa Botanicals, said. “If they come in and want to pay cash, its legal tender and we’ll accept it. I think we’re going to encourage people to use the cashless system. … But there’s going to be some people who don’t want to use cashless, so we have to accommodate them.”

This payment solution is expected to work because CanPay does not need a money transmitter license since the mobile application company does not transmit funds between the consumer and retailer. The mobile application company sends ACH instructions from a patient’s checking account to the retailer’s checking account (like other retail transactions using a debit card). Once the account is validated, the consumer can use the mobile application to purchase product at a dispensary.

A retail dispensary consumer would need to sign up with CanPay, then, when making a purchase, the consumer would use the mobile application to generate a QR code to facilitate payment from the patient’s checking account to the dispensary. The QR code is for one-time use and will expire after 30 minutes.

For patients who do not have a smart device, dispensaries intend to set up an in-store tablet device that will allow a patient to use their email address and security PIN to login to their CanPay account to generate the single-use payment QR code.

Patients would need to register for an account online at the CanPay website. Registered patients who do not have a checking account may eventually be able to use the CanPay app
 with pre-paid storage cards that allow debit transactions, but this option is not yet available.

Yet there are some ongoing concerns about how this system would operate. Hawaii is not considered a best-case example of dispensary operations. According to sources, Hawaii’s legal cannabis industry is struggling, with reports of poor quality cannabis being sold in the dispensaries and ongoing regulatory issues.

Some legal advisors see this cashless approach as legally fragile and apt to collapse as the cannabis industry in Hawaii is still working out details of their operations, such as how to grow and sell product in an environment where plants have to be grown indoors because of the extreme humidity there.

There are only eight dispensaries serving a limited number of cannabis patients on an island chain where transportation of cannabis between islands falls into a grey area of the law. And because this is an island state, the costs of building and running a dispensary – electricity, water, real estate – are more expensive than on the mainland.

But still, the state is trying something that no other state has tried. An FAQ document linked to the announcement stated that Hawaii could be the “sandbox to test this type of payment system” as a safe way for consumers to buy product, and for cannabis dispensaries to use traditional financial services to legally conduct transactions.

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