Digital Transactions Authoritative, insightful and timely information for payments professionals
By Jim Daly
Legal U.S. marijuana sales grew 74% to $2.7 billion in 2014 from $1.5 billion the year before, but you wouldn’t know it by the payment card and other electronic payments generated by the budding industry, according to a new research report.
Even though about 20 states have approved medicinal marijuana since 1996 and four states and the District of Columbia now have recreational cannabis laws on their books, legal marijuana businesses remain mostly cash-based because many have a difficult time getting conventional banking and payment services.
The industry is caught in a well-documented conflict between states where marijuana use is legal and regulated, and federal law, which still outlaws cannabis. The discord between state and federal law also restrains investment in marijuana businesses, according to the newly released “State of Legal Marijuana Markets 3rd Edition” report from ArcView Market Research (AMR), a unit of the ArcView Group, an Oakland, Calif.-based investment and research group specializing in the legal cannabis industry.
“Cannabis’s federal designation as a Schedule 1 drug remains the greatest barrier to the entrance of institutional finance and investment groups in the cannabis industry,” the report says. “In general, banks insured by the FDIC [Federal Deposit Insurance Corp.] will not lend openly to companies that profit from the plant for fear of federal repercussion.”
The report notes that despite recent initiatives by the federal government to encourage financial institutions to serve legal marijuana businesses, “very few banks have followed through on the opportunity, so many finance issues persist in the absence of an official change to federal law.”
Despite their problems in getting business banking accounts and merchant accounts for payment card acceptance, the industry is still growing like a weed. Of the $1-billion-plus increase in sales last year, the report attributes 33% of the growth to new “adult use” (recreational) markets opening in Colorado—the first state to legalize recreational marijuana—and Washington state. Arizona’s new medical-use market saw sales more than quadruple from $35 million in 2013 to $155 million last year.
California is the biggest marijuana state, with more than $1.2 billion in legal sales last year. Colorado is next, with $800 million in 2014.
The report predicts that newly legalized recreational marijuana use in Oregon and Alaska could generate $275 million in sales by 2017. AMR also says another 14 states might pass adult-use laws by 2020.
