A Chicago fintech entrepreneur and a LaSalle Street bank are tackling one of the biggest headaches in the weed business: Most transactions are done in cash.
SpenceLabs built a mobile-payments app that allows people to purchase marijuana products with their phones. PharmaCann, a large Chicago-based marijuana grower and seller, has been piloting the SpenceLabs app in recent weeks at its Verilife store in North Aurora.
Because cannabis remains an illegal drug under federal law, most traditional banks and credit card processors are unwilling to provide services to marijuana companies. As a result, most deal only in cash, adding security and administrative complications to the business. Safety concerns related to cash are among the most common concerns voiced at community meetings about allowing dispensaries.
“What other legal industry do you know that is over $10 billion in sales a year but mostly operates in cash?” says Chris Rentner, co-founder and CEO of SpenceLabs.
Rather than being processed as credit or debit card payments, the transactions are handled as electronic payments from the user’s bank account, akin to online bill payments or other transactions. Spence transactions are processed by Burling Bank, a boutique bank in the Chicago Board of Trade Building that got its start in 1989 catering to traders and began serving some cannabis companies three years ago.
SpenceLabs charges the cannabis companies a fee for each transaction it processes. Rentner declines to disclose the amount of the fee but says it’s lower than what is charged by traditional credit card networks.
The cannabis-payments space is a bit like the Wild West. “Every cannabis retailer is looking to take credit cards. But while Congress debates the SAFE Act, which would allow banking and credit cards, there are a lot of companies developing alternative solutions and competing for cashless transaction solutions in this booming industry,” says Jason Erkes, a spokesman for Cresco Labs, a large Chicago-based marijuana company.
Burling Ventures, an affiliate of Burling’s holding company, incubated the startup, beginning last fall. It recruited Rentner, who founded Chicago-based Akouba, a maker of software for processing small-business loans that was acquired two years ago by banking-services company Velocity Solutions. SpenceLabs has a dozen employees. So far, it hasn’t raised outside funding.
There are a handful of companies serving the cannabis space with payment apps, such as Hypur, which is based in Scottsdale, Ariz. Cresco began rolling out a cashless-payment option across 18 stores in nine states. Up to 40 percent of transactions are cashless in some stores, says Erkes, who declines to name the vendor it uses.
“There are some other providers. It’s early,” says Michael Busch, CEO of Burling Bank and Burling Ventures. “What’s been missing is involvement of a bank as the center of trust in that ecosystem. We’re used to being regulated and have a successful compliance program. We think it will provide confidence to additional banks coming into the space.”