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How to Keep Your Cannabis Business out of Trouble

Legal cannabis sales are soaring, with U.S. revenue projected to surpass $28 billion in 2022, a whopping 60 percent increase over 2020 reported figures. But when an industry is on the rise, an influx of questionable people and businesses inevitably follow, resulting in a steady stream of opportunists looking to make a quick buck off hard-working—yet inexperienced—business owners. Here are some things you can do to protect your company from scamsters who come bearing all sorts of promises:


Avoid workaround solutions for credit card payments

If someone offers you a workaround solution to accept credit cards, turn it down immediately. No matter what anyone tells you, none of the major credit card companies allow cannabis transactions across their rails. Everyone understands that customers like the convenience of paying with credit, but teaming up with a vendor that breaks the card company bylaws just so you can please your clientele is not a road you want to take. Earlier this year two consultants for Eaze Technologies were caught scheming to trick banks into processing more than $100 million in credit card payments. Then they were sent to prison. Prison. And they are far from the only ones of their kind. There are many criminals out there, so be wary, and don’t look the other way or “forget” to ask questions when something doesn’t seem right.


Read your merchant agreement

Dishonest types bet that you won’t read the fine print. So read it! For example, some of the same payment processors who peddle sketchy workaround solutions for credit cards will bury deep in their merchant agreements a note stating that their policy is to hold a percentage of your funds for a certain amount of time. They will say it’s to make sure you’re good on your payments, but that waiting period might cause you problems if an unexpected expense comes your way and you can’t access your money to cover it. And what if your processor gets caught breaking the law and goes out of business? If that happens, they are never going to give that money back to you. Case in point: Linx Card was recently shut down, and many of its merchant customers with funds in reserve were simply out of luck without any recourse whatsoever.

Some crooked processors that get shut down resurface under a different name. This can also cause you headaches, as working with operators that repeatedly disappear, or bouncing around between different processors, is disruptive to your operations. And interruptions have a tangible cost. In our experience at Dama, retailers that don’t take some form of electronic payment see an immediate drop in sales by 25-30 percent. You do not want that to happen to you.


Don’t hide from the banking system

If you open a bank account—or let someone open an account for you, as many shifty actors in the industry will offer to do—but don’t indicate that you’re in cannabis, inevitably the bank is going to find out and shut down your account. No matter how hard you try to conceal the nature of your business, sooner or later something is going to raise a red flag, whether it’s a check from a suspiciously named company or too many cash deposits. And if you open a new account after yours gets closed, which is what will most likely happen, that account will get shut down too. This cycle will continue until you are eventually blackballed, which will affect not just your business but your personal banking situation—and that can have serious implications for your life outside of work. It’s just not worth it, so don’t do it.


Staying legal = staying safe

Every cannabis business wants to make money, but it’s important to run your operations legally and transparently, no matter how tempting the alternatives may be. You’ve worked hard to get where you are, so don’t throw it all away by getting caught up with cheaters who are only out for themselves. If something looks too good to be true, it usually is. And when you deal with cheaters, eventually they will cheat you too.


Eric Kaufman
Chief Revenue Office


Sources for reference:
2020 sales
2021 projections
Eaze convictions
Linx owes money to retailers

About the author

Eric Kaufman, CRO, Dama

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