You're probably not trying anything new if you're not making mistakes. The essential thing is to learn from past mistakes and avoid making them again. This is also true when it comes to cannabis payments. There are many shady cannabis payment options, but using them might put you in much trouble. We've heard many horror stories from folks who tried other cannabis payment techniques before finding us, so let's learn from them!
"In Russia, I ended up with $1.3 million in foreign reserves."
Many cannabis business owners find themselves with money locked up in foreign bank accounts. While most of the people we speak with wind up with anywhere from $30,000 to $120,000 in foreign reserves, the worst-case scenario we heard about was $1.3 million in Russian funds.
What causes this to happen? The merchant, in this case, maintains an e-commerce site and accepts credit card payments for marijuana. They had to open an offshore merchant account, which required a particular percentage of rolling reserves, to have this choice. Several payment processors that accept cannabis credit cards have this restriction to protect themselves.
However, when the merchant receives more chargebacks and disputes, the merchant's rolling reserve requirements may increase. So, instead of keeping 20% in reserves, they may need to hold much more, especially if they start getting more chargebacks and disputes.
Sprout Processing is a unique creature. Your funds are never moved offshore because all of our payment processing is done by American banks. We also limit the number of disputes or chargebacks by ensuring that sufficient funds are available in the account at the transaction time. Furthermore, with cannabis payment processing, most of our merchants never have to worry about rolling reserves.
"Our accounts receivables totaled $10 million."
In the cannabis industry, managing B2B payments is complicated because most transfers aren't made through standard channels. As a result, keeping track of expenses requested and which businesses still owe you money might be difficult. One company we dealt with had a problematic situation in which their accounts receivable totaled $10 million.
This is something Sprout Processing can help you avoid. Sending and receiving payments online is quick and straightforward with our B2B payment platform. You may also check when requests were made and when payment is expected using invoice and payment tracking. You can also set up reminders and notifications to help you stay on track.
"We're going back and forth between multiple suppliers who offer cannabis credit card processing."
It's a good idea to have redundancy in place with multiple payment sources if one fails. One merchant we spoke with has gone through three different credit card processors in the last six weeks. Each credit card cannabis payment option has failed, forcing them to move on to the next.
While they may be able to find more cannabis credit card processing, it's evident that this is not a long-term payment solution. There are startup fees, reserves, transaction fees, and sometimes even personal guarantees when they join on with a new cannabis payment processor. In reality, utilizing credit cards in the cannabis market has significant risks.
Sprout Processing never asks cannabis businesses for personal guarantees. Our model is long-term and dependable, with a far lower risk of failure. As a result, once you start using Sprout Proceessing, you won't have to keep looking for new payment options, and your consumers will appreciate the constancy.
"Our ATM was found to be involved in money laundering!"
Because cannabis has a long history of operating as a cash-based industry, shops must have ATMs on site. However, some people have gotten themselves into significant problems due to this. Many people make up stories about where the ATM is located, claiming that it's "in a flower shop" or something similar. Some outlets work with dubious marijuana payment processors who convert ATMs to cryptocurrencies. Either of these "solutions" could be construed as money laundering, with all of the ramifications that entail.
Sprout Processing helps your company to eliminate cash from the equation. Going cashless has several advantages, including lower cash handling costs and reduced risk.
"My bank account has been suspended!"
This is one of the most prevalent problems we encounter. Several firms have had their bank accounts shut down once the financial institution discovered the nature of their operation. Tier III MRBs have even been known to lose their bank accounts!
Banks and credit unions want to limit their risk, and banking a product that is still illegal under federal law carries many risks. While some financial institutions are prepared to bankroll the industry, far too many companies try to conceal the nature of their transactions. As a result, banks and credit unions have decided that it is safer to close those accounts.
Sprout Processing was designed by and for bankers. The financial institutions ready to bank the industry were our first customers. It's easier for those banks and credit unions to report suspicious behavior and retain your MRB bank account if you clarify what the transactions are and where all the monies come from.
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Cannabis firms can get quite inventive when they don't have reliable ways to send or receive funds. While cash remains a standard mode of payment, other businesses have informed us about more odd payment methods. One company stated that they had received over $4,000 in pre-paid VISA gift cards, which had been wrapped in rubber bands and mailed in a box.
Both the sending and receiving businesses find this inconvenient. Consider the situation when you need to buy pre-paid cards to pay for business transactions at your local convenience store. This isn't a scalable, dependable, or long-term viable cannabis B2B payment option.
For many retailers, this is the worst-case situation. We've met business owners placed on the TMF or MATCH lists, which are VISA and MasterCard's blacklists. If your name appears on one of these lists, you will not only lose your merchant account, but you may also be unable to obtain one in the future. Even if cannabis is allowed in the future, the consequences associated with your social security number and business tax ID will remain with you.
While there is an appeals process for being placed on these lists, it can take years to resolve and may not result in the desired outcome. The more you use a shady cannabis payment service, the more likely you will be added to this list. As a result, the preceding example of cycling through many providers becomes even more perilous.
Sprout Processing can help you stay safe in this situation. Sprout Processing is entirely transparent with our financial institution partners since we take compliance very seriously. They are aware of the different types of transactions and adhere to a far higher degree of reporting and compliance. As a result, you're less likely to be caught lying to the financial institution or breaking the terms of your underwriting agreement.
Everyone makes errors, but maybe now you'll be able to learn from them and prevent the same repercussions. Give us a call if you have any questions regarding your current cannabis payment solution or marijuana bank account, and we'll assist you to avoid some typical mistakes.