Canada is getting ready to bring an industry into the mainstream with the introduction of The Cannabis Act, or Bill C-45, which would provide legal access to cannabis while controlling its production, distribution, and sale.
Over 200 applications for development permits were submitted within the first week of the application process being open in Calgary alone, and Stats Canada estimates that the Canadian cannabis market is worth almost $6 billion. That is a lot of new retailers who will be looking for convenient ways for their customers to make a purchase.
Current Challenges for Payment Processors
Payment processors are required to follow federal law regarding which businesses and industries they can accept payments from. While Canada’s federal law will be changing, most acquiring banks are based in the United States, and federal law in the United States still says marijuana is illegal although it has been legalized in several states.
Because of the United States federal law, most US-based banks, and the payment processors who partner with them, cannot offer payment services to cannabis businesses. This means that processors such as Shopify, Stripe, Square, PayPal, and others will have cannabis businesses listed as prohibited under their acceptable use policies.
Card brands like Visa, Mastercard, Discover, Amex, and Interac allow cardholders to use their cards to purchase products that are legal in the country of the transaction. However, these card issuers do not provide merchant accounts directly.
Because the card issuing banks do not provide merchant accounts directly, merchants need to work with a payment processor or acquiring bank for their payment processing needs. As mentioned previously, these acquiring banks are usually based in the United States where marijuana is illegal at the federal level.
How a Transaction at a Cannabis Retailer Works
Without changes to US federal law, payment companies with transactions that flow down to the United States are going to continue facing challenges when navigating the Canadian Cannabis Industry. As the industry continues to grow, pressure from both payment processors, retailers, and consumers, will continue to increase for regulators to accommodate the changes to the industry in Canada.