UPDATED: Smoakland is testing a loophole to sell cannabis by credit card
What do you do when you have a very successful and popular product (marijuana) that is legal in some places, but federally has been a Schedule 1 drug since 1970? Well, you can't rely on any national institutions as your business partners. One of the major places that shows up is in payments and payment processing; even after recreational cannabis became legal in 21 states and decriminalized in another dozen or so, cannabis has become largely a cash business. In a world that is increasingly cashless, that's a problem for both consumers and businesses. Smoakland is currently beta-testing a loophole that lets its customers pay by credit card. The secret, it turns out, is crypto.
"You're not actually purchasing cannabis with a credit card," says Jeff Dillon, managing director of Marketing at Smoakland. "You're purchasing crypto, and then we immediately use the crypto to purchase cannabis, before cashing the crypto back out. That way, your credit card company knows users are purchasing crypto. Crypto doesn't give a shit what you do with it. For my purpose, and for the purpose of the customer, [the payment processor has] no idea what's going on."
Of course, cannabis is a higher-risk market, and Smoakland expects it needs customers to pay a bit more in processing costs, but the team believes the customers are willing to do that in order to go up in a blaze of convenient glory.
"Two to three percent is standard for e-commerce, if you open a Shopify account or something like that. We are probably around 5% with high risk. If we were to open a porn site, it could be even higher than that. We're a little bit lower, because there's still a physical transaction. Anything involving crypto is deemed high risk, and you're going to be charged a higher rate for the risk," Dillon explains.
The Smoakland team says it is at the bleeding edge here, and wants to keep its cards close to its chest regarding who the exact payment processor is.
The company says it is noticing fluctuations of average order size throughout the month, and is hoping that offering credit cards can help smooth out its peaks and troughs a little -- but also to make its products available to customers who need them. It is hoping to do a full-scale launch of its credit card service on the 20th of April -- known as 4/20, which, as a number, for various reasons, has become synonymous with marijuana.
"We're seeing this cash crunch, and a quasi-recession that we're going into. You can really see that between pay periods the difference in average order size varies. I'm starting to kind of pick up on this trend: The first and 15th, people have a lot more money to spend, and the average order sizes are higher," Dilon explains. "It's in beta currently, and we hope to go after a full rollout for 4/20 to capture that market. So that's a big push, trying to have credit cards available then, because it's an off-week. People get paid on the 15th. Being able to offer credit cards for people who are on a bit of a tight budget, that's even better."
The Smoakland team is aware, of course, that the products are used recreationally, but it believes it is on a bigger mission, describing its product as an "essential, critical medicine for people." Among other things, the company is pushing on prices.
"In Oakland, you see our billboards and banners around," says Dillon, comparing his company with Fred Franzia's Two-Buck Chuck wine selling out of Trader Joe's. "Franzia went to Paris and realized there's great wine sold at normal prices. We do the same thing for cannabis, as the home of the $49 ounce."
It'll be interesting to see whether Smoakland will be able to keep its payment processor up and running in the midst of a complicated set of pressures on the financial institutions, but the company isn't overly worried, and suggests that the SAFE banking act is putting its thumb on the proverbial scales in the favor of what it is doing.
UPDATE: It turns out that you can't use this approach, and Smoakland are cancelling the trial. Update here.