This week we spotlight Cathy Corby Iannuzzelli, Co-Founder, President and Chief Payments Officer of KindTap.
From your corner of the cannabis industry, what’s the single greatest challenge right now?
Without a doubt, the greatest challenge is the conflict in regulations at the state and federal levels. I think of it as “regulatory schizophrenia.” At the state level, cannabis businesses are legal, tax paying companies contributing to the economic and social needs of their communities. At the federal level, they are illegal businesses denied access to mainstream financial services, limited in the legitimate business expenses they can deduct and paying more for just about everything as suppliers increase prices to cover their own risks of serving the cannabis industry. It’s a real credit to the creativity and tenacity of the leaders of the industry – and the value of the product – that the U.S. cannabis market has grown to $30 billion in spite of these challenges.
How does your business solve issues related to this challenge?
KindTap provides compliant digital payment products to consumers for cannabis purchases. No other industry operates in a primarily cash-based retail environment. Cannabis is forced to because Visa, Mastercard and other payment networks do not allow their payments to be accepted as long as cannabis is illegal at the federal level. This dependence on cash is interfering with sales. In every other industry, customers decide they have a need, they shop, and payment is an afterthought. In cannabis, consumers first think about how they’ll pay and that determines when and where they shop and how much they spend. Plus, all that cash makes dispensaries a target for robberies, putting employees and customers at risk. KindTap has integrated its revolving credit “pay later” product, and “pay now” product into the e-commerce tech stacks that serve cannabis dispensaries. A customer can simply “click” a few buttons to apply directly on the checkout screen of the e-commerce experience, make their first purchase instantly, and have their KindTap account stored on file so future shopping transactions are completed with a simple one-click experience. There’s no cash changing hands in stores, curbside nor at the home delivery handoff. And our sales results show that once a consumer makes a purchase with KindTap, over 80% of them become repeat customers.
You say that Visa, Mastercard and other payment networks don’t allow their products to be used for cannabis purchases. But there are companies that claim they allow dispensaries to accept Visa, Mastercard and AmEx. Can you address how those companies are doing so? Do they have the credit card companies’ blessings?
Great question with a simple answer: They do not operate with the approval of the card associations! There is simply no way for a dispensary to accept a network-branded payment card for cannabis purchases and be in compliance with card association rules. Some merchant processors who claim they can do so use what we refer to as “masked transactions.” They report to the card network that the dispensary is a doctor’s office or flower shop to conceal the transaction from the credit card companies. That’s why you may see a receipt from a dispensary that says the purchase was from Joe’s Sunglasses. When a dispensary accepts a network payment card under this disguised scheme, they run a high risk of chargebacks, meaning the card association can pull back the settled funds from the dispensary. There are other schemes, too, disguising cannabis purchases as money transfers, using off-shore payment processors or cryptocurrency. I have a simple test to determine if payments are in compliance: If there is a payment involving a branded credit or debit card at a dispensary, unless it is being used at an ATM dispensing actual cash, it’s in violation of card association rules. Accepting cards under these circumstances creates legal and financial exposure for the dispensary and potentially exposes their customers’ payment information to bad actors.
Tell us about a situation you’ve encountered that could only happen in cannabis.
I live in Florida where medical cannabis is legal. About a year ago I received my medical cannabis card. I’ve been in payments for a long time but never experienced anything like my first cannabis purchase. The total came to $80, but with a first time discount the final price was $68. The budtender had me slide my debit card into the “cashless ATM” and enter my PIN. She explained there would be a $3 fee for paying with debit and I had to round-up the purchase amount to the nearest $5 increment, so I requested $70. After several minutes interacting with the point-of sale computer, she placed my order in front of me, handed me a receipt for $68, another receipt for $73 and two one-dollar bills. I stared at the papers for a minute and asked her to explain. She did, but I still didn’t follow the math! Not wanting to slow the line, I left. At home I sat down and finally figured it out. I had “withdrawn” $70 in “cash” plus the $3 fee from the “cashless ATM” for a total of $73. But my purchase was only for $71 – the $68 in cannabis and $3 fee – so I got $2 back in cash. For a $30 billion industry, that is beyond crazy!
If you could travel back in time by ten years, what would you tell your former self about the industry?
I would tell myself that federal legalization of cannabis is going to take a whole lot longer than anyone expects, and not to sit around waiting for the law to change. I don’t know anyone who thought 10 years ago that we’d be in 2022 with medical cannabis available to two-thirds of the population and recreational cannabis to nearly half of us, with cannabis still classified by the federal government as a Schedule 1 drug. A lot of investments were deferred with the thinking they wouldn’t be needed once the law changed. But the industry can’t wait any longer. Investments need to be made to eliminate the pain points – like a cash-based retail business – that are impacting growth of the industry. There are all these reports about how big the U.S. cannabis industry has become and how fast it’s growing. I think about how much faster the industry would be growing if it was supported by a mature payments and financial services infrastructure the way every other business in America is today.