11 April 2017
Inc has the story. Here’s the introduction with more at the link given
Dozens of companies selling ancillary products and services in the marijuana industry were purged from mainstream payment processors like PayPal, Stripe, and Square in January and February. Entrepreneurs say it happened at around the same time that the Trump White House suggested federal enforcement against recreational marijuana might be increased and after Attorney General Jeff Sessions described the legal marijuana industry as “violent.”
These startup businesses, companies selling vaporizers, CBD products, and software to marijuana users or marijuana companies, were kicked off payment processors and other mainstream business platforms en masse as a result, entrepreneurs affected by the purge say.
Shanel Lindsay, the founder of Boston-based startup named Ardent, which makes a decarboxylator, a device that lightly cooks cannabis flowers to be used in edibles, says she has been bounced from PayPal, Square, Stripe, and at least four other payment processors. Lindsay says she missed a total of three weeks in sales while waiting to be approved by an offshore payment processor during the first two months of Trump’s presidency.
“Everyone running an ancillary business got kicked off all at once,” says Lindsay. “It was an unrelenting wave; you could not deny it. All of the banks seemed to be highly attuned to the issue and there was no flying under the radar.”
These companies are used to being kicked off payment platforms, but this time is different. In the past, just before banks were due to face their annual compliance review from federal regulators, they would conduct their own internal audits and close accounts that belong to businesses that are considered too risky. But when former President Obama issued a memo during his term that encouraged banks to do business with the marijuana industry, this loosened up access to both some banks and payment processors for cannabis-related companies. But Obama’s memo was non-binding guidance.
When White House Press Secretary Sean Spicer said he believes there will be “greater enforcement” against recreational marijuana and AG Sessions came out against legal cannabis, banks took it as a warning shot that the Obama administration’s laissez-faire approach was over. Banks likely purged any account related to marijuana in reaction to the comments, says Lamine Zarrad, a former regulator in the U.S. Treasury Department and CEO and founder of cannabis payment processor Tokken. He says anytime the federal government releases a stance on an industry, banks will take “pre-emptive” action, like canceling a potentially problematic business’s bank account, to “de-risk” the bank.
According to PayPal, Square, and Stripe’s terms of service, marijuana and ancillary marijuana companies are banned from using the platforms. But, entrepreneurs like Roger Volodarksy, the founder of Brooklyn-based vaporizer manufacturer PuffCo, says it has been easy for these types of companies to open a PayPal, Stripe, and Square account. It’s only when an account shows more than $20,000 in sales that these processors take a second look, says Volodarksy. Eventually, the payment processors boot companies like PuffCo off, and the companies eventually would create another account later. (PuffCo got booted from mainstream processors last year and eventually found a stable home on a more risk-tolerant platform.)
But Lindsay and other entrepreneurs like Mark Falcone, who co-found tCheck, a company that makes a spectrometer device to test the potency of edibles, says they were kicked off all the processors at once – which is highly unusual based on the previous “Whack-a-Mole” cancelation patterns these processors had practiced in the past. Falcone says his company got kicked off PayPal, BitPay, and even the website hosting service BlueHost in February.
“Since the first quarter of 2017,” says Falcone, “it’s been a slow progression backwards and it feels like we’re going in the wrong direction.”
Banks underwrite payment processors like PayPal, Stripe, and Square, so when a bank purges an industry or business, payment processors have to follow suit. According to spokespeople at PayPal, Square, and Stripe, the companies’ decision to purge ancillary marijuana companies was not affected by the election or comments from the Trump administration.
Stephen Brudner, the founder of Merchant Services Consulting Group who helps companies find merchant payment processors, says that in February, all of a sudden, dozens of small businesses were calling him to see if he could help their business get back on a payment processors. But he couldn’t help them.
“Our phones rang constantly. People selling vaporizers, CBD products, other ancillary companies, we just had to tell them we don’t have a home for you right now,” says Brudner. “Ancillary marijuana companies are considered ‘unbankable’ at the moment.”
As the marijuana industry explodes with growth, there will always be some bank and payment processor that is willing to take on the risk and accept ancillary marijuana businesses. But, these payment processors, which mostly operate overseas, have more difficult terms and higher fees.
Michael Bologna, the founder of DipStick Vapes, which makes a concentrates vaporizer, says he had to sign a personal guarantee with a high-risk processor to be approved.
“This means the processor can go after me and my assets before going after my company if there is an issue,” says Bologna. “I am very uncomfortable with this, but it was either sign or not have a payment processor.”