Cellular phone, bank notes and leather wallet
Strict banking records and seed-to-sale tracking make compliance a challenge
By Garrett Rudolph
The lack of traditional banking in the cannabis industry, coupled with strict rules regarding accounting, record keeping and seed-to-sale tracking has made it vitally important for marijuana businesses to partner with vendors that can not only fulfill their cash management needs, but also help with the monumental task of staying in compliance.
This month, Marijuana Venture continues its ongoing series on companies that serve the cash management, point-of-sale and compliance aspects of the industry.
PayQwick
PayQwick was founded with a simple principle in mind: Remove the cash from what is largely considered a cash-only industry.
That concept opened the door to a great business opportunity, but it’s also a necessary step for the future of the cannabis industry, said PayQwick CEO and president Kenneth Berke, who also pointed out that most problems in the cannabis industry stem from large amounts of cash.
“It’s too enticing for criminals,” he said.
The PayQwick system works similarly to prepaid gift cards offered by many major retailers. It has applications for every level of the cannabis industry, from producers to retailers to consumers.
Consumers can sign up for an account at participating retail stores by purchasing a PayQwick card preloaded with $50 or $100, or signing up online (www.payqwick.com). The card can be used immediately to make purchases from marijuana retail shops. There’s also a smart phone app that can be used to make payments in lieu of using the PayQwick card.
When customers needs to add more money to their cards, they can do so online with a simple e-check from their bank account.
When people purchase marijuana at retail stores, money is transferred from the customer’s account to the retailer’s account. The benefit for consumers is that they don’t have to bring cash every time they shop for cannabis, plus there’s the Rewards Qwicker program that gives customers points that can be redeemed for merchandise and discounts.
For retailers, they can use the money in their PayQwick account to pay vendors, make ACH transfers, transfer money to their bank account or even pay their excise taxes.
“Most importantly, we think is that the retailer can now purchase marijuana inventory from a producer/processor who has a PayQwick account,” Berke said.
Producer/processors, although not dealing with the general public, can also sign up for accounts to pay for supplies and accept payments from retailers.
There’s no monthly subscription and no minimum terms. The only equipment need is a tablet/computer and a card reader, which PayQwick supplies to the businesses. There are no set-up fees for retailers or producer/processors. PayQwick makes its money from fees charged when customers swipe their card, similar to credit card processing fees.
Businesses must submit an application to open a PayQwick account. PayQwick does a full audit and inspection of the business to make sure it’s compliant with state and federal regulations.
On top of the PayQwick account itself, the company’s due diligence also makes it so merchants can get bank accounts through PayQwick’s partnership with banks, Berke said.
Business owners in the cannabis space often lament the heavy regulations that have been put in place by governing state agencies, but Berke, a longtime attorney by trade, looks at it differently.
“The more regulation, the better,” he said. “It helps the industry.”
The strict regulations are what have allowed PayQwick to service Washington’s recreational cannabis market. Berke said he’d like to expand the company into other markets, but so far only Washington has enough controls in place to make it feasible.
“Colorado is still a little bit of the Wild, Wild West because it doesn’t have the traceability system,” Berke said. “One of our main benefits is that we make sure every dollar deposited into a PayQwick account comes from the legal sale of marijuana. Every dollar going through the PayQwick system can be tracked back to legitimate marijuana sales. In Colorado, they don’t have that traceability system. They still have a budtender pulling it out and putting it on a scale, so you can’t track it.”
PayQwick is a federally-registered money services business, as well as being licensed by the Washington State Department of Financial Institutions.
Although the business has been developed out of the lack of traditional banking open to the cannabis industry, Berke believes PayQwick is more than just a stop-gap solution until more banking options come along.
“We think it’s long-term,” he said, pointing to PayQwick’s compliance programs for the Bank Secrecy Act, Anti-Money Laundering and Initiative 502.
“That’s never going to go away, and that’s a lot of brain damage for a bank to try to go through,” Berke said.
Green Bits
About the time Washington and Colorado voters approved legislation to allow the production and sale of marijuana for recreational use, Ben Curren was kicking around a few ideas for his next project.
Curren’s background was in writing software. In the summer of 2012, GoDaddy had just bought Outright, the web-based accounting software company Curren co-founded.
He began researching the cannabis industry and seeing a need for software solutions for the amount of compliance required with tracking and accounting.
“It seemed like a perfect match for my background,” Curren said.
He launched Green Bits in May 2014, had his point-of-sale system installed at the first store in July, and just one year after the formation of the company, has cornered a significant portion of the Washington retail market with his software.
The Green Bits software allows retail store employees to sell product and process payments, while keeping the operation in compliance with the seed-to-sale tracking requirements for Washington’s recreational market.
Curren developed the software by looking at best practices of other retail industries and incorporating them into an automated service for the cannabis industry. Green Bits helps train store employees about best practices in cash management, changing shifts, counting cash, tracking sales and inputting data into QuickBooks accounting software.
“Behind the scenes, when product is being sold, the system is always communicating with the state’s traceability system,” Curren said. “They don’t ever have to do tracking of their products, it’s fully integrated and updates as they sell.”
Currently, the point-of-sale software is highly specific to the Washington market, but Curren is refining the product and preparing to bring it into other markets around the country.
“We don’t want special software for every state,” he said. “We want it to be one software with the same best practices, with different compliance features that can be plugged in for different states.”
Part of the reason Green Bits hasn’t expanded into other states yet is the level of regulation.
He sees lot number tracking and traceability, similar to the way Washington is set up, as the future of the industry. Colorado, at the moment, does not require the same level of seed-to-sale tracking, while the Oregon and Alaska programs have yet to come online. Curren said the company will consider other markets, such as those in the states with regulated medical industries, if they fit with Green Bits’ forward-thinking approach.
As Washington’s market has matured, Curren has paid a great deal of attention to the best practices within the state’s retail market, and in particular, areas where retailers face challenges with staying in compliance.
One of the most common areas state-licensed businesses fall out of compliance is with receiving product, he said. A lot of problems are caused by different lot numbers, even if the product is the same. For instance, one-gram packages that seem to be exactly the same product could in fact have multiple different lot numbers.
Counting those packages and entering them into inventory requires a great deal of organization and making sure the shipment aligns properly with the manifest. If there’s a mistake on the manifest, the state wants the producer/processor to return to headquarters, fix the manifest, place the product back in quarantine, and remake the shipment another day. Therefore, mistakes can be very costly in terms of turnaround time, employee wages and gas, Curren said.
Another challenge of staying in compliance is that the state’s accounting system is extremely strict, he said. Excise taxes basically have to be calculated to the penny in the cannabis industry, whereas other businesses are often allowed some wiggle room.
“Your record-keeping has to be pretty much exact,” Curren said.
Green Bits has features that help retailers reconcile their cash with QuickBooks, as well as reconciling their sales with the state, Curren said.
“All three always get the same type of transactional record,” he said.