It's no secret that cannabis has a cash problem. Even though pot is now legal in 28 states plus DC, banks and credit card companies are still wary of working with cannabusinesses since they traffic in wares that are illegal on a federal level. This means that nearly all cannabis-related businesses are cash only and must find alternative ways to store this cash if they're unable to open up a bank account. But when you're a $6.7 billion dollar industry, all that marijuana money isn't exactly going to fit under a mattress.
The cannabis industry's unique financial difficulties have created a whole micro-industry dedicated to creative banking solutions for pot brokers, which range from bank-to-bank phone apps to blockchain powered peer-to-peer transactions. The latest trend in this industry is the automated kiosk, which promises cannabusinesses and their customers transactional ease, while providing banks with a guarantee that these weed sales are legitimate and in compliance with federal law.
In essence, these kiosks are the first thing the cannabis customer interacts with when they walk in a door. They can make their bud selection on the screen and deposit their money into the device. After all this is said and done, they can go into the interior of the dispensary to pick up their purchase. While this might sound like a trivial application for a technology that is already seriously disrupting the workforce, it happens to solve a major problem for those in the business of cannabis.
In 2014, the US Department of Justice Deputy Attorney General James Cole released a memorandum entitled 'Guidance Regarding Marijuana Related Financial Crimes.' The memo basically outlines all the ways that banks could get federally prosecuted for taking cash from marijuana-related businesses: the violation of money laundering statutes, unlicensed money transmitter statute, or the Bank Secrecy Act (BSA), which requires banks to assist the government in preventing money laundering.
After listing all the laws that banks are probably violating by taking cannabis cash, the memo then pivots and says that in spite of these potential banking infractions, feds are focusing on enforcing the eight law-enforcement priorities outlined in a previous DOJ memo. So long as banks could guarantee that their cannabusiness customers weren't violating any of the eight law-enforcement priorities (e.g., selling to minors or diverting legal pot out of the state), they could rest easy taking money from clients that sell legal weed.
On the same day the Cole memo was released, the US Financial Crimes Enforcement Network (FinCEN) released a document outlining "expectations regarding marijuana-related businesses" per the Bank Secrecy Act. This document goes into detail about how financial institutions can avoid taking on questionable clients that may be in violation of federal law, offering a list of 'red flags' and outlining the protocol for reporting suspicious activity.
Between the Cole and FinCEN memos, banks and other financial institutions technically had all the assurance they were going to get about taking money from cannabusinesses. The problem of course is that being able to prove beyond a doubt that each of your cannabis customers are legit is a huge undertaking for banks, and many financial institutions found that the reward was not worth the risk and investment.
"In the cannabis space, it's the bank's understanding that it has to understand not only its customer, but its customer's customer," David Dinenberg, CEO of KIND Financial, told Motherboard. "So we developed a software solution that removes the manual labor from the compliance component so that it's significantly cheaper for the bank to operate if they choose to take the cannabis deposit."
KIND Financial was founded by Dinenberg in 2013 to provide banking solutions to the cannabis industry, but he quickly realized that financial solutions were only possible if a cannabusinesses' compliance with the Cole memo priorities could be guaranteed to a bank. This prompted Dinenberg to greatly expand the scope of KIND Financial's operations to include seed-to-sale tracking and compliance software.
In 2015, KIND acquired Agrisoft, a software development company specializing in seed-to-sale tracking systems for the marijuana industry. Just a few weeks later, KIND partnered with the financial compliance company Link to Banking to create a robust end-to-end compliance ecosystem for banks and their cannabusiness customers.
What this looks like in practice is an automated kiosk in the waiting room of a weed dispensary.
These kiosks integrate KIND's seed-to-sale software on the cannabusiness side of things, allowing customers to easily purchase whatever goods are being sold at the dispensary. The customer pays at the kiosk before proceeding to the budtender who has their purchase waiting for them. An armored truck hired by KIND will make routine stops to collect the cash deposited in the dispensary's kiosk and will then deliver it wherever the dispensary wants, whether that's a bank account (if they have one), their home, or an offsite storage facility. The cannabis industry's need for armored trucks for this purpose is so great that it has spawned a micro-industry of its own.
Not only does this kiosk prevent internal theft for the cannabusiness since cash never actually touches the hands of a dispensary employee, it also provides assurance to banks that everything is on the up and up. According to Dinenberg, it is "nearly impossible" to divert cannabis from KIND's seed-to-sale surveillance system and each customer transaction is recorded in the kiosk. The bank would normally have to do the laborious compliance paperwork for each of its weed-slinging customers by hand, but KIND has developed a software to automate this process for banks that have .
"Our professionals go in, evaluate the bank's situation, and help them construct their cannabis compliance program," said Dinenberg. "Then we provide a piece of software to the bank that puts the bank in an over complying situation so they can totally adhere to the guidelines that have been issued by the federal government in an automated fashion."
KIND is not the only software and/or compliance company to be thinking about cannabis kiosks—Jane and KioWare are two other companies that also want to use automated kiosks as a solution to the cannabis industry's financial problems. Even Jamaica's Cannabis Licensing Authority is on the kiosk train and wants to install weed kiosks in Jamaica's airports. Yet with KIND's recent partnership with Microsoft to provide cannabis tracking solutions for governments, Dinenberg thinks that KIND definitely has the leg up on competition.
"None of those systems that exist in today's marketplace take the compliance far enough under the Cole and FinCEN memos," Dinenberg said. "We got together to solve this problem collectively through technology. That's what we do."