Surprising findings in an Abaca cannabis retail payments study
Conventional wisdom holds that the cannabis industry is unbanked – that it’s nigh impossible to get a bank account and other traditional financial services for cannabis operators.
After all, the data show only about five percent of U.S. banks report any cannabis customers, and likely no more than 100 banks and credit unions service the majority of the $10-billion industry.
Yet, according to the 2019 Marijuana Business Factbook, 90% of marijuana-related businesses and 76% of plant-touching companies report they do have access to banking.
What gives? For those with boots on the ground, the problem may lie in what one means by “access to banking.” Many banks offer only cash services. Admittedly, it’s a step in the right direction, but it furthers the industry’s dependence on cash and makes account opening, compliance processing, and transacting business more complex and cumbersome.
The cannabis industry isn’t unbanked; it’s underbanked. And it isn’t unserviced, it’s underserved. Meanwhile, retail payments options remain slim, and the majority of cannabis retail transactions remain cash, even though nearly every retail study shows that more than 50% of consumers prefer to pay cashless.
The data speaks: Abaca’s meta-analysis of 15,000 transactions
In order to develop data and insight into the phenomenon, Abaca recently conducted a meta-analysis of nearly 15,000 transactions that occurred over a one-month period in June 2020. These transactions were in a Midwestern medical cannabis dispensary that had recently added AbacaPay – a cashless debit retail payment solution – to its previously cash-only business.
We wanted to see if any conclusions could be drawn regarding customers’ preferences for and adoption of cashless payment options, any revenue or expense impacts, and other potential implications of the added offering.
In the study, we anonymized data for 14,942 retail transactions and compared cash and AbacaPay cashless transactions. The results were significant, and they surprised even us. Based on consumers’ avowed preferences for card-based payments, we expected to see data supporting cashless, but the actual results beat our initial expectations.
Key findings: higher tickets, greater revenue
When presented with the option, about one-third of this dispensary’s customers opted for cashless payments – just shy of 10,000 transactions were cash and almost 5,000 were cashless. That’s a lower number than what consumer preference studies might have predicted; the surprising finding is how much more money the cashless customers laid out. Cashless tickets averaged $136.35 versus $109.06 for cash. That’s an average ticket 25% higher for those customers paying cashless.
What’s the overall revenue impact for the dispensary; that is, how much did sales increase simply by adding a cashless option?
Total retail revenue recorded during the study period was $1,764,500.78. Assuming that all 14,942 transactions had been cash-only at the average cash ticket value (i.e., the dispensary was still cash-only), total revenue would have been $1,629,574.52. This means adding the cashless payment option increased the dispensary’s total sales during the study period by $134,926.26, or 8.3%.
Clearly, the increased revenue potential of offering cashless options will be compelling to retail dispensaries. Furthermore, cashless payments can help dispensaries pursue COVID-safe contactless payment, curbside pickup and delivery options. But are there benefits on the expense side of the ledger? Related studies demonstrate that there are.
In analyzing the costs across all Abaca customers over the period in June 2020, we found that dispensaries offering AbacaPay reduced the amount of cash handled by 38%. Evaluating their banking fees, we found that these dispensaries had overall costs of financial services 20% lower than their peers not offering cashless payments. This aligns well with research published by IHL Group in its 2018 Cash Multipliers study, demonstrating that electronic payments reduce the risk and cost of handling cash, cash shrinkage, and other expenses that range between 4.7%-15.3% in total cash sales value, depending on the category of retailer.
Bundling payments to capture synergies
Cannabis banking isn’t an easy problem to solve, but that’s just what Abaca is doing. Whether its banking, payments or lending, businesses can bundle services for an end-to-end tailored solution – and that can boost revenues while reducing operational costs.
Bundling payments with banking can yield faster settlement for the merchant. In most cases, businesses get bank account liquidity in two to three business days. AbacaPay has the benefit of eliminating processing fees on electronic transactions.
Abaca is bringing compliant bank accounts, electronic payments, lending, and other financial services to the cannabis industry through a tech-powered cannabis banking platform in Arkansas, Illinois, Missouri, Montana, North Dakota, Ohio and Oklahoma. The company’s fintech platform also offers access to FDIC insured commercial bank accounts, lending, and merchant services to ancillary cannabis and hemp/CBD businesses nationwide.