As momentum builds for cannabis legalization on a federal level, the window is closing for payment innovators to establish themselves in the market.
Many fintechs have created alternative payment methods for legal cannabis dispensaries, filling a void left by the major card networks, which have stayed away from the industry while cannabis remains illegal on a federal level. But if Canada is any example, the networks will all agree to handle pot payments as soon as the substance is legal nationwide.
This means that any company that wants to become the go-to digital payment method for cannabis payments must secure a foothold as soon as possible.
Some cannabis payment fintechs try to emulate familiar payment methods such as using a mobile wallet or payment card. Golden Ark, which was founded in 2020 and launched its Metaferse platform in April 2022, is pushing in the opposite direction with the development of a system that relies on a blockchain, the metaverse and NFTs. It wants users to join a virtual world to sell new strains of cannabis, make social connections to aid distribution, sell cannabis-related NFTs and create virtual cannabis that can be used as a form of crypto to pay for the real product.
“If we build a community, then there’s no reason that mainstream payment processes shouldn’t use our blockchain,” said Jack Lau, chief technology officer of Golden Ark.
As cannabis legalization advances, Golden Ark is attempting to achieve early-mover status ahead of mainstream financial acceptance of cannabis banking and payments. Golden Ark hopes to be either an alternative to mainstream payments for weed, or a partner for payment processors for blockchain-supported transactions.
“More states are opening up to weed, so we want to foster a community to ensure that any weed can be authenticated and purchased at any time,” said Mitch Ngo, CEO and cofounder of Golden Ark, a legal cannabis technology company.
While banks have mostly avoided cannabis, there are a few exceptions.
Kansas City, Missouri-based Lead Bank is providing services to pot companies. The bank is partnering with two fintechs, RiskScout and Dama Financial, to manage onboarding and due diligence. Needham Bank in Massachusetts also provides cannabis banking, contending the widespread reluctance to support cannabis will quickly evaporate once weed is legal nationwide.
Golden Ark is using the current uncertainty to develop specialized payment options that use digital assets as a form of currency, or provide blockchain-based payment processing or Web 3.0-supported loyalty and other incentives. Golden Ark is trying to build relationships with cannabis dispensaries and buyers that can be expanded to other products.
“There’s no reason this type of payment or authentication couldn’t be used for a T-shirt sale,” Ngo said.
For example, decentralized finance could provide a way to track the origin of specific types of cannabis, Ngo said.
“If there are only 100 jars of a certain type of weed, we can add a QR code to each one that the user can scan to find out if it’s authenticated at the point of sale in near real-time,” he said, adding it would also include information such as lab reports, or when it was harvested, that are available in a much shorter time window than if the research had to be done manually. “You can then also obtain an NFT of that product.”
CanPay, which operates a debit-card payment system for dispensaries, is looking at applications of blockchain for the cannabis industry, particularly in supply chain management and compliance, according to Dustin Eide, the company’s CEO.
CanPay collaborates with third parties to operate an online marketplace for cannabis products. While blockchain and distributed finance can aid operations for cannabis businesses, Eide is not as bullish on using cryptocurrency for cannabis payments.
“The combination of unregulated currencies with the highly regulated cannabis industry is typically viewed with a skeptical eye by regulators, and consumers have yet to adopt crypto payments widely,” Eide said.
Into the Metaverse
By using the metaverse to support cannabis authentication and payment transactions, Golden Ark is adding another potential financial services use case for the technology. As other cannabis retailers use virtual reality and gaming as a way to reach buyers, it creates a new venue for the retailers to accept digital payments, or use the metaverse as a way to support loyalty marketing. It’s early stage, but the metaverse is starting to take hold in other areas of financial services. Definitions of the metaverse vary, but it generally refers to virtual reality environments that include gaming or digital representations of real-life activities. Financial institutions such as JPMorgan Chase are using the metaverse to demonstrate how new payment technology works, while American Express has filed patents for virtual incentive marketing. And Mastercard is part of a Decentraland metaverse program for Pride Month.
Payment use cases for virtual worlds are still emerging, though they often involve digital currencies that cannot be used outside of the metaverse without some form of conversion, according to Julie Ask, a vice president and principal analyst at Forrester Research.
The model for blockchain-connected worlds looks similar, with users acquiring in-game tokens or cryptocurrencies purchased with a mainstream currency or crypto, according to Ask. Some in-platform tokens are also traded on cryptocurrency exchanges, she said.
“These currencies can either be purchased with national currencies or earned as part of the gameplay,” Ask said. “This won’t change in the metaverse. New payment mechanisms will offer new ways of acquiring in-game currency.”