A Cannabis Credit Card? Yeah, That's a Real Thing Now

Few industries are currently garnering as much attention on Wall Street as legal marijuana -- and for good reason. After the industry generated $12.2 billion in legal worldwide sales in 2018, the duo of Arcview Market Research and BDS Analytics have called for more than $31 billion in global sales by 2022.

Looking out a bit further, cannabis cheerleader Cowen Group foresees up to $75 billion in annual sales by 2030. And beyond that, Christopher Carey at Bank of America contends that the weed market could hit a utopian single-year sales figure of $166 billion many, many years down the road.

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While all of these projections are certainly believable given the early stage demand we've witnessed for legal cannabis, as well as the well-known market for illicit marijuana, there are countless hurdles that'll need to be overcome, especially in the United States.

Access to basic banking services is a big problem in the U.S.

Arguably one of the biggest issues plaguing the U.S. pot industry is its lack of access to basic banking services. Marijuana is illegal at the federal level, and financial institutions, such as banks and credit unions, report to the Federal Deposit Insurance Corporation, a federally created agency. These banking institutions fear the financial and/or criminal repercussions of providing cannabis companies with loans and lines of credit.

But the challenge goes beyond just catering to non-dilutive forms of financing. In many instances, marijuana businesses in the U.S., both big and small, struggle to secure something as simple as a checking account. This makes accepting credit cards virtually impossible. Even in instances where credit cards may be accepted, most banks deny consumers the right to purchase federally illicit substances, such as marijuana.

Suffice it to say, the U.S. pot industry has a cash crisis because cash is about the only mode of currency that keeps this industry moving. But cash can be very limiting. Not having any access to lines of credit or loans can slow expansion plans, acquisition activity, and hiring. It can even slow stock replenishing. And when added to the possible exposure of Section 280E of the U.S. tax code, which can impose very high effective tax rates on corporate income from marijuana businesses, the ability to expand, hire, and reorder product is further compromised.

Now introducing a cannabis credit card

However, one newly public multistate medical marijuana dispensary operator believes it has the answer.

This past Thursday, June 13, Columbia Care (NASDAQOTH: COLXF) announced the introduction of the industry's first cannabis credit card. Known as the CNC Card ("Columbia National Credit"), it'll soon be accepted in all of Columbia Care's dispensary locations.

Columbia Care initiated its CNC Card on a trial basis in New York State in the second half of 2018. What the company found was that, when compared to other forms of payment, those folks who purchased cannabis products with the CNC Card had a basket size that was 18% larger for in-store purchases.

Furthermore, Columbia Care also noted a higher utilization rate for people using home delivery or automatic fulfillment. Following the card's introduction, home delivery became Columbia Care's fastest-growing segment in New York State, with 25% month-over-month growth in 2019. Average basket size for home delivery has also been about 40% larger than purchases being conducted in store.

Following its successful New York pilot, Columbia Care expanded the CNC Card's reach to its Delaware and Pennsylvania markets, with Arizona and Illinois to follow later this month. Cardholders may also be eligible for discounts and be among the first to gain access to new products.

Although the company has every intention of expanding the CNC Card to all of its locations, it hasn't ruled out the idea of allowing its card to be used in non-Columbia Care dispensaries at some point in the future.

In other words, Columbia Care is changing the game, and it's hoping to boost its operating margins and improve consumer loyalty in the process.

Maybe a game changer? Maybe not.

On the surface, this move by Columbia Care looks to significantly boost sales in its dispensaries and offer convenience to consumers that simply hasn't existed up to this point. What remains to be seen is whether this unique credit offering will remain unique for much longer.

According to Marijuana Business Daily, the House Appropriations Committee approved a financial services and general government bill this week by a vote of 30-21 that contains a cannabis banking provision. This provision would protect financial institutions in fiscal 2020 (Oct. 1, 2019 to Sept. 30, 2020) that offer basic banking services to cannabis companies. This bill would still need to clear the full House and Senate to head to President Trump's desk.

Earlier this year, a House panel also passed the Secure and Fair Enforcement Banking Act, which is better known as the SAFE Banking Act. The SAFE Banking Act would provide a more permanent solution to the marijuana industry's underbanked problem by no longer exposing banks in legalized states to potential punishment by the federal government. If either of these solutions were to become law, it would open financing options galore for pot businesses, as well as allow credit options in states where cannabis dispensaries are legal. Essentially, it'd make Columbia Care's credit card not all that special.

But the keyword in the above sentence is if, because Republicans in the Senate have pretty much been a roadblock to cannabis reform. Historically, members of the GOP view marijuana more adversely than do Democrats or Independents.

It's anyone's guess as to whether marijuana banking reforms can be instituted in the U.S. anytime soon, which may give Columbia Care's credit card legs or might cloud its long-term future.

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Sean Williams owns shares of Bank of America. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.