Unveiling the True Cost: How Passing Fees Impacts Your Cannabis Business

When you don’t have cash, paying a few extra dollars at a dispensary is just the cost of doing business, right? Dispensary customers need cash in hand or else they might have to pay a few extra dollars to use digital payments or a similar cashless alternative. 

This added cannabis consumer fee boils down to something that is actually standard in virtually every other industry, called payment processing fees. 

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A payment processing fee is a percent-based amount that businesses must pay their digital payment merchant every time a customer uses a non-cash payment (like credit card processing or bank account transfers).

The difference between the cannabis industry and other industries is that most dispensaries pass this payment solution fee onto the customer, reasonably assuming it will recoup the associated cost.

But this isn’t normal for retail and it actually loses dispensaries money. 

In this post, we’ll show you how paying your cannabis payment processing fees – and not passing them onto your customers – will actually help your business earn more money. 

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Why do dispensaries charge cashless payment fees?

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There are two main reasons why dispensaries charge a fee to customers for cashless payments:

1. 1. The dispensary is utilizing a cashless ATM system to accept debit cards. In this case, they MUST charge a processing fee in order to mimic a traditional ATM transaction for the card payment in-store. 
2. 2. The dispensary is using ACH payments for bank-to-bank transfers between customer and retailer. Here, the dispensary will be charged a percentage-based fee by the payment processor. Since it’s already common for dispensaries to charge these fees to customers, they pass that charge on just like traditional or cashless ATMs.  

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Digital payments are valuable to dispensaries

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Before we dive into fees, let’s first understand why every dispensary needs digital payment options. Here are the top three reasons:

1. 1. Dispensary customers will spend an average of 25% more when paying digitally. 
2. 2. Dispensaries using digital payments for online orders see a 30% reduction in abandoned carts.
3. 3. Digital payments drive a 37% increase in returning online customers.
   
   

The value of customers adopting your cashless payments is they’ll spend more, faster. The more your customers use cannabis payment solutions, the more revenue your cannabis business will make.

The biggest reason you’ll miss out on the benefits of digital payments is if customers have to pay an added fee at checkout. More on this later. 

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The cost of cash for dispensaries 

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No matter the industry, handling cash is an expensive process. IHL Group found cash handling can cost a typical retailer anywhere between 4 to 15 percent.

Common cash-related expenses for dispensaries include: 

• • Paying for armored transport to move cash to and from the bank. 
• • Human error when dispensary staff are counting cash and coins. 
• • Internal theft from employees as well as a significant risk of robbery.
• • Wasted time related to the tedious process of accepting, counting, moving, and storing cash. 
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Customers even have to pay a fee to withdraw cash from a dispensary’s ATM machine! 

In all, the entire process of cash management is a strain on the resources of every dispensary. 

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Fees impact customer adoption of cashless payments

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Here’s a scenario: What would you do if you tried to pay for Starbucks using their app, but they charged you an additional $4 to do so? You wouldn’t use the Starbucks app anymore.

The same is true for cannabis retail customers. While they’re desperate to pay with cashless options, their adoption of a new payment method is slowed down by added fees.

Not only are these convenience fees a deterrent for customers, in some states they’re not even legal. States like California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas do not allow merchants to add fees to transactions for nontraditional, high-risk payment processing solutions.

Economic strain, the illicit market, and growing competition already play a significant role in the spending decisions of cannabis shoppers. If they have to pay an additional fee at one dispensary vs. another, they’ll choose the latter. 

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Added fees decrease Average Order Value

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Average Order Value (AOV), or the amount customers spend per cannabis transaction, is often tied to a dispensary’s ability to upsell, cross-sell, or otherwise convince customers to spend more.

The easiest way to increase AOV is to offer payment options outside of cash.

But charging payment fees to customers can decrease your Average Order Value. Here’s how: 

1. 1. Abandoned carts. Added costs at checkout are the number one reason why shoppers abandon their cart. 
2. 2. Increased purchase cost. Customers who know they’re going to pay extra when they don’t have cash may be discouraged from spending more on cannabis products.  
3. 3. Competitive disadvantage. If the dispensary up the street from you doesn’t charge fees, customers will choose them over you. 
4. 4. Negative customer experience. According to Deloitte, customers who have positive brand experiences spend 140% more than those who experience negative ones.
   
   

While it often feels like charging processing fees to the customer is an easy way to offload that expense, it actually costs your cannabis company more – particularly when it comes to your Average Order Value. 

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A better alternative: Pay your own processing fees

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Absorbing merchant fees for cashless payments is the standard in almost all traditional retail settings for a reason – it provides long term revenue gains and a more positive customer experience.

To reap the benefits of digital payments and stand out from your competitors, consider absorbing payment fees as a cost of doing business.

Then, you can offset the cost of transaction fees by:

• • Doubling down on digital payments. Cashless payments are an outstanding revenue driver. They increase Average Order Value and simultaneously decrease operating costs due to the elimination of costly cash-handling. 
• • Slightly increasing prices. If you increase your prices just a bit to account for some or all of your transaction fees, you’ll offset that cost and customers won’t have the negative experience of added fees. However, be careful of the balance between maintaining competitiveness and covering your costs.
• • Setting a minimum for cashless payments. If you want to avoid processing fees eating away at your margins, set a minimum digital payment amount. 

• • Use an integrated eCommerce solution. Selling cannabis products online opens up a new world of prospective revenue. Instead of the limitations of brick-and-mortar retail, you’re able to target and sell to a vast number of people online. This process is streamlined when your point of sale (POS), eCommerce partner, and digital payments are all integrated.‍
• • Offer loyalty programs. Simple signs of customer appreciation, like a rewards program that offers points for every dollar spent, drive repeat customers.

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Avoid the fees with Aeropay

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Aeropay’s compliant, digital bank-to-bank dispensary payments are made for cannabis businesses looking for a safe alternative to cash. 90% of customers using Aeropay for online payments use it again the next time for a reason – because it’s fast, convenient, and safe.

Schedule a demo today to get started with Aeropay’s secure payments for dispensaries.