Ryan Hamlin’s cannabis origin story is not an uncommon one. The founder and CEO of cannabis debit payment and point-of-sale (POS) platform POSaBIT (pronounced PAUSE-ah-bit) found himself at a barbecue in Washington state in late 2014, chatting with a friend about the business opportunity that cannabis presented. 

A former Microsoft general manager who leveraged his 15 years in enterprise software to build and sell PlaceFull, an online booking and eMarketing platform for small businesses, Hamlin was curious about what possible tech solutions he could bring to the upstart regulated market. 

Soon after his friendly conversation, he visited a cannabis trade show, where he noticed the dearth of payment solutions to the industry’s cash problem. “I always think innovation and technology can win out,” Hamlin tells Cannabis Business Executive. “It was a matter of ‘how do we come up with a real solution that solves this cash problem?’”

Launched in 2015, POSaBIT’s answer to that problem is to offer debit payment services and POS software to cannabis retailers.

Through 2021, POSaBIT has generated $34.9 million in revenue, and after expanding into West Virginia, Texas, Georgia, New Mexico, Illinois, and New York in 2022, the Canadian Stock Exchange (CSE)-listed company expects to generate more revenue this year than it has in its prior six years of operation.

Like many six-year-old cannabis businesses, getting to this position took hard work and dedication, and a willingness to evolve when initial solutions stopped working.

Compliance Through Crypto

While it offers a POS platform, at its core POSaBIT is a payments service, and the company’s solutions have evolved since its inception in 2015.

Hamlin’s first solution to the cannabis industry’s cash problem was to bring Bitcoin into the retail experience. The idea was interesting (if perhaps a bit convoluted to some): Consumers would purchase the cryptocurrency using their credit cards at their dispensary’s checkout, then use that Bitcoin to complete their cannabis purchase. 

Ultimately, the retail process was clunky for purchasers who were confused about why they needed to buy Bitcoin, as well as cumbersome for dispensary operators. “If you’ve ever been to a cannabis store on a Friday night with 40 people deep, they don’t like spending three minutes with you paying,” Hamlin explains. “So we knew right away that we had to make it much more comfortable and like a basic retail experience would be.”

Bringing Bitcoin into cannabis also put the company through the compliance gauntlet. The cryptocurrency market already had a bad reputation as a tool for drug dealers thanks to Silk Road, meaning financial regulators would be closely monitoring POSaBIT’s activities. 

“Jokingly, I always told my friends I picked the two most difficult things you could probably do as far as compliance goes,” Hamlin says with a laugh. “We hired a Chief Compliance Officer. We built out a very robust anti-money laundering [AML] policy. We had to register with … FinCEN [Financial Crimes Enforcement Network, a bureau of the Department of Treasury] as a money services business. We did all this legwork because we were dealing with crypto.”

The experience gained filing monthly suspicious activity reports (SARs) to FinCEN and submitting to annual state audits prepared POSaBIT for its growth into what the company’s CEO calls the cannabis industry’s first fully-compliant debit solution. Today, POSaBIT Pin Debit allows customers to transact as they would at a coffee shop. The company also offers ACH payments for online ordering, delivery, and in-store purchases.

“We started as a payments company because we believed if we solved that [problem] and we built a moat around that business with great compliance, that, number one, it would keep competition out,” Hamlin says. “But number two, it would be the revenue generator for us to have the money to invest in doing a great point-of-sale.”

The Business Moat

POSaBIT launched its improved POS system dubbed “2.0” on November 15, offering a new interface for budtenders and streamlined reporting for managers and owners. The POS system, Hamlin explains, is the “sticky” part of the company’s business model. “I always tell people our POS is the anchor because moving a POS is really hard, but once you move it and you get in there, it’s really hard to move it out.”

Entering the POS market was made easier by retailers’ familiarity with the company’s payments services, but Hamlin stresses this was not a pivot by the company. “All we’re doing is we’re enriching the suite of services that we’re offering to our customers every single year,” he says. “We started with crypto payments, then we became debit payments, then we added debit payments to point of sale.”

The company’s POS system comes with a dedicated terminal, and retailers subscribe to a monthly fee ranging from $200-$250 per terminal. With the average store carrying four to five terminals, Hamlin says POSaBIT generates roughly $1,000 per month (or $12,000 per year) in SaaS revenue.

On the payments side, POSaBIT charges a transaction fee to retailers, “it’s usually about three and a half percent,” Hamlin says. “And then we also charge the customer what we call a ‘non-cash convenience fee’–it’s like an ATM fee. 

“Because we have a very unique service, we’re in a position where we can offer that service and in return we expect our customers to pay a little bit more for it.” These transaction fees make up approximately 80% of the company’s revenue. 

In explaining POSaBIT’s cost structure, Hamlin also outlines the cost of cash. “Cash isn’t free at all. By the time a cannabis store processes that cash, meaning they count it, they account for any sort of theft or miscounting of the product, they have an armored car service picking up the cash, they have their bank fees… all in … it’s actually like 6% to 9%,” he says.

Future Growth

“There are very few businesses that you create that can have those unit economics,” Hamlin says of his company. “Now that we’re meeting the needs of the dispensary, how do we meet the needs of the entire supply chain?”

Hamlin sees room in the market for POSaBIT to become a seed-to-sale platform, facilitating payments at all plant-touching levels. “We have this great opportunity to expand our services up into the supply chain and be able to service [growers and manufacturers] on payments, but also service them with great software around cultivation and manufacturing.”

Hamlin also sees POSaBIT entering the self-service cannabis space by leveraging the company’s retail data collection and analytics capabilities. He envisions a kiosk that would scan IDs, ask a few questions, and propose products based on demographics and customer needs. “We think we’re going to be pioneers when it comes to next-gen data analysis and how we use that for consumer buying.”

Hamlin intends to build these next-generation solutions both internally (mostly on the payments side) and through acquisition. Identifying distressed assets with viable tech solutions that could integrate with POSaBIT’s platform will be key to the seed-to-sale plan’s success. The company has only had to raise $11 million in funding over four rounds, and Hamlin says the company has not diluted itself, giving it a strong position in an overall tough market. “Probably half of the technology solutions, or at least a third, are going to be gone” in the next 12 months, he predicts. 

“We’re opportunistically looking right now because we’re in a really good position that we can actually look at who’s out there.”