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A financial solution for the burgeoning $5.4 billion cannabis industry

Cash is one of the U.S. marijuana industry's most nagging problems.

Although a growing industry — to date, marijuana is now legal for medicinal use in 25 states and Washington, D.C., and legal for recreational use in four plus D.C. — traditional banking relationships with these Schedule 1 drug dispensaries are not the norm. So these businesses are cash only, leading to issues with managing the money, reconciling the books at the end of each day and dealing with the IRS.

Considering that industry sales jumped 17 percent to $5.4 billion in 2015 and are expected to increase another 25 percent this year, according to ArcView Group, these dispensaries are flush.

Yet one Denver-based start-up, Jane, is hoping to solve the many challenges these cannabis dispensaries face — by offering a retail kiosk payment solution to allow for financial transparency and more accurate accounting.

The company launched in September 2014 by co-founders Jeff Foster and Yves Yon — Foster with an e-commerce, finance and risk-management background; Yon an entrepreneur. Today Jane is run by CEO David Ellerstein, who is focusing on applying traditional retail kiosk technology, seen in stores like Home Depot and McDonald's, to the marijuana industry.

Registered customers can pre-order items on the Jane app and pick them up in stores that are using the kiosk, or they can simply order from the kiosk in store for an expedited experience, choosing product, inserting cash and showing the cashier their receipt. Total time: About five minutes.

David Ellerstein, CEO of Jane
Ross LeClair | CNBC
David Ellerstein, CEO of Jane

For retailers, Jane is integrated with a dispensary's seed-to-sale software, which is required in most states and tracks products from the point they are grown until they're sold to patients or customers. Jane will track what is being bought and sold and make for a more simplistic way to reconcile books at the end of the day. Ellerstein said it's yet another way to legitimize the industry, which the ArcView Group projects will hit $22.8 billion by 2020 for legal cannabis sales.

As he explained in the early days, not all regulators viewed this as a legitimate industry. "They saw all dollars as cartel dollars, but we could show them that we had compliance and we are business-minded in how we manage our cash," Ellerstein said. "It's providing greater user experience, efficiency and convenience for the consumer, and providing the dispensary owner with its cash controls and regulatory compliance." Jane is able to track transactions in real-time, providing dispensaries with greater transparency if regulators were to come knocking.

Jane kiosks are equipped with touchscreen technology and even show customers the local tax breakdown for what they're purchasing at local and state levels. Dispensaries will check IDs for users entering in store to be sure they are of age in legal recreational markets and are either patients or caretakers in medicinal markets, he said. Those using the app register online.

The machines lease out to stores for a range of $2,495 to $3,495 monthly, depending on the suite of services dispensaries use. There are no fees for customers using the kiosks, which are available in five stores currently in Colorado and Oregon, with plans to expand into nearly two dozen more in the coming months.

"The best thing for us is to allow our regular customers to have an opportunity to not have to wait in line. And we know who they are; they come in and everything is ready to go." -Anne Gordon, owner of Herban Underground

Jane kiosks, which are manufactured in Denver, are also pricey to make — around $15,000 all in. That's what Ellerstein claims the start-up is currently deploying some of its $25 million in private funding on.

But thanks to the Jane kiosk, local Denver dispensary Herban Underground has seen quicker service in store, where lines can be long.

"I think the best thing for us is to allow our regular customers to have an opportunity to not have to wait in line," said Anne Gordon, owner of Herban Underground. "And we know who they are; they come in and everything is ready to go."

The biggest challenge for Jane moving forward is growing in already established markets, like Colorado. In new markets, dispensaries are eager to use the technology, but Ellerstein said existing dispensaries don't always see the need.

"In the Colorado market, where we launched, it's already an embedded space," Ellerstein said. "People are already running their businesses, so convincing them this will increase revenue is difficult. When we go out of state to all of the other places that are becoming legal, we have great success because they understand what we are trying to accomplish in a complete ecosystem where cash is eliminated between the consumer and the seller."