It is my understanding that bitpay is a "third party payment processor" which is EXEMPT from "money transmitter licensing"

Essentially Bitpay has a contract with their clients, the merchant and when a consumer sends bitcoin to bitpay and bitcoin converts that to cash and sends it to the merchant, the consumer is "legally" sending "other value that substitutes for currency" directly to the merchant. There for bitpay is not a "money transmitter."

EDIT: Bitpay does perform extensive Know Your Customer(KYC) vetting on it's merchants to prevent being caught up in any fraudulent or illicit activity.  This is a MUST for any legitimate virtual currency business.  See e-gold ltd.