Note: This article was originally published on LinkedIn and can be accessed via this link. The information included may be outdated.
Legally speaking, cannabis’s active classification as a Schedule I drug doesn’t allow it to mix with major card networks’ policies. The Department of Health and Human Services recently completed its review for rescheduling cannabis, recommending a shift to Schedule III, and this could impact this side of the industry for years once a decision is made.
However, currently in this in a projected 34 billion dollar industry, debit card workarounds have been used often – specifically cashless ATMs and PIN debit.
Quick refresher: A cashless ATM acts as a portable or reverse ATM at checkout. The checkout process includes charging the consumer a typical ATM fee, the budtender rounding up to the next $5-10 increment, and returning the difference to the customer in cash.
In addition to consumer dissatisfaction, banks have had limitations on cashless ATMs like card-not-present-sales, big-ticket transactions over $500, high-volume sales, and more. This option was initially popular amongst dispensaries, but Marijuana Moment reported that Visa considered it a scheme:
“Cashless ATMs are POS devices driven by payment applications that mimic standalone ATMs. However, no cash disbursements are made to cardholders,” the memo explains. “Instead, the devices are used for purchase transactions, which are miscoded as ATM cash disbursements. Purchase amounts are often rounded up to create the appearance of a cash disbursement.”
At the time, Benzinga reported that this Visa warning coincided with Congress’ denial of the SAFE (Secure and Fair Enforcement) Banking Act, which would protect banks and financial institutions that partner with state-by-state cannabis businesses. Despite the cannabis industry’s ability to stimulate the economy, small dispensaries were at a loss for how to protect themselves from cash-related theft.
As a result, many dispensaries turned to PIN debit. Consumers were more receptive to PIN debit because it allows budtenders to charge exact dollar amounts. PIN debit is an electronic transfer of funds from a customer’s bank account to a business’s bank account through a debit card. It functions like traditional retail payments and is typically used by gas stations and grocery stores. However, it generally comes with a surcharge of $2-4 per transaction.
Ready to learn the best practices for dispensaries when it comes to accepting payments? Click here.
Bloomberg Law refers to the Visa crackdown as the “First Wave” and the “Second Wave” of debit card terminations hit in July 2023: “‘As we were made aware of this matter, we quickly investigated it,’ a Mastercard spokesman said of the use of PIN debit cards on the company’s network for cannabis purchases. ‘In accordance with our policies, we instructed the financial institutions that offer payment services to cannabis merchants and connect them to Mastercard to terminate the activity.’”
The Mastercard representative confirmed their stance was because cannabis is still illegal at the federal level. When financial institutions got the news about strict limitations this July, the cannabis industry took a hit. Many state-legal dispensary operators were again left without a safe solution; some even reverted to cash.
MJBiz Daily highlights that this move is causing the industry to regress. “It’s also a stark reminder that these types of business setbacks will persist without federal cannabis reform.”
Compared to federally legalized dispensaries in Canada, which have been running debit transactions through major card networks since 2018, US cannabis business owners struggle to find a modern solution that reduces risk.
In the era of digital payments, consumers like going card-free and are familiar with securely connecting their bank accounts directly to the merchants’. ACH (Automated Clearing House) payments mirror the bank-to-bank concept of PIN debit without a card company. Instead, ACH transactions are electronic transactions sent directly through bank accounts and processed through one centralized online system.
The benefits of ACH payments can streamline dispensary day-to-day operations. Here’s a glimpse of what retailers can experience:
With digital ACH transfers beating out card companies, dispensary owners can find relief. And while the current state of payments in cannabis is challenging for business owners to say the least, there continues to be attempts to change the status quo including the recent SAFER Banking Act.
We mentioned the SAFE Banking Act and its fight for federalized cannabis payments earlier, and here’s a quick refresher if you're not familiar:
“If passed, SAFE Banking would bar federal banking regulators from punishing financial institutions that offer services to legal marijuana businesses…It would be a welcome win for cash-strapped cannabis businesses eager for some measure of federal relief."
Unfortunately for our industry, the SAFE Banking Act failed to get a Senate vote, even though the House passed it seven times. But the challenges with cannabis banking remain, so the SAFER Banking Act advanced to the Senate floor. It will need to pass the Senate, then the House of Representatives, and then it will arrive at President Biden's desk.
The updated bill again attempts to provide cannabis businesses access to regular banking services. This would be a huge advancement for the industry across a variety of factors, from making it far cheaper and easier to process cannabis payments to dramatically reducing the security concerns related to cash, and that's just scratching the surface of how a bill like this could impact the industry we all know and love.
1937: The Marihuana Tax Act prohibits cannabis federally but still technically allows medical use.
1965: Leary v. United States deems the Marihuana Tax Act unconstitutional and ends it.
1970: Cannabis gets classified as a Schedule I drug, making it illegal for credit payment processors to work with cannabis businesses.
1996: California legalizes medical marijuana by passing Prop 215.
2012: Washington and Colorado become the first states to legalize recreational cannabis.
2021:
2022: The MORE Act (Marijuana Opportunity Reinvestment and Expungement Act) passes the House, and if made law, it will decriminalize marijuana federally.
2023:
Dive even deeper into the shifting world of cannabis payments with our guide, Best Practices: Dispensary Payments and get ahead of the charge with the right payment provider.
Plus, Spendr offers more than just ACH payments – our retail partners can choose the complete package with consumer-friendly rewards and built-in retention marketing. Turn shoppers into regulars at your dispensary today! Reach out to hello@spendr.com or click here.
Disclaimer: This article is intended for informational purposes only and should not be considered legal advice. Consult your state's up-to-date regulations for more.
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