Banking and merchant payment processing systems are difficult to obtain for cannabis plant-touching businesses like dispensaries and cultivation operations. Credit card networks like
It means that despite finding access to banking, state-legal cannabis businesses cannot secure merchant accounts for processing debit and credit card transactions.
As a result, cannabis entrepreneurs employ numerous illegal tactics to offer their customers card-based transactions, which include workarounds for cashless ATMs and digital wallets and using obscure company names on bank accounts.
Cashless ATMs appear to the bank as an ATM transaction, but in reality, they function as a debit card transaction within a dispensary. In this system, customers cover the transaction fee and “withdraw” an even number of bills to cover their purchase. The cashier then gives them change in cash.
Part of the problem with this solution is that it charges the customer an ATM convenience fee for purchases, which is federally illegal according to the Durbin Amendment since the customer is not withdrawing cash. Additionally, cashless ATMs fraudulently hide the fact that it’s a purchase, as well as a cannabis transaction from the settlement bank, which thinks it’s an ATM dispensing cash.
A common approach for many cannabis businesses is to make up an obscure company name to try to hide that their operations are associated with cannabis in any way. Of course, eventually, they are discovered by their bank and typically have their accounts terminated.
This approach is especially risky because there is a chance that entrepreneurs caught lying to their banks and the card networks could be put on a blacklist known as the Terminated Merchant File (TMF). Any individuals added to this list are prohibited from accessing card services for five years.
Similarly, digital wallets are appealing to entrepreneurs because it is the most compliant and secure way to engage in noncash cannabis transactions. This approach functions by having customers upload funds through a smartphone application, and customers must provide sensitive banking information for the app to withdraw funds from their debit account. It prompts many to hit the ATM instead rather than risking exposure of their sensitive information.
The solution is to use a merchant payment processing program that is bank-approved and endorsed by major debit networks. This method can allow for a smooth transition to accept credit cards once appropriate federal regulations are enacted.
