A twentysomething man who goes by “Tim” is at a cannabis dispensary in North Las Vegas buying some edibles. He reaches for his wallet and realizes he doesn’t have enough cash to cover the $33.75 bill. The budtender says he can use his debit card at the register, but they’ll have to round the transaction up to $40 and give him the balance in cash.
“It’s called a ‘cashless ATM,’” the budtender explains.
Tim, who did not want to give his last name to the reporter standing in line behind him, took the $6.25 in change, and his edibles, and left. Despite the transaction being a bit odd compared to one that would occur at a grocery store, the method—the cashless ATM—is one example of the funky patchwork of solutions pot shops use to accept debit cards while most banks and major credit card networks do not accept cannabis transactions.
Most banks and payment processors have policies against pot thanks to the federal ban on marijuana. This means, most transactions at dispensaries across the U.S. are still done in cash. For an industry that is expected to generate $25 billion in sales this year, according to Cowen, that means billions of dollars are transacted the old-fashioned way with paper currency. A whole economy of safe manufacturers and armored truck companies willing to shuttle what is considered illegal drug money under federal law has sprung up to support the financial backbone of the legal marijuana economy. But cash brings risk. In Oakland, California, at least 20 break-ins at marijuana businesses have been reported since mid-November. And due to the hassle and risk of cash, financial and payment processing startups have popped up to offer imperfect solutions to dispensary owners.
But earlier this month, Visa sent out a memo to banks that work with cannabis businesses explaining that cashless ATMs, one of three methods dispensaries use to accept non-cash transactions, run afoul of Visa’s rules. Visa, which has a policy against cannabis, says the cashless ATM method is prohibited because it disguises a retail transaction as an ATM withdrawal.
“Cashless ATMs are primarily marketed to merchant types that are unable to obtain payment services—whether due to the Visa Rules, the rules of other networks, or legal or regulatory prohibitions,” Visa’s memo reads. “Therefore, supporting this scheme affects the integrity of VisaNet and the Plus network, as well as the Visa payment system.”
According to an estimate from Denver-based Akerna, which makes point of sale and compliance software for dispensaries, about half of the country’s 7,000 pot shops use cashless ATMs. Now with the legitimacy of the method being called into question, one of most-used payment options for the U.S. cannabis industry could disappear.
Katrina Skinner, CEO of Simplfya, a regulatory and banking compliance software company that serves cannabis companies, says the irony in cannabis payments cannot be missed. While Visa and the other major credit card companies have policies that block cannabis transactions, the only way federally illegal companies can process payments is to use the federal banking system.
If a customer isn’t paying with cash, there are three ways dispensaries accept payments: ACH transfers, which use the federal banking system, payments done through regional debit networks supported by banks that are willing to take the risk of processing federally-illegal transactions, and the sketchy workaround of cashless ATM transactions.
No matter the solution or workaround, each method is technically breaking the law.
“Everyone is doing as much as they can do, but it’s all considered money laundering under the law,” says Skinner. “It is all illegal.”
According to the latest report published by the U.S. Treasury Department’s Financial Crimes Enforcement Network, a total of 706 banks have launched cannabis banking programs since 2014. The reason why some banks are willing to work with marijuana companies is because of guidance published in a series of memos by FinCen and the Justice Department, which created a road map convincing certain banks that they could adhere to the federal government’s framework and not be prosecuted for facilitating illegal drug transactions. But the entire financial ecosystem is a fragile environment, says Skinner.
“Anyone in this space knows it can be shut down at any point,” she says.
Dan Roda, the co-founder and CEO of Abaca, a Kansas-based firm that helps cannabis companies find compliant banking and payment solutions, says guidance from FinCen has given the industry and banks willing to serve it a great deal of “comfort.” As for payment methods like ACH transfers and regional debit networks, which are thought to be the safest and most compliant for the industry, they also exist in a world where they are technically illegal.
“This has gone on and been tolerated long enough that there’s perhaps a pretty strong constitutional argument [that they’re legal],” Roda says. “But if you’re looking for written legal guidance that actually permits this behavior, it doesn’t exist.”
Multiple dispensaries that currently use cashless ATMs would not answer questions about the payment processing method. Transact First, one of the industry’s largest providers of cashless ATMs, would not respond to multiple requests for an interview.
Josh Bubeck, the cofounder of Urbn Leaf, a seven-store cannabis retailer based in southern California, says his company doesn’t use this method and has had difficultly with various payment processing methods. “We just need federal legalization and SAFE Banking to happen,” says Bubeck.
The SAFE Banking Act, which stands for the Secure and Fair Enforcement Act, passed the House five times but has not passed the Senate. Earlier this month, SAFE, which would allow banks to serve legal cannabis companies if passed, was removed from the defense spending bill.
Without SAFE, or greater reform at the federal level, the cannabis industry is stuck with piles of cash and limited access to banking. It is also stuck with the irony that the federal banking system that runs ACH transactions is one of the only seemingly stable ways to accept non-cash payments while Visa and Mastercard won’t budge.
Roda says the excuse most banks and major credit card networks use not serve the industry—that marijuana is still federally illegal—is “a farce” considering the “federal government is allowing it to happen anyway.”