Cannabis dispensaries in several states were left scrambling to find ways to process transactions without cash when a popular workaround to federal banking regulations known as cashless ATMs stopped working for many retailers beginning last week. Cashless ATMs, also known as “point of banking” systems, allow customers to use bank cards instead of cash at cannabis dispensaries, giving retailers and their patrons alike more flexibility when processing transactions for marijuana purchases.

But beginning last week, some of the biggest ATM transaction processors including NCR Corp.’s Columbus Data Services have shut down the ability of cashless ATM transaction processors to use their service, according to unidentified sources cited by Bloomberg. NCR declined to comment on the situation, according to the report.

“This is a pivotal point in cannabis banking,” Ryan Hamlin, chief executive officer of payment technology provider Posabit Systems Corp., told Bloomberg about the cashless ATM shutdowns.

Notice Given Last Year

Late last year, international payment processing giant Visa announced in a memo to retailers that it “was aware of a scheme where POS devices marketed as ‘Cashless ATMs’ are being deployed at merchant outlets.” 

The system worked by rounding up purchases, often to multiples of $20, to make the transaction appear to be cash disbursements. Instead, only the change from the transaction would be returned to the customer, and the dispensary would keep the rest to cover the payment for the purchase.

“Cashless ATMs are POS devices driven by payment applications that mimic standalone ATMs. However, no cash disbursements are made to cardholders,” the December 2021 memo continues. “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.

In April, Bloomberg reported that cashless ATM transactions were able to be processed because they were disguised by listing an address of a nearby business such as a fast food restaurant instead of the actual dispensary address. An estimate put the portion of cannabis sales processed through cashless ATM transactions at 25% of the $25 billion in projected annual dispensary sales.

“Those sales could generate more than $500 million in fees for payment processors, based on average purchase sizes,” Bloomberg reported.

Banking Laws Hinder Legitimate Cannabis Businesses

The popularity of cashless ATM transactions is indicative of the difficulty federal regulations pose for cannabis businesses, even those operating legally under state law. Federal banking and money laundering laws put restrictions on the banking industry, making it difficult for financial institutions to provide traditional services such as credit card processing, loans, and deposit and payroll accounts. But cashless ATMs fail to pass muster with the federal regulations.

“The cashless ATM trend is damaging to investors, dispensaries, and consumers, as when it comes down to it, it’s blatant money laundering,” CannaTrac CEO Tom Gavin told High Times. “Instead of creating loopholes and using a cashless ATM, dispensaries should take advantage of other solutions currently on the market that are safe, legal, and transparent. A proper financial solution should be registered with FinCEN and have a money transmitter license, or be the agent of a sponsor or bank with a money transmitter license in their state.”

Hamlin of Posabit said that signs of the cashless ATM shutdown began to appear in November and increased last week. He estimated that by the end of the weekend, only about 20% of the cannabis industry was still able to use cashless ATM payments.

Cannabis dispensaries in Arizona, California, and Massachusetts have reportedly been affected by the shutdown of cashless ATM transactions, with employees at those shops recommending that they pay for their purchases with cash instead. Curaleaf Holdings, one of the largest cannabis retailers in the United States, reported in April that approximately one-third of the company’s dispensary transactions were processed through cashless ATMs.

“It’s left merchants in the lurch because it happened overnight, but the writing has been on the wall for a while now,” said Peter Su, a senior vice president at Green Check Verified, a consulting and software company that specializes in cannabis and banking.

Sahar Ayinehsazian, a partner at Vicente Sederberg LLP and co-chair of the law firm’s Banking and Financial Services Access Group, said that the shutdown of the cashless ATM system illustrates the need for the passage of legislation now pending before Congress that would allow legal cannabis businesses access to banking services.

“This shutdown further underscores the ongoing need for banking and financial reform for cannabis businesses and the passage of the SAFE Act,” Ayinehsazian wrote in an email to High Times. “While there can be no guarantee that the Act will open up payment processing for cannabis operators, the industry is very optimistic that its passage will facilitate access to legal and legitimate cashless payment options for cannabis operators.”

The post Dispensaries’ Cashless ATM Transactions Get The Ax appeared first on High Times.

The post Dispensaries’ Cashless ATM Transactions Get The Ax appeared first on Paradise Found.

Visa recently issued a memo detailing a common scheme being used by businesses in the cannabis industry—“cashless ATM” point-of-sale (POS) transactions. Cashless ATM transactions take place when a merchant takes an order, rounds up the total to an even number, and then runs a transaction, miscoded as an ATM withdrawal.

While cannabis companies weren’t explicitly mentioned in Visa’s memo—there’s a good chance it was directed at such companies given the prevalence of cashless ATMs in the cannabis industry. With few options left in the cash-only industry, businesses will try just about anything to make credit and debit card purchases possible.

“Visa is aware of a scheme where POS devices marketed as ‘Cashless ATMs’ are being deployed at merchant outlets and are operating in violation of the Visa Core Rules and Visa Product and Service Rules and Plus Core Rules and Plus Product and Service Rules,” the memo reads.

Typically, a purchase is rounded up to the nearest denominator of twenty dollar bills. Cashless ATMs mimic standalone ATM machines, running the transaction backwards, so to speak. Visa explained that the practice is in violation because it affects the integrity of an ATM transaction, something Visa never intended to do.

“Cashless ATMs are POS devices driven by payment applications that mimic standalone ATMs. However, no cash disbursements are made to cardholders,” the memo continues. “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…”

Alternatives are provided from technology platforms that are specifically tailored to meet the financial needs of merchants in the cannabis industry.

“The cashless ATM trend is damaging to investors, dispensaries, and consumers, as when it comes down to it, it’s blatant money laundering,” CannaTrac CEO Tom Gavin told High Times. “Instead of creating loopholes and using a cashless ATM, dispensaries should take advantage of other solutions currently on the market that are safe, legal, and transparent. A proper financial solution should be registered with FinCEN and have a money transmitter license, or be the agent of a sponsor or bank with a money transmitter license in their state.”

Gavin continued, “cashless ATMs harm everyone involved by putting investors’ hard-earned money at risk and the potential of dispensary shutdowns that will hinder medical patients’ ability to access their medicine. Until permanent regulations are available at the federal level, solutions (such as CannaCard) that exist today should be used to manage transactions properly for all parties involved.”

Thousands of dispensaries could be hugely impacted by Visa’s compliance reminder. CannaTrac’s digital payment system simplifies the payment process and provides credit card processing for cannabis business—without having to resort to cashless ATMs.

Cashless ATM Transactions in a Cash Industry

Given federal restrictions on cannabis, the industry remains mostly cash-based, leading businesses to try just about everything to get around the restrictions on credit card transactions. Secure and Fair Enforcement (SAFE) Banking Act would solve that issue, but it was recently stripped from the National Defense Authorization Act (NDAA).

Major credit card networks—Visa, Mastercard, American Express—all avoid the cannabis industry, given the risk of repercussions from federal agencies.

Visa’s memo isn’t entirely clear what the punishment for violation of rules will be, however enforcement will be applied in the event that Visa becomes aware of ongoing cashless ATM practices.

“Acquirers will be subject to non-compliance assessments and/or penalties, when they—or their third party agents—are found in material non-compliance with the Visa Rules,” the memo continues. “When found to have willfully violated the Visa Rules, adversely affecting the goodwill associated with Visa and/or the Plus system, brand, products and services, an acquirer may be subject to further compliance enforcement.”

Until cannabis is removed from Schedule 1 of the list of controlled substances, schemes such as cashless ATMs and other financial loopholes will continue to take place as cannabis companies are left with few other options.

The post Visa Warns About Cashless ATM Trend Common in Cannabis Industry appeared first on High Times.

The post Visa Warns About Cashless ATM Trend Common in Cannabis Industry appeared first on Paradise Found.