Payment processing powerhouse Mastercard this week revealed the company is taking steps to prevent PIN-based debit card transactions for marijuana purchases, dealing a blow to a regulated cannabis industry already struggling with limited payment options for consumers.

On Wednesday, Bloomberg reported that Mastercard, the world’s second-largest payment solutions provider, had informed financial institutions and other payment processors to stop allowing marijuana purchases to be processed with debit cards. Because of tight federal restrictions on banks that do business with marijuana companies, even those legal under state law, most financial institutions decline to provide common banking services including credit card processing to such businesses.

In a statement, a spokesman for Mastercard said that the action was taken after it learned that cannabis dispensaries were accepting debit cards for pot purchases. 

“As we were made aware of this matter, we quickly investigated it,” the spokesman said. “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 federal government considers cannabis sales illegal, so these purchases are not allowed on our systems,” the Mastercard spokesperson added.

Dispensaries Look For New Solutions

As Mastercard’s shutdown of debit card purchases for weed began to take hold last week, cannabis dispensaries that had been using the process began to look for new payment solutions. Peter Su, director of specialty banking at Hanover Bank, has headed cannabis banking programs and served as a payment processing consultant for the industry. He said that he began fielding calls about the situation last week and is hearing from even more companies this week.

“My phones are ringing off the hook — people are asking for payment alternatives,” Su said.

Last year, some of the largest processors of ATM transactions, such as NCR Corp.’s Columbus Data Services, shut down another payment processing system popular with dispensaries known as cashless ATMs that let consumers use their debit card to process a cash withdrawal, which would then be used to pay for cannabis. Tyler Beuerlein, chief strategic business development officer of Safe Harbor Financial Services, a company that provides banking and lending to cannabis businesses, said the crackdown on electronic payment options leaves few alternatives for licensed marijuana retailers to conduct business with their customers.

“More people have migrated to PIN debit in the last year and a half as the cashless ATMs have had issues. If the PIN debit solutions go away, it leaves people back with ACH or cash,” said Beuerlein.

But many consumers consider ACH (automated clearing house) payments, which require purchasers to share their bank account and routing number with the dispensary, to be cumbersome and potentially risky. And cannabis operators would prefer to limit the transactions conducted in cash, which can leave retailers open to robbery and other theft.

Industry Seeks Legislative Solution

A proposed federal legislative solution, the Secure and Fair Enforcement (SAFE) Banking Act, would give cannabis companies legal access to traditional business banking services including credit card processing. But while the bill has bipartisan support in both chambers of Congress and has been approved by the House of Representatives on seven separate occasions, it has yet to receive a vote in the U.S. Senate.

Matt Darin, the CEO of Curaleaf, one of the world’s largest cannabis companies by revenue, said that the news about Mastercard’s crackdown on debit transactions for cannabis purchases “illustrates once again the urgent need for the federal government to recognize the cannabis industry as the tax-paying, job-providing sector that it is.” 

“Our industry is one of the fastest-growing sectors in the U.S., generating more than $3.7 billion in state tax revenue in 2022 and employing over 428,000 Americans,” Darin wrote in an email to High Times. “Furthermore, cannabis is legal for medical purposes in 40 states, for recreational purposes in 23 states, and an overwhelming 88% of Americans say that cannabis should be legalized across the country. When will the laws catch up?”

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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.

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