Cannabis Credit Card Processing Does Exist, Here is How it Works.

There is a bit of a misconception when it comes to whether cannabis credit processing is real, or legal for dispensaries located in the United States. Since our cannabis clients ask us about this all the time, we figured it’s time to talk about it.

Do Credit Card Companies allow Cannabis Transactions?

It probably won’t surprise you to learn that no, cannabis credit card processing is not supported by Visa or Mastercard.

Partly because cannabis is federally illegal, and partly due to federal limitations on depositing illegal funds into federally chartered banks. However, the reality is a little more nuanced than this.

What they do not allow, technically, is cannabis transactions to be run over the credit card company’s electronic rails. The ‘highway’ used to send transactions and funds using their network.

So How Can Companies Offer Credit Card Processing for Cannabis Purchases?

Great question! In order for a cannabis dispensary to offer credit card payments, something has to happen to circumvent either the actual purchase using a credit card and/or to avoid the credit card rails.

Cannabis merchant service providers have offered a range of workarounds over the years since legalization.

One example is when the credit card is swiped at the register, it first triggers the purchase of a gift card. That gift card is then immediately used to purchase the cannabis.

Another example is the integration of crypto and block chain, where the credit card swipe purchases a stable coin followed by the stable coin being used to purchase the cannabis and then converted back into U.S. currency and deposited into the dispensaries bank account.

This May Sound Promising, But is it Legal?

The most common response we get from our cannabis dispensary clients is that surely this can’t be legal. But baked into that response is the assumption that Cashless ATM or Debit Card processing is somehow blessed to be used for cannabis payment processing.

The reality is, neither of those systems were made for cannabis payment processing and their legality is dubious at best.

Cashless ATM for Cannabis Dispensaries

Let’s start with Cashless ATM. This process mimics an ATM transaction at a register without the actual dispensing of cash (but still imposes an ATM fee). The transaction appears to the bank to be a legitimate cash withdrawal rather than the purchase of cannabis.

Although it has been historically a fairly stable system for cannabis payment processing we need to remember that coercing or deceiving a bank into supporting transactions for a federally illegal substance constitutes fraud and money laundering.

In addition, FinCann notes “The fees charged to customers for use of Cashless ATM are in violation of a Dodd-Frank rule known as the Durbin Amendment. The provision prohibits card networks from charging consumers add-on fees when processing debit transactions”.

But it gets worse, if the merchant is using MCC code 6011, which is reserved exclusively for ATM cash withdrawals, this could present significant regulatory risk.

In March of this year, Regulatoryoversight.com updated a suit against cannabis giant Truelieve that underscores the risk, noting “Visa…has rules against processing such cashless ATM transactions for marijuana sales”. Switch is suing Trulieve alleging they should be responsible for the $950,000 fine from Visa.

Pin Debit Processing for Cannabis Dispensaries

Like with Cashless ATM, Debit Card processing carries similar risks. In order to work properly the transactions are usually mis-coded to represent a different type of legal transaction.

Mastercard was noted by Flowhub to have told Bloomberg the “federal government considers cannabis sales illegal, so these purchases are not allowed on our systems”.

In short, none of the systems in use today are fool proof from a legal stand point. Cannabis credit card processing systems are just as suspect as all other systems in use today, maybe aside from ACH payments, which require (in most instances) a mobile app which links the customer’s bank account in order to process the transaction.

While workarounds may offer short-term convenience, dispensaries must understand that none of these solutions are officially endorsed by major credit card networks or federal regulators.

Should my Dispensary Consider Credit Card Processing?

We always recommend you run a broad array of processing options and add redundancy in the event of an interruption of service.

Considering our analysis you may as well explore dispensary payment credit card processing in addition to Cashless ATM, Pin Debit and ACH. As with anything, be sure to have on-site ATMs just in case there is a disruption.

Just don’t forget to ask us about wrapped, branded ATMs for your dispensary if you need one. We can provide that solution as well!

Cannabis Credit Card Processing Does Exist, Here is How it Works.