Visa will likely stop many cannabis users from using their debit cards when buying weed. This change is sure to devastate the industry. Many companies exist specifically to address the payments problem facing the market, more so now with financial companies refusing to process cannabis transactions. It is not only Visa. It is MasterCard too, as well as Discover Financial Services, and even all the major banks.
All of this fuss is simply because cannabis remains illegal at the federal level. According to a memo published in Marijuana Moment, “Visa is aware of a scheme where POS devices marketed as “Cashless ATMs” are being deployed at merchant outlets.” It claims this is violation of its core rules and principles. While this may be so, cannabusinesses are facing a real dilemma. It is forcing them to find workarounds.
Many a cannabis dispensary has been offering “ATM withdrawal services.” Customers can use their card to pay for weed as a withdrawal instead. This particular workaround has been ongoing since the start of the legal industry. Certainly long enough for this workaround to become an acceptable and approved method of payment. However, it turns out this is not so.
The issue, according to Visa, is that those services were never permissible. They outright lie about the nature of these transactions, purposefully misrepresenting them. This has never been compliant. Rather, it is illegal, and it amounts to billions of dollars in fraudulent transactions each year. While the memo does not address cannabis companies specifically, its language certainly does.
The memo states, “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. Therefore, supporting this scheme affects the integrity of VisaNet and the Plus network, as well as the Visa payment system.” These companies do not want trouble with the federal government.
Historically, enforcement always follows when Visa releases memos of this type. Such actions could dramatically harm thousands of cannabusinesses reliant on this workaround to conduct simple transactions. Without it, they cannot buy or sell without cash. The issue needs resolving, and quickly too. While it appears the federal government is considering legalization, some urgency is necessary.
From Visa’s Perspective
The trouble is that “Cashless ATMs” come entirely misrepresented. Businesses all think it offers a compliant payment option, from the local cannabis dispensary to your marijuana delivery service. Consumers think they are simple debit purchases. These transactions are neither. Banks and other finance firms that refund ATM withdrawal fees are subsidizing weed purchases, however unwittingly.
Weed users expecting network satisfaction guarantees on debit transactions have no recourse. It should have been a warning when dispensaries had to have customers round their purchases to the nearest $5 or $10. However, a desperate industry in need of cashless payments believed ATM sales reps and their assurances instead. Now, they could lose cashless ATMs altogether and have to rely solely on cash.
The memo does not accuse cashless ATMs of being illegal outright. Instead, it claims that miscoding transactions is fraudulent and violates Visa policies. Offenders might be subject to compliance assessments and penalties. As such, the memo comes directed at agents, issuers, processors and acquirers with a contractual duty to enforce its rules. Acquirers now have the burden of compliance.
No Mercy for Cannabusinesses
Visa, MasterCard and American Express have all been consistent in their refusal to service cannabis companies. Since it remains federally illegal, they will not provide the industry any services until it becomes legal. Most dispensaries installed physical ATM machines in their stores. This provided a solution for walk-in customers, but the pandemic has made online orders even more popular.
Almost all offer an online menu these days. People can buy weed online, then simply drive through a curbside service to collect it. This convenience remained throughout lockdowns and continues today. Pickup orders now have entire sections devoted to this service. What is more, customers also have the option of marijuana delivery, where a driver will deliver it to you. Losing such would be crippling.
The Big Issues
It is illegal for financial institutions to process transactions for illegal activities. Penalties for them are severe. Even if cannabis is legal at state level, it is still against federal law. Cashless ATMs also pose risks for other illegal operations, such as trafficking real drugs and children. Banks, credit card companies, and other financial firms have a legal obligation to prevent these types of transactions.
The biggest issue is that cashless ATMs allow people to buy weed anonymously. Nobody can trace his or her purchases, which now register to the dispensary instead of to the buyer, as it would with a normal debit card transaction. This raises the risk of money laundering, since the transaction does not register with the correct person. This is fraud. A lie, since the buyer is making a purchase and not drawing cash.
Consequences can include jail time. It already has. In June, two banking consultants for a high-profile company received prison sentences for conspiracy to commit bank fraud. According to Green Market Report, its CEO pled guilty. He will face sentencing in February. Together, they were disguising payments with the specific goal of sneaking them past financial institutions.
Someone to Blame
Some dispensaries are raising funds and developing technology to facilitate orders. However, these platforms utilize a banned process that Visa intends to shut down and enforce. Most companies are using some form of workaround. The industry is rife with payment processing companies. Everybody enables customers to use their debit cards as payment. They have no real workable choice.
Some of them ring up billions in sales. Who must pay fines or go to jail for this? Investors will sue, claiming bamboozlement. Most think the process okay, even when management knows it is not. Would it be the CEO facing fraud charges? Would it be the platform companies, even if none actually touches any payments? Since they facilitate it, are they not also guilty? What about customers?
No legislation can resolve the fact that cannabis remains federally illegal. The SAFE Banking Act and other propositions cannot override that obstacle. Fortunately, it does seem that legalization at the federal level will occur sometime soon. Until then, companies are still trying to innovate. One group is attempting to create its own card capable of operating without Visa or MasterCard. Hopes are high.
Yet more are building platforms that can survive independently of the credit card giants, but they still require a bank. Compliant options are available for integrated cannabis payments. One such facilitates account-to-account transactions using an Automated Clearing House, or ACH. It works with state regulators and financial firms to ensure the highest transparency.
Even so, the risk of fallout for this is terrifying for most. Such a sweeping change will affect every aspect of the cannabis industry and every person in it. Litigation is likely to get very messy too, once investors realize the payment processes supporting these companies were never going to comply. In truth, this move by Visa can hardly surprise anyone. What it will do is inspire a true and workable solution.