In the past few years, eleven states have legalized recreational marijuana. Thirty one states have legalized medical marijuana. That means as a whole, most Americans have the option to buy from the cannabis industry. However, the credit card processing restrictions on marijuana can make selling and buying difficult.
This is because of the federal government’s hesitancy to legalize cannabis. As a result, any legitimate business selling cannabis products has few payment options.
The current cannabis payment processing system is not approved to accept debit or credit cards such as American Express, Visa and Mastercards. Without an acquiring bank to process credit and debit card payments, the marijuana industry’s payment processing solutions are limited to say the least. In fact, most dispensaries only have one option for their payment processing: cash.
With credit and debit cards being even more accessible via mobile payments like ApplePay, GooglePay, and CashApp many only carry a small amount of cash. As a result, Marijuana dispensaries are losing out on potential sales from not having the proper payment processing solution.
Cash rules the cannabis industry because marijuana merchant accounts are difficult to find. Even merchant account providers that service high risk merchants will rarely service a marijuana business.
This leaves the industry without crucial services banks and credit card networks provide. These credit card processing restrictions on marijuana negatively impact both banks and businesses.
From a bank’s perspective, the cannabis industry is risky and expensive. Credit unions and other financial institutions could face federal prosecution if indicted. To avoid charges, they must file extensive reports for each marijuana client.
These reports are very detailed and complex, and any mistake can be costly for the bank. Financial institutions who represent any cannabis business could face fines for misfiled reports. This makes cannabis merchants expensive clients to have. As a result of these expenses and account premiums use up a lot of the cannabis businesses resources.
For businesses who have access to a merchant account, fees are unavoidable. Working within bank regulations make account premiums much more expensive. On top of those costs, each payment incurs hefty processing and transaction fees.
These fees leave many dispensaries without as much as a bank account. Forced to operate without bank support, businesses must only use cash.
Many small business owners would agree that running a cash only business can be a nightmare. For starters, cash has a limited value. If a customer brings a twenty dollar bill, all they can spend is twenty dollars. Whereas a customer with a credit card has more flexibility in their purchasing power. As a result, cash-only payment processing decreases the average sales revenue for many marijuana dispensaries.
Another drawback cash poses is its storage. Cannabis dispensaries bring in thousands, even millions of dollars annually. This large quantity of cash must be transported and stored, creating a major security risk.
In response, many cannabis businesses must take expensive precautions – such as armored trucks and guards. This process is essential to protect their profits, but expensive to do.
To make things worse, cash-only payment processing makes business expenses more of a hassle for dispensaries. Common business procedures like payroll, taxes, and rent are much more difficult to do in cash. Difficulties like these add more expenses and inefficiencies to the already difficult process of running a business.
As a whole, cash only marijuana payments are unsustainable, and alternatives are appearing. Recreational and medical marijuana dispensaries are looking for cannabis payment solutions.
One solution that allows debit cards at marijuana dispensaries is the cashless ATM. This system works by having customers pay for vouchers at an EMV terminal. In essence, the customer buys gift cards – similar to in store dispensary credit. Customers then use this voucher to shop in the dispensary. These avoid restrictions because customers buy the voucher instead of a cannabis product.
The price of using a debit card this way is far from free. Cashless ATMs have hefty transaction fees because the money is moved twice. Once to buy a voucher, and again to reimburse in change. The cost of these fees make cashless ATMs a nuisance for the customer. While this method may still be a last resort option for some, it only works with debit cards. This leaves the main problem of excluding credit card processing for cannabis sales unsolved.
There are new options that allow credit card payments at dispensaries. This system stores credit card data in encrypted blocks and processes here in the US. It also has the bonus of being FDIC insured.
Despite this, credit card processors are still hesitant to process marijuana payments. Right now, federal laws consider cannabis an illegal drug. This keeps payment processing companies from entering the industry.
Luckily, marijuana credit card processing as a whole may not be a legal problem for much longer.
There is a federal bill that would allow cannabis credit card processing. This bill, called the SAFE Banking Act, would allow cards at marijuana dispensaries.
The bill has passed out of committee in the House of Representatives, and is waiting for a floor vote. If passed, the Senate and the President must approve it to make it law.
Until that happens, credit card processing restrictions on marijuana will remain. Along with them come drawbacks for the marijuana industrys businesses.
The cannabis industry will certainly be one to watch in the coming future. Going from illegal to a multi billion dollar industry in the span of a decade is without precedent.
In the meantime, credit card processing restrictions on marijuana will challenge business owners to find payment solutions. As more solutions arise, the industry will continue to find ways to accept credit cards.