As Visa cracks down on misuse of cashless ATMs, cannabis retailers are being left with piles of cash and limited access to banking.
Visa’s warning against misuse of ‘cashless ATMs’ threatens the use of one of the most-used payment options for the U.S cannabis industry, Forbes reports.
As cannabis is legalised for medical and recreational use in a multitude of states across the U.S., dispensaries face the difficulties arising from processing payments for a product that remains federally illegal.
Most banks and payment processors have policies against cannabis due to the plant’s federal ban, forcing dispensaries to carry out the bulk of their transactions in cash. This means that the majority of payments in this estimated $25 billion dollar industry are being transacted using paper currency.
A whole economy of safe manufacturers and armored truck companies has arisen to process and transport what is considered to be illegal drug money in a bid to support the financial infrastructure of the legal cannabis industry. Despite this, retailers forced to process enormous amounts of cash are vulnerable to increasingly violent robberies.
At least 20 break-ins at cannabis dispensaries in California have been reported since Mid-November. Earlier this month, security guard Dominique Ware was shot and killed during a botched dispensary robbery in South L.A..
Compounding the issue, Visa recently announced that cashless ATMs, one of the three methods dispensaries use to accept non-cash transactions, are in breach of Visa’s policy.
What are ‘cashless ATMs’?
The cashless ATM is a payment method that allows customers to purchase goods using a debit card in a similar way to withdrawing money from a cash machine. This allows dispensaries to redeem customer withdrawals for cash in payment for their products.
Visa — which has a rule against cannabis — stated in a memo to banks working with cannabis businesses earlier this month that the cashless ATM method is prohibited because it disguises a retail transaction as an ATM withdrawal.
Denver-based Akerna, point of sale and compliance software provider for cannabis retailers, estimates that about half the country’s 7000 dispensaries use cashless ATMs. With the legitimacy of this payment method being brought into question, one of the industry’s most used methods to skirt restrictions could disappear.
If a customer isn’t paying with cash, there are three ways federally illegal companies such as dispensaries can accept payments:
- ACH transfers, which use the federal banking system;
- payments done through regional debit networks supported by banks willing to bear the risk of processing federally illegal transactions; and
- the sketchy loophole of cashless ATM
Nevertheless, all of these solutions are technically still breaking the law. With the transactions being considered money laundering under law, the industry’s entire financial ecosystem is extremely fragile, explains Simplifya’s chief banking officer Katrina Skinner.
The latest report by the U.S. Treasury Department’s Financial Crimes Enforcement Network lists 706 banks that have launched cannabis banking programs since 2014. These schemes arose following guidance published by FinCen and the Justice Department which created a road map convincing banks that they could adhere to the federal framework and avoid prosecution for facilitating illegal drug transactions.
Despite the comfort brought to the banks in this industry by FinCen’s guidance, cannabis retailers experience great difficulty with various payment processing methods. Josh Bubeck, founder of seven-store dispensary chain Urbn Leaf, calls for federal legalisation and the passing of the SAFE Banking Act into law.
The Secure and Fair Enforcement (SAFE) banking act, which has passed the House five times (but not yet the Senate), was removed from the defence spending bill. Without it, the cannabis industry is limited to holding copious amounts of cash with restricted access to banking.
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