For the medical marijuana industry accepting credit cards, or any kind of payment really, is a tricky business. Unfortunately due to the disparity of laws between the states and the federal government medical marijuana dispensaries often end up accepting payments through a series of loopholes and procedural grey areas. Not all credit card processors operate with high moral standards, I know, surprise..surprise.. But also, not all cannabis business owners are willing to wait for the laws to change to be able to accept credit card payments at their business. So, they believe what they hear and turn a blind eye. Some of these options are creative work arounds until things change in the banking world and some are downright illegal.
This article aims to shine the spotlight on a few bad trends for accepting payments in medical marijuana businesses, as well as any cannabis business, as well as highlight the options that are both better for the business and the movement towards fair banking for the industry.
One of the most prevalent things we see in this industry is retail mis-coding of merchant accounts. Visa, MasterCard, and all of the card issuing banks will not knowingly process payments for the industry. Period. But thanks to unscrupulous salesmen applying an inaccurate merchant category code to a business (ie. coding the business as a floral shop..) these accounts are opened all the time. The problem with this, besides it being illegal, is that when the bank gets wind of the true nature of the business they immediately shut down the account, the businesses funds are seized an/ or tied up for a minimum of 180 days, if you ever get them back, and it leaves the owners open for accusations of bank fraud.
Another way that a processor is able to say they are processing your payments domestically is through the use of a hybrid account. In this case the merchants account is still miscoded and hidden amongst dozens of other merchant accounts in an aggregate account where transactions are authorized through account domestically but then sent offshore (usually China) for processing. So they can say it’s domestic but it’s not truly domestic. The problem with this is that there are some unscrupulous people out there who only stay in business as long as they feel like it. They will process these accounts for a few months then decide they don’t want to pay out to you anymore and shut down the whole agg account and walk away with all the funds without paying you or any of the businesses that were included in the account. This can amount to literally millions since most aggregate accounts are approved to process millions of dollars a month. It sounds incredible but it happens.
Using Cryptocurrencies has become another popular way for medical marijuana companies to accept payments in their dispensaries. It seems you should be able to accept cryptocurrency without an issue with the government, but FinCEN’s official stance is that it is money laundering and definitely legal. But besides that it is really about the way these systems operate. These are often closed looped crypto systems hooked to credit cards and are specifically designed to hide the true nature of the purchase. The customer uses the credit card to purchase crypto which is immediately turned into U.S. dollars processed for the purchase of the cannabis.The crypto is never technically owned by the customer since the transaction happens simultaneously. Why is this bad? Well for starters this makes it look to credit card companies that the customers are buying crypto with their credit card (and not marijuana), which is generally considered by the Feds to be a little something called money laundering. Secondly, because purchases of cryptocurrencies are made anonymously it breaks the chain of custody for tracking purposes which violates most states compliance laws.
The Cashless ATM or Point of Banking system has morphed a bit over the years but still remains one of the biggest trends for payments in the cannabis industry. While it acts like an ATM at the terminal, people are only able to use their debit cards and withdrawals are made in increments of $5 like an ATM, is still tied into the banking network. I guarantee that it is miscoded to hide the true nature of the business. In order for the transactions to be processed it still touched the Federally regulated banking channels. In addition, customers end up paying a lot in fees because they are often charged out of network fees by their banks in addition to a convenience fee that is added to their purchase at the time of transaction.
Clever processors have come up with a unique way for businesses with an Ecommerce site to accept payments for medicinal cannabis as well. This is through the use of a shell company. It involves using a shell company website that is attached to the cannabis or medical marijuana eCommerce website through the backdoor. This makes all purchases, credit card transactions, look like they are being made from the shell company. I don’t think we need to go into why this isn’t legal.
All is not lost though. There are a few systems which are transparent and legal. A Local Closed Loop system is one of those solutions. The problem is that consumer adoption is very poor. These accounts are backed by private banks where the customer opens a bank account that is used to preload a card which can only be used at a dispensary. The card can’t just be used at any dispensary you want either. It can only be used at a dispensary that is paired with the private bank. If your preferred dispensary is not partnered with your particular bank the card will not be accepted. Because the banks are private they are legal but still consumer adoption remains low. Maybe it is because people don’t want to have to open and manage another account just to pay for weed unless that is the only way they can pay with credit card.
If customers can’t afford to pay with cash this system allows them to use a credit card to fund the account which then preloads the card used at the dispensary. Therein lies the problem. Once again, this is basically money laundering because still the end result is the credit card being used to purchase a federally illegal substance when you follow the transaction chain.
How Bankcard Brokers helps you accept medical marijuana payments legit.
Fortunately, there are better ways to navigate the sensitive world of payments in the cannabis industry that we at Bankcard Brokers have dedicated ourselves to adhering to.
Echeck processing is one of those ways. This works nicely for mail order, telephone order, invoicing as well as online purchases. But although not intended for in store-in person retail purchases customers can prepay online for pick up at the location. This allows customers to use their bank account and routing numbers to pay for their medicine right out of their account. Dispensary owners love it because checks are deposited into their business account daily so there is no waiting for their funds.
Lastly, Pin Debit is a great option for consumers and merchants alike and most dispensaries are actually switching over from Cashless ATM to this option. This will allow the customer to be able to make purchases and use their debit card just like they would at the grocery store. No extra fees for out-of-network and transactions are processed for the exact amount of the sale, instead of increments of $5, so they budtender does not have to give back change and drivers do not have to carry any cash either.
While there are still not a lot of options for the industry, Bankcard Brokers remains dedicated to staying on the forefront of legal and transparent forms of accepting payments in the cannabis industry. We are now and will continue to be a determined advocate for fair access to banking for the cannabis industry. Give us a call today to see how one of our ETA-Certified Payments Professionals can help your cannabis business accept payments.