Accepting Credit Cards is Strictly Prohibited
Card brands and regulators have left no room for interpretation in their stance on credit cards being utilized for the processing of cannabis transactions.
Any solution claiming to offer credit card processing is in direct violation of Visa/Mastercard operating rules.
Masking the True Nature of the Transaction
Cashless ATMs a.k.a. Point of Banking (POB) tend to mask the true nature of transactions by converting a pin-based debit transaction into an ATM transaction which consequently is a form of money laundering.
“Closed Loop” and Wallet Solutions
Many of these solutions allow for customers to “load” their accounts with credit cards and immediately convert those funds into a purchase of cannabis. The account load is usually disguised as a crypto or gift card purchase. This masks the true nature of the transaction from the acquirer and is money laundering.
Money Laundering - Money laundering is a complex subject with a simple definition. It is simply the concealment of the origins of illegally obtained money, typically by means of transfers involving foreign banks or legitimate businesses. The fact that cannabis is federally illegal, any funds derived from the sale of cannabis are considered illicit funds. Therefore, any bank that chooses to accept the cash derived from the sale of marijuana, is in fact knowingly laundering the money on behalf of the cannabis business.
Bank Fraud - In general, bank fraud may involve any deliberate action aimed at defrauding a financial institution. It may involve an intentional action aimed at receiving assets, money, securities, credits, or property from a financial institution through the use of pretense or false information.
For example, using a credit card to purchase a gift card, stable coin, or other crypto currency that is redeemed instantly or intended for the purchase of cannabis is considered fraudulent. You are masking the true nature of the transaction. All of these types of transactions require at least one acquiring bank and interchange to authorize and fund the transaction. Do some of those work-arounds sound familiar?
Everybody Else Is Doing It...
So why can’t you get a traditional merchant account and accept all major credit cards?
Simple, the process of accepting a credit card requires the involvement of federally regulated entities and “rails” (or communication lines), which include:
Acquiring Banks - the bank, sometimes also the payment processor, that actually settles and funds the credit card transaction.
Card Issuing Banks - the bank that issued the credit card to your customer, who authorizes the transaction and then funds the acquiring bank. This process essentially means that the card issuing bank is providing a micro loan for the purchase. Furthermore, they stand to benefit not only from transaction fees but from interest fees if the customer does not pay off the card in a timely manner.
Interchange - the communication network created by the card brands and issuing banks through which all credit card transactions are routed, and which is overseen by the Fed.
Why Accept Electronic Payments?
A lot of businesses think it would be a dream to accept piles of cash and never look at another credit card. We know merchants have to pay a lot in credit card fees. And, after all, cash is king, right? Many businesses actually find cash to be too costly.
Large amounts of cash on hand make cannabis businesses a target for thieves. This endangers your business, your staff, and your customers.
Cost of cash and depositing cash. Yes, accepting cash as a business actually does carry a cost. On top of that, banks charge exorbitant fees for the transport, deposit, handling, and “cleaning” of cash from plant touching businesses.
Accountability. Cash is untraceable. Banks need to be able to trace the origins of where the cash derived from for BSA/AML purposes. In other words, every dollar deposited needs to be traced back to the product sold. If you’re unable to provide this check and balance, then an all cash deposit increases the risk to the depositing bank.
Lost sales. People tend to spend a lot less money when they use cash. While the studies vary greatly, they all agree that consumers spend and tip more when they use their card than they do when they use cash. As a matter of fact, depending on the industry, the average increase in spend can be anywhere from 12% to 80%! One study showed the average value of a cash transaction was $22, compared to $112 for the average non-cash transaction in 2019. In our experience, cannabis businesses see an average ticket increase of about 17% when they implement card payment services.
COVID-19 changed cash for good. In today's world, there are rising concerns about the cleanliness of paper money. Remaining contactless has become the new norm for a number of different industries, including cannabis.