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Spend a little time (and we know you do!) searching the internet for cannabis payment services or dispensary merchant accounts for payment processing. The World Wide Web will provide you with pages of content looking to capture your business. Buzz words like “fully compliant”, “legal”, and “transparent” abound (and some providers actually believe it is).
We all know the cannabis industry as one of the fastest growing industries in the country. We also know how competitive the industry is, so any edge on the competition is welcome. But let us get right to the point:
Accepting credit cards for cannabis is simply illegal.
That is until there is change and guidelines issued on a federal level….
For now, let’s look at the truth behind credit card payment services for cannabis. In order to discover the best path to accepting cashless payments for your business, it is first necessary to have a general understanding of the payment services environment. Below we will overview the options that are available to you, both Problematic and Legitimate. Finally, we'll review the best solutions available today so your business can operate safely, efficiently, and get an edge on the competition.
Yes, your dispensary is perfectly legal in your state. So why can’t you get an account to accept credit cards? Simple, the process of accepting a credit card requires the involvement of federally regulated entities and “rails” (or communication lines), which include:
Since each of these are federally regulated entities, they MUST obey the federal law and guidelines. Yes, there are guidelines for state sponsored banks to provide compliant cannabis bank accounts. However, to establish compliant cannabis credit card processing, ALL THE entities involved must have compliant programs in place, or the entire system breaks down. Of course, cannabis is still illegal at the federal level, therefore these entities cannot comply.
There are only two things that can change the current cannabis credit card payments conundrum: the passage of the SAFE Banking Act or the federal legalization of cannabis.
Until one or both of those things happen, accepting credit cards is simply not possible.
The Cole Memo was a set of priorities put forth by the Department of Justice to be followed when dealing with the cannabis industry. Jeff Sessions rescinded these priorities when he was in office. However, he and the rest of the DOJ continued to follow the guidance, as does the current administration.
Current FinCEN guidance is for depository services only and does not address merchant services/credit card processing. This FinCEN guidance clarifies how financial institutions can provide services to marijuana-related businesses consistent with their BSA obligations.
This guidance is for depository accounts of all accounts related to OR deriving funds from the cannabis industry. Yes, both plant touching businesses and ancillary service providers’ bank accounts must meet these expectations. Here is an excerpt from the FinCEN guidelines:
The obligation to file a SAR is unaffected by any state law that legalizes marijuana-related activity. A financial institution is required to file a SAR if, consistent with FinCEN regulations, the financial institution knows, suspects, or has reason to suspect that a transaction conducted or attempted by, at, or through the financial institution: (i) involves funds derived from illegal activity or is an attempt to disguise funds derived from illegal activity; (ii) is designed to evade regulations promulgated under the BSA, or (iii) lacks a business or apparent lawful purpose.5 Because federal law prohibits the distribution and sale of marijuana, financial transactions involving a marijuana-related business would generally involve funds derived from illegal activity. Therefore, a financial institution is required to file a SAR on activity involving a marijuana-related business (including those duly licensed under state law), in accordance with this guidance and FinCEN’s suspicious activity reporting requirements and related thresholds.
These expectations and requirements are related to all banks. In general, the decision to open, close, or refuse any account or relationship should be made by each financial institution based on a number of factors specific to that institution. These factors may include its business objectives, evaluation of the risks associated with offering a particular product or service, and its capacity to manage those risks effectively. Thorough customer due diligence is a critical aspect of making this assessment.
As you can see, it is clear that federally overseen or insured traditional money rails are off limits to cannabis payments or funds. To further the evidence, let's take a look at a couple definitions.
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?
There is a simple way to discover how “above board” any payment solution is. Ask them if they will disclose the bank and payment processor. Then call the bank and the processor to ask if they support payments for the industry. Sometimes, even that is not enough.
In order to provide fully compliant payment processing, there MUST be full transactional transparency. Meaning:
If any of these items are missing - the payment solution is not compliant. At the end of the day, EVERY entity that touches a cannabis transaction MUST know that the transaction ultimately resulted in the direct purchase of cannabis.
Many of these providers are happy to get away with it as long as they can. They think they can provide a much needed service to cannabis businesses. They'll make a little money, and they'll take the slap on the hand when their solution gets closed down. But we have been informed that there are instances where cases are being built against larger ISOs who offer credit card services to plant touching businesses. But, generally, the small providers don’t seem to warrant the attention.
However, as soon as a small provider starts processing increased transaction volumes, it almost always triggers an audit by the acquirer. In these cases, the acquirer shuts down and dismantles the operation (often freezing all funds processed). That means the delivery and dispensary businesses using those payment services may never see their funds.
As an example of a blatantly illegal offer, take a look at this statement from an unnamed “cannabis merchant service provider” website:
“.... the cannabis industry’s only fully-compliant merchant services solution to accept credit and debit cards. To learn more about our proprietary payment rail which eliminates the need to process transactions on the credit card networks...”
They claim to be able to process credit cards without using the card brand networks. This is blatantly untrue and masks the true nature of the transaction. Credit card transactions cannot be made without the networks.
What they're likely doing is allowing their “members” to load or link a virtual bank account with a credit card. When a transaction is made at the dispensary, they charge the credit card to “load” the bank account (or purchase a digital currency) and then transmit the funds directly to the merchant for the purchase of cannabis. Neither the card brands nor the acquiring bank know this is really a purchase for cannabis without launching an investigation.
Now refer back to the definition of money laundering and consider the entities that MUST be involved in all credit card transactions. With this transaction, they are masking the true nature of the transaction. This is a clear example of money laundering. It is also highly likely bank fraud. And ALL parties involved could be held accountable.
The worst part for you is that if this processor is indicted, you could be too.
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? However, the adage does not always hold true. Many businesses actually find cash to be too costly…..
As you plan for the future of your business, existing on a cash only basis becomes less and less viable. For your business to survive and thrive, you need an efficient way to increase sales, service your customers, and increase cash flow. But how are you to know which solutions accomplish that goal and which will get you in hot water?
While there are dozens of “proprietary solutions” out there, we can break them down to their core elements. This allows us to separate them into two categories: problematic solutions and legitimate solutions.
Let's make it simple and break down each of these categories.
Blockchain has a promising future, but, most current cannabis payment solutions are being used improperly. While cryptocurrency transactions, when tracked properly, can be a legitimate payment option, most are used to disguise a credit card transaction.
Many blockchain solutions for cannabis allow for credit card payments through the use of crypto currency at the POS. These solutions allow consumers to use their credit card to make a purchase. What is really happening is that the "merchant account" is established to enable the purchase of crypto currency, gift cards, or something else. When the consumer makes their purchase, blockchain is used to convert the credit card payment into Crypto Currency, then instantly convert it back to USD and deposit it into the merchant's account.
However, the acquiring bank and processor are unaware that the purchase is for cannabis. As far as the bank knows, the transaction is for either crypto currency or some other item. This constitutes bank fraud and money laundering by hiding the true nature of the purchase from the acquiring bank and processor.
Accepting crypto currency directly, however, can be legitimate. The main concern here is how the funds are re-entering the economy. If the chain of custody is traceable and your compliant financial institution is aware that the funds are from the sale of cannabis, accepting crypto payments could be a legitimate option.
Things to keep in mind:
With these solutions, cannabis customers hold a virtual account that is linked to their bank account and accessed by a card, phone number, or QR code. Customers can fund their virtual account via ACH or bank transfer. Then use those funds by using the card provided by the payment provider at the time of purchase.
Offshore payment processing involves opening a merchant account with an overseas bank to process and fund your credit card transactions. While this can be a viable solution for many merchants, it poses significant issues for cannabis industry merchants.
Most businesses have heard of or used a cashless ATM. However, if you are still unclear about how it works, we will explain it.
Consider that a customer comes in (or orders online for delivery) and wants to purchase $47.50 worth of your inventory. Upon delivery the budtender or driver would enter the amount of the sale (rounded up to the nearest $5) into a modern credit card terminal that has been programmed to act like an ATM. So, in this case he would enter $50 and ask the customer to insert, swipe or tap their debit card and enter their PIN. Once approved the budtender provides $2.50 as change. Oftentimes this “change” is left as a tip, and everyone is happy. The funds from the sale are processed (as a cash withdrawal) and deposited into the merchant's bank account.
The following statement comes from MC to an undisclosed payment provider with regards to POB. In addition to immediate cease and desist, MC states “…these purchases and sales are prohibited both through direct processing, as well as through any means designed to disguise such transactions or circumvent such laws and/or Standards."
Visa stated publicly: “supporting this scheme affects the integrity of VisaNet and the Plus network, as well as the Visa payment system.” and “…Acquirers will be subject to non-compliance assessments and/or penalties, when they—or their third-party agents—are found in material non-compliance with the Visa Rules.”
Placing an ATM at your business location can be great for both businesses and customers alike. Not only is it a great way to create additional foot traffic, but it can also be an additional revenue stream.
However, there are some disadvantages with cannabis ATMs:
We believe the cannabis industry desperately needs and deserves fair access to cashless payments. However, there are very limited legitimate and efficient methods to accept cashless transactions for cannabis.
As we have seen, accepting card payments is a difficult proposition due to the disparity between federal law and individual state laws. This truth remains despite the demands of cannabis businesses and consumers alike.
However, since 2021, B.I.G. has taken huge strides forward in creating greater access to merchant services for cannabis businesses. Here are the most legitimate options for cashless cannabis payments available now.
By far the BEST and most exciting payment solution the cannabis industry has had to date is our new PIN Debit payment processing.
This solution brings the first bank-backed merchant account to accept card payments for plant touching businesses.
PIN Debit payment processing is NOT a Cashless ATM – they are completely different. PIN Debit allows your customers to make a purchase exactly as they would at the grocery store. Transactions are for the exact dollar amount of the sale.
Acceptance of PIN Debit for cannabis has many benefits for the industry:
Our PIN Debit cannabis payment processing fulfills the highest level of compliance and transparency. Our clients take comfort in knowing exactly who their bank and payment processor are. Additionally, our banking partners have taken every step possible to make this a sustainable and growth focused payment solution.
Ready to learn more about our PIN Debit Program?
OR
ACH (automated clearing house) payments are facilitated by a customer using their bank account to transmit or transfer payment directly to a merchant for a purchase. Customers do this regularly to pay for many things in everyday life, but most commonly with Bill Pay for utilities and others.
Again, as long as the processing and funding banks have approved use for cannabis facilities, ACH payments can be legitimate and are widely used in the industry. The clearing house is independent of the federal government and only has to be concerned with state law.
Another legitimate way to accept payments for cannabis. An eCheck is really just like accepting a check online. The check is printed with your customer’s virtual signature and either electronically or physically deposited into your account.
Yes, credit cards ARE a legitimate option… for non-plant touching businesses. Although these accounts can be difficult to establish, there are still processing banks that will work with you. Remember, even though you are not actually selling the drug, you are benefiting from the sale of cannabis. Thus, all parties involved are subject to BSA/AML (anti money laundering) regulations.
Since 2012, we have been on the cutting edge of pushing for equal access to financial services in cannabis. We continue to lobby for and support the industry in every way we can. And we're well aware that since its inception, the cannabis industry has always had to walk a very fine line.
However, practices like creating a shell company, intentionally “mis-coding”, or creating another “work around” so that cannabis businesses can accept credit cards is doing the industry a disservice. And it is certainly doing nothing to help its sustainable growth. By acting illegally to make money only serves to feed those who oppose the industry and damages the public’s perception of it.
Short-term success or advantage should not come at the expense of long-term goals, your license, or your freedom, let alone set the industry back.
Fair access to financial services will happen, but in the meantime we, as an industry, should look beyond the walls of our operations and think about the good of the industry.
In many businesses, yes, there are 1000 ways to “skin a cat”. But when it comes to highly regulated issues (cannabis payment processing) 990 of those ways could lead you to jail.
Next time a “new” solution comes knocking, consider the way the money flows before you jump on board.
If at any moment that transaction fails in transparency, then the solution is destined to fail.
If you're a cannabis business owner, you need to establish a legitimate payment processing service. One that you can depend on. One that increases your profits. And one that keeps your business and your customers safe. Call Bankcard International Group today, or schedule an appointment below. We'd be happy to go through the solutions that are available, and the costs involved.
No BS – just answers backed by experience and courteous service.
The B.I.G. team is comprised of highly experienced, certified payment professionals. At B.I.G. we hold the philosophy that when we provide great solutions couple with even better service that helps you succeed, we will create a lifelong relationship with your business.
Give us a call - you'll be glad you did!
These programs are very effective at assisting high risk merchant account holders to manage and prevent charge backs before they happen. Many of our high risk or hard to place merchants find these programs useful. Online merchants tend to see more chargebacks than other merchant accounts. Just ask us for the details.