Mastercard blocks cannabis transactions
Mastercard blocks cannabis transactions

Mastercard Banning Marijuana Purchases Is The Best Thing That Could Happen to the Weed Industry?

Mastercard is shutting down debit transactions at dispensaries, why it could fast track legalization!

Posted by:
Chiara C on Wednesday Aug 2, 2023

Mastercard blocks cannabis transactions

This past week, Mastercard, a leading player in payment processing, disclosed its intention to hinder PIN-based debit card transactions for marijuana purchases. This decision is a setback for the regulated cannabis industry, which already faces challenges in offering limited payment options to consumers.


According to Bloomberg's report last Wednesday, Mastercard, the second-largest payment solutions provider globally, has notified financial institutions and payment processors to cease processing marijuana purchases with debit cards.


This action is driven by the stringent federal regulations that restrict banks from engaging with marijuana companies, even those operating legally under state law. Consequently, most financial institutions opt not to offer standard banking services, including credit card processing, to such businesses.


Mastercard's spokesperson stated that their discovery prompted the decision to take action that cannabis dispensaries were accepting debit cards for marijuana purchases. Upon learning of this matter, the company promptly conducted an investigation. Per their policies, they directed the financial institutions providing payment services to cannabis merchants and linked to Mastercard to cease such activities.


The Mastercard spokesperson further clarified that since the federal government deems cannabis sales illegal, their systems do not permit these purchases. Therefore, the company's action aligns with the legal restrictions in place.


The industry responded with "doom and gloom" as customers will now be forced to use more physical cash, a cumbersome and dangerous process.  Remember, it was never legal to use a card with a Visa or Mastercard logo on it to buy cannabis in America. Both companies have issued numerous statement clarifing this over the years, and any version of a payment system that worked around this was considered "illegal" or "cloaking" by Mastercard and Visa. 


Could there be a siliver-lining in Mastercard's decision for the cannabis industry?  Let's look at "postive outcome" scenarios:


1. Safety - Whlle this move will inflict short-term pain for the industry, it will also propel safety concerns for employees and customers to the forefront of public discussion.  California is already seeing a growing trends of dispensary break-ins and robberies, this will only amplify that situation in many other states.  What congresss man or women wants to answer questions that they are putting voters in pubic harm's way unneccessarily?

2. Cannabis is a billion dollar industry in the US already, maybe close to $13.2 billion by some estimates.  There is just too much money being moved around in transaction to go "all cash".  The US government may be provoked to make a change in order for safety, tracking, tax purposes, etc.  This move will also embolded the illicit market, since they only use cash or a cash app already.

3. Forcing everyone to cash, considering cashless ATMS were under fire just 6 months ago as well, creates a massive opportunity for money laundering and drug cartels to move into the legal cannabis space.  DEA and ATF will not be fans of more organized crime taking over the marijuana industry.

4. Is this a slavo from Mastercard to the US government saying, "Enough is enough, get your act together so we can run a proper business with credit cards, banking, tracking, CYA documents, and let's normalize cannabis like the alcohol and tobacco industry"? A quick read would say Mastercard is against cannabis, but what if they see the much bigger $500 million picture and this is a move to force a federal change either in legality or at least banking?

5. The US government is slowing chocking off the money supply to the legal cannabis industry with the shutdown of cashless ATMS and now Mastercard cracking down. This same gameplan was used agains online gambling establishments in the early 90s and 2000s. If we can't stop you, we can stop the money supply and slowly put you out of business. As we fast forward 20 years, we now have Draft Kings and Fan Duel and completely legal sports betting.  A similar process may be going on now as big players are getting ready to move in, think Altria and Pfizer, so they need ot chock out the smaller players before a bigger more legit legalization move. Not saying it is an "apples to apples" comparision, but there are some similarities doing on with a gray area business coming into full legalization.


Dispensaries Seek for New Answers

In the wake of Mastercard's decision to disallow debit card purchases for cannabis, cannabis dispensaries that previously relied on this method have started seeking alternative payment solutions. Peter Su, the director of specialty banking at Hanover Bank, who has been involved in cannabis banking programs and served as a payment processing consultant for the industry, reported receiving calls about the situation last week.


This week, the number of inquiries from affected companies has only increased. According to Su, the demand for payment alternatives is substantial, and he has been inundated with inquiries from concerned parties.


Notably, last year, some major ATM transaction processors, including NCR Corp.'s

Columbus Data Services, also shut down another popular payment processing system used by dispensaries called cashless ATMs. These cashless ATMs allowed consumers to use their debit cards to withdraw cash, which was then used to make payments for cannabis purchases.


According to Tyler Beuerlein, the chief strategic business development officer of Safe Harbor Financial Services, a company offering banking and lending services to cannabis businesses, the recent crackdown on electronic payment options has severely limited licensed marijuana retailers' choices to conduct transactions with their customers.


Beuerlein noted that many retailers had shifted towards PIN debit as a preferred payment method over the past year and a half due to difficulties with cashless ATMs. However, with the current crackdown affecting PIN debit solutions, the available alternatives are reduced to ACH (Automated Clearing House) transactions or cash, presenting new challenges for the industry.


However, many consumers perceive ACH (automated clearing house) payments as inconvenient and potentially risky, as they involve sharing bank accounts and routing information with the dispensary. On the other hand, cannabis operators are reluctant to rely heavily on cash transactions, as it can expose retailers to the risk of robbery and other forms of theft.

Industry Push Forward For Legislative Solution

The Secure and Fair Enforcement (SAFE) Banking Act represents a crucial federal legislative solution to resolve the longstanding issue of the cannabis industry's lack of access to traditional banking services. This proposed act seeks to grant cannabis companies legal access to essential financial services, including credit card processing, which has been a significant challenge for the industry.


Despite garnering bipartisan support in both the House of Representatives and the Senate, the bill has encountered roadblocks in its journey toward becoming law. While the House of Representatives has approved it on seven separate occasions, it has yet to receive a vote in the U.S. Senate, leaving the cannabis industry in a state of regulatory uncertainty.


Matt Darin, the CEO of Curaleaf, a prominent player in the cannabis market renowned for its substantial revenue, emphasizes the situation's urgency. He points out that the recent crackdown by Mastercard on debit transactions for cannabis purchases underscores the pressing need for the federal government to acknowledge the cannabis industry as a legitimate, tax-paying, and job-generating sector of the economy.


In an email to High Times, Matt Darin highlighted the remarkable growth of the cannabis industry, labeling it one of the fastest-growing sectors in the U.S. He stated that the industry contributed over $3.7 billion in state tax revenue in 2022 and provided employment to more than 428,000 Americans. The widespread acceptance of cannabis is evident, with its legalization for medical purposes in 40 states and recreational purposes in 23 states. Moreover, 88% of Americans support the nationwide legalization of cannabis.


However, despite the industry's significant economic contributions and widespread public support, Darin questioned when the laws would finally catch up with the reality of cannabis's acceptance and potential. The disparity between the industry's growth and legal status poses challenges for businesses and consumers.


By passing the SAFE Banking Act, the United States government would offer a practical answer to these difficulties and recognize the cannabis industry's indisputable contributions to the economy. This decision might result in significant economic advantages, new jobs, and the ability of cannabis enterprises to participate entirely and responsibly in the banking system.


Aside from the economic benefits, legalizing banking services may improve regulatory control, making it easier for the government to monitor and enforce compliance with tax regulations and other requirements. Furthermore, eliminating reliance on cash transactions and the accompanying security threats would contribute to a safer environment for both businesses and customers.


Mastercard's decision to hinder PIN-based debit card transactions for marijuana purchases represents a significant setback for the regulated cannabis industry, which is already grappling with limited payment options. The stringent federal regulations restricting banks from engaging with marijuana companies have created obstacles for financial institutions to provide essential services, including credit card processing.


This has forced dispensaries to seek alternative payment solutions, highlighting the urgent need for federal legislative action, such as the SAFE Banking Act, to grant legal access to traditional banking services. Recognizing the cannabis industry's economic contributions and widespread acceptance can lead to significant economic advantages, job creation, and improved regulatory control while promoting a safer environment for businesses and consumers alike.





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