Marijuana

What's In Your Dispensary's Wallet?: Marijuana Merchant Processing

What credit card alternatives are out there for merchant processing services.

By  
on

In February of 2014, FinCEN (the financial crimes division of the U.S. Department of Justice) issued its guidelines for financial institutions wanting to do business with the marijuana industry. Though somewhat helpful, this memo did not change federal banking laws nor did it provide guidance on merchant processing services. Even though a marijuana business may have a bank account, it still may not have a way to accept debit or credit card payments.

In October 2014, despite state-legalization and the FinCEN guidelines, many ATMs were pulled from medical and recreational marijuana dispensaries in Colorado and Washington. As The Denver Post reported, “the machines in Colorado and Washington were connected to a network served by MetaBank in South Dakota, which in January warned ATM providers by e-mail that machines located in marijuana shops violated federal banking rules.” MetaBank’s electronic arm, Meta Payment Systems, is the largest ATM sponsor in the U.S.

Merchant processors have always been hesitant or unwilling to allow debit and credit transactions involving marijuana. PayPal, Square, and eBay will not accommodate cannabis purchases or sales through their websites. And, for the longest time, neither Visa nor MasterCard would allow marijuana purchases on their plastic. Nonetheless, soon after legalization in Colorado and Washington, both merchant processors appeared to relax their “No-Pot” stance to legal cannabis buys.

Just like with banks, merchant processors that act in accordance with FinCEN guidelines can relatively safely provide their services to legally operating marijuana businesses in states with “robust” regulatory regimes. Prior to the issuance of the FinCEN memo, Visa said in a statement in 2014 that “it follows federal law and tries to prevent the network from being used unlawfully.” But it added that “given the federal government’s position and recognizing this is an evolving legal matter with different standards applicable in different states, our local merchant acquirers are best suited to make any determination about potential illegality.” MasterCard simultaneously stated that marijuana is a federal crime and it would “work with” its local merchants if those transactions occurred — whatever that means.

If you’re a marijuana business, there are some credit card alternatives that provide some security when it comes to merchant processing services. For instance, PayQwick openly provides merchant processing services to the cannabis industry. Through PayQwick, customers load dollars into a payment account that they keep specifically for the marijuana retailer(s) from whom they buy their cannabis. Using this method, customers load money into an account, and then make payments using either a PayQwick card or a phone app. The idea is similar to what other payment processing businesses like PayPal and Google Wallet offer. In practice, the payments look similar to what you see in a Starbucks, with people paying via scanned barcodes on their smartphones.

Another choice is the “cashless” ATM model. With this set up, the merchant services provider puts a terminal at the point of sale at which a customer swipes his or her debit card. The customer approves the transaction and the payment processor pulls the transaction amount from the customer’s account. The money then sits in the payment processor’s account briefly, before it is deposited in the marijuana retailer’s account (less a hefty transaction fee, of course).

None of these alternative payment services are a real alternative to banking and each has its own risks and challenges under federal and state laws. Similar to Bitcoin, these systems can provide additional convenience and can solve a number of problems that industry members face, but these merchant processors do not benefit from the deposit insurance and regulatory oversight of banks and credit unions. Ultimately, marijuana businesses need to be cautious when dealing with merchant processors. In choosing a merchant processor, it makes sense to choose only those that comply with the FinCEN memo and guidelines. If your merchant processor is not familiar with the FinCEN directives or is pitching you on doing business “off shore,” you should move on to a different merchant processor. And fast.

Sponsored

Hundreds of ATMs unplugged in legal pot shops in Colorado, Washington [Denver Post]
They Said It On Marijuana, Quotable Saturday, Part XXXI [Canna Law Blog]
Cannabis Banking: Is Bitcoin The Answer? [Canna Law Blog]

Earlier: Marijuana Banking: Big Problems With Stashing The Cash

Hilary Bricken is an attorney at Harris Moure, PLLC in Seattle and she chairs the firm’s Canna Law Group. Her practice consists of representing marijuana businesses of all sizes in multiple states on matters relating to licensing, corporate formation and contracts, commercial litigation, and intellectual property. Named one of the 100 most influential people in the cannabis industry in 2014, Hilary is also lead editor of the Canna Law Blog. You can reach her by email at [email protected].

Sponsored

Topics

, , ,