Visa, the world’s second-largest card payment company, recently issued a compliance note to customers warning them against miscoding point-of-sale transactions through the use of so-called cashless automated teller machines — a practice some cannabis retailers use as an alternative to accepting credit or debit cards for purchases — that may lead to imposition of penalties or other unspecified enforcement action.
The warning comes as lawmakers in Congress wrestle over how to handle marijuana banking. The House of Representatives passed a defense bill in September in language that would be Protected banks that work with state legal cannabis companies, but after conversations with the Senate, those provisions were Not tied to a new bicameral deal introduced on Tuesday.
A December 2 memo from Visa obtained by Marijuana Moment says the company is “aware of a scheme” in which merchants use cashless ATMs to bypass restrictions on the types of sales that payment cards can be used for.
“Cashless ATMs are POS devices driven by payment applications that simulate stand-alone ATMs. However, no cash payments are disbursed to cardholders” note explains. Instead, the machines are used for purchase transactions, which are misclassified as ATM cash payments. Purchase amounts are often rounded off to give the appearance of cash payment.”
At a cannabis retailer, for example, a $45 purchase might be rounded up to $60 and marked up as cash payments. The retailer then subtracts the purchase price plus taxes from the $60 apparent withdrawal and returns the change to the customer. To a payment processor, it would look like withdrawing $60 from an ATM, but to a customer it looks like they bought cannabis with a card.
While the Visa memo does not specifically mention cannabis, it does note that cashless ATMs, sometimes called reverse ATMs, “are primarily marketed to the types of merchants unable to obtain payment services—whether due to Visa rules, other networking rules, or legal or regulatory prohibitions,” a category that includes cannabis business.
With the federal ban preventing most marijuana retailers from accepting credit or debit cards as direct payment, some have seen the use of cashless ATMs as a convenience for customers and thus a smart business decision. Instead of holding a local ATM or asking customers to come in for cash, they can simply swipe the card like any other retailer. Meanwhile, companies that market cashless ATMs remind retailers that customers tend to spend more when they can pay with plastic.
Nathaniel Gurian, CEO of Fincann, which provides private financial services to the cannabis business, has estimated that thousands of cannabis retailers in the United States are currently using what he calls a “cashless ATM solution” to accept cards, a setup he describes as “smart, attractive and similarly fraudulent.” .
“What keeps me awake is that when, not if, one or more of the zealous American lawyers watching progress with their teeth sinks into this, it has the disastrous potential to derail the momentum of our industry and do significant damage,” he said in an email to the moment. marijuana;
Visa’s compliance note is concise when it comes to enforcement. Misuse of cashless ATMs “will be subject to assessment and/or penalties for non-compliance” or “subject to further compliance enforcement,” it says, but does not include details.
The company did not immediately respond to emails and a phone message from Marijuana Moment.
Stephen Hawkins, CEO of the American Cannabis Council, said in a statement to Marijuana Moment that cannabis retailers across the country are “under pressure due to the unfair banking and tax rules that characterize the cannabis business.”
“We urge Visa and other financial institutions to engage constructively with legislators and the cannabis industry on payment options,” he said. “Ultimately Congress will need to step in by passing the Safe Banking Services Act (SAFE), which we are urgently working to pass.”
Other industry groups have expressed disappointment with Visa for targeting cannabis retailers rather than supporting them.
“It is unfortunate that Visa is not prepared to work with the cannabis industry, which is legal in dozens of states and represents billions of dollars in economic activity, at a time when this country needs all the financial options it can use,” said Morgan Fox, director of media relations at the National League. for the hemp industry. “But worse still, they are trying to discourage alternative solutions that small businesses primarily use to protect themselves and their customers from theft and violent crime.”
“The advertising amounts to intimidation, and will directly put the cannabis business at even greater risk of loss of life,” Fox added.
Chicago Bar Association Blog post As of January that examined the use of cashless ATMs in the cannabis industry, he said that miscoding cannabis sales would not only violate payment processor policies, but “would be a violation of federal law.”
Sticking with Visa’s rules, author Kasim Carbide, compliance attorney for businesses and banks, noted that such violations of the company’s rules “may result in disciplinary action against the merchant, as well as potential discovery of $200,000 or $2,500 per day (which could be Retroactively [sic] from and to the first day of non-compliance), and termination of the merchant’s account.
“Merchants are encouraged to remove their cashless ATMs and search for legitimate data and payment processors without violating network rules,” Carbide wrote. “While many merchants are willing to take the risk of immediate profits, most merchants have invested too much in their business to put it at risk due to an illegal fashion.”
The use of cashless ATMs by the cannabis industry has already led to crackdowns. rose fly mentioned In 2019, operators of nearly a third of San Francisco’s licensed stores suddenly closed their cashless ATMs, rendering them unable to accept payments.
However, the use of cashless ATMs in the cannabis trade is still widely practiced.
“It has been an industry cliché for a decade that being fired from the bank multiple times a year is just another cost of doing business and a quick bump in the road towards slowly bringing our industry into the mainstream,” said Gurien, CEO of Fincann. “Of course, the reason they lost most of their bank accounts is that they committed de facto federal bank fraud and money laundering by hiding the true nature of their business from the bank and exposing the bank to serious risks in the process.”
Some companies in the industry may not even understand that the practice of cashless ATMs may be illegal, said Jessica Billingsley, CEO of cannabis tech company Akerna.
“With a number of unique complexities and challenges facing the cannabis industry, many operators do not understand that they have sold denatured products that may not be legal,” Billingsley said in a statement. “The work of a few bad actors cannot undermine the important legal work that the majority of ancillary service providers do.”
Calls for easier access to financial services for cannabis companies have grown since the first states legalized. But in the past year or so, Congress has signaled its interest in tackling the issue, and pressure from companies and other groups has grown.
Earlier this month, the American Bankers Association (ABA), the National Credit Union Association (CUNA), the United Food and Trade Workers Union (UFCW) and 11 other organizations sent a letter demanding Senate leadership. To adopt language that protects banks that work with state legal cannabis firms in the National Defense Authorization Act (NDAA).
“Our organizations have come together because the status quo is untenable for workers, communities, subsidiary companies, and law-abiding financial institutions,” the group’s message read, adding that the enactment of banking reform “will also provide legitimate businesses with access to essential insurance products and protections afforded to other businesses.” “.
In September, home Attached Language of the Safe and Fair Banking Act (SAFE) In its version of the NDAA. The groups wanted the Senate to follow the Chamber’s example, though they ultimately did not.
Members of both parties also participated in the Senate Armed Services Committee They sent their own letter to urge the leaders To include the SAFE Banking Act in the final NDAA. Shortly thereafter, US senators represent Colorado Submit the same request in a separate message.
The Safe Banking Act (SAFE) has been approved in some form in the House five times now, but so far it’s weak in the Senate. Stakeholders had hoped that the Chamber would advance the legislation with a Democratic majority, but some key players such as Senate Majority Leader Chuck Schumer (D-NY) insisted that sweeping legalization — such as the reform bill it is finalizing — be passed first.
However, Schumer pointed out that it was Open to enacting banking reform through the NDAA If it contains provisions of social justice.
Last month, a bipartisan coalition of more than two dozen governors appealed to congressional leaders to do so Finally enact marijuana banking reform Through extensive defense legislation.
A group of small marijuana business owners also recently made the case for an additional banking policy change It can actually help support social justice efforts.
Rodney Hood, Board Member of the National Credit Union, I wrote it in a recent opinion piece called Marijuana Moment That rationing is inevitable – and it makes more sense for government agencies to pre-change policy to solve banking complexities now.
Meanwhile, an official with the Internal Revenue Service said that The agency would like to “get paid”, It would be beneficial if the marijuana industry could access banks like companies in other legal markets so that they could comply with tax laws more easily.
Federal data shows that Many financial institutions are still hesitant The cannabis companies do treat themselves as customers, however, which is likely due to the fact that the plant is a strictly controlled substance under federal law.