The compliance memo from Visa to retailers was issued for the holiday season, but there’s nothing joyful about it. Instead, thousands of dispensaries across the country were put on notice that what may be their go-to method for accepting credit or debit cards for payment – the “cashless” ATM — is now going to make them subject to penalties and fraud charges.
Combined with the stalled SAFE Act banking legislation, this is not a good moment for cannabis retailers. And Visa is making it very clear that this thinly-disguised move against the cannabis industry is going to take the “work” out of “workaround” — making it clear that what many thought to be a clever solution will be targeted, disciplined and prosecuted, leaving many dispensaries unable to take customer payments with plastic.
So how do “cashless? ATMs work? These relatively new countertop POS terminals do not disburse cash; they are solely able to accept purchase amounts from customers’ debit cards. Usually, the transaction amounts are rounded up to create the appearance of a cash disbursement, and the transactions are deliberately miscoded as ATM cash disbursements in the Visa payment network. The devices are sold to dispensaries by third-party providers who also add a monthly merchant fee, and a per-transaction fee for the consumer (part of which may be rebated to the dispensary.)
What’s wrong with the practice? Plenty. Visa, MasterCard, American Express, et al. all follow the rules of the U.S. banking system as well as their own regulations: cannabis is illegal at the federal level, cannabis payments cannot be processed, and miscoding of a merchant name or transaction type is committing bank fraud and/or de facto money laundering. Yet thousands of licensed retailers now use these “cashless” terminals without much thought to the legality of what they are doing because they know their customers prefer using debit or credit cards for payment, and they don’t equate it to an outright lie of having a complicit, dishonest payment processor label them as a “florist”.
(Some dispensaries have even operated by budgeting the cost of being thrown out of multiple banks each year as an expected operating expense. Which is not a business practice that Kanna Knowledge recommends.)
If and when SAFE Act banking legislation finally passes, this all becomes moot and dispensaries can become freely open with payment processors. In the meantime, 2022 may see numerous sites taking down the “We Accept” signs from their front doors, putting back the expensive on-premise ATMs they once had inside, and resuming the security and logistical challenges of conducting an all-cash business.
Image Credit: TopNotch