Cannabusiness Advisory

Cannabis & The Credit/Debit Payment Crises

August 14, 2023


As our world strives to become paperless, nearly all businesses, regardless of industry need to offer payment processing solutions other than cash to keep up with customer demands and expectations. The cannabis industry is no different. Marijuana retail operators are constantly searching for credit and pin debit card solutions to allow their customers to pay for products using something other than cash. However, their search is much harder than others.

As more and more states legalize some form of sale, distribution, and production of marijuana and marijuana products in the U.S., dispensaries often are faced with their credit and pin debit payment options being shut down. For example, most recently as last month, MasterCard released an advisement to its payment processing networks and financial institutions to stop accepting pin debit card transactions on marijuana and marijuana-related products.

Because marijuana is still a Schedule I drug under the Controlled Substances Act, many banks and payment networks do not provide or have stopped providing payment processing services to cannabis businesses despite such operations being legalized on a state and local level. This is a part of the underwriting processes of the payment networks’ (such as Mastercard, Visa, Discover, AmEx, etc.), which continue to monitor and categorize risk-type transactions and inform their payment processors and financial institutions that use their network of the types of businesses that have a risk profile such networks are willing to accept and not accept. In its July statement, Mastercard said: “In accordance with our policies, we instructed the financial institutions that offer payments services to cannabis merchants and connects them to Mastercard to terminate the activity. Our rules require our customers to conduct lawful activity where they are licensed to use our brands.” Following such order, many financial institutions and technology platforms, including Dutchies, have shut down processing pin debit transactions.

The issue is not so surprising or new to the cannabis industry, but the effects can be devastating on retail shops managing disruption in business operations and even having to close down store hours early due to the impact.

How can marijuana retailers survive in this volatile payments market? 

  • One solution is to only require customers to use cash during checkout. This option leaves little room for customer freedom in choosing how to pay for products.
  • Another solution is to find a compliant digital payment processing provider. But doing so is not so easy. Only a handful of providers have compliant digital payments solutions, and numerous providers claim to provide payment services compliantly but are not.

 How do you know if you are working with a payment provider that is compliant with laws and regulations?

One example of a compliant digital payment solution is KindTap Technologies.

Cathy Corby Iannuzzelli, Co-Founder and Chief Payments Officer of KindTap, suggests, “Ask your provider what their MCC code [Merchant Category Codes released by card networks such as Visa, Mastercard, American Express, and Discover] the provider uses. If they can’t answer that question, then you know you have a non-compliant solution.”

Cathy says that KindTap is able to actually provide real digital payment solutions to their marijuana retail customers because they avoid using the rails of the major bank networks such as Visa and Mastercard to process transactions and instead rely on a secure bank account connection (a “pay now” feature) or “Pay Later” option via a revolving credit line. KindTap (through its partner financial institutions) provides the digital credit card and does its own underwriting so that it can rely on a network it can control. “And you only have to go through the process once per customer”, says Cathy. Once your customer is set up through KindTap, they can continue to use the KindTap digital account, “which provides less disruption for your business because your customer has a compliant payment alternative.” Burns & Levinson is proud to have helped KindTap to create its compliant payment solution through regulatory and corporate representation.

If you’re a cannabis operator that is still using pin debit, don’t be surprised if your technology payments platform and credit card networks start shutting down as well. To respond to these closures and interruptions in payment transactions, companies are now looking at adopting unique alternative solutions which involve platforms utilizing crypto. We are cautioning our clients to be very leery of these alternatives because utilizing crypto platforms is not a viable end around and could bring companies like MasterCard and your bank back to your doorstep. Such platforms can create a host of issues and concerns that could expose you to Know-Your-Customer and anti-money laundering issues with your bank, as well as potential tax consequences related to instabilities in the crypto’s valuation.

Lauren Medeiros Forster is a Senior Associate in the Cannabis Business Law Advisory Group. Contact her here.

Burns & Levinson is a pioneering law firm in the cannabis industry. For assistance with any legal matters regarding your cannabis operations, please contact your Burns & Levinson team here.

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