Recreational shop and medical marijuana dispensaries both face challenges because major banks and the federal government present financial roadblocks. Cannabis is a controlled substance on a federal level, so many financial organizations make it extremely difficult for businesses selling marijuana products to safeguard their profits. This article provides the tips you need to maximize profits while mitigating risk.
Cannabis Payment Processing Current Laws
Cannabis is still part of the Controlled Substances Act, so major banks typically won’t process payments for businesses participating in federally prohibited activities, including cannabis and any cannabis-related activities, regardless of state laws. Banks put themselves at risk of being seized by the Federal Deposit Insurance Corporation (FDIC), which is a risk the big financial institutions won’t take. Independent banks are more flexible and willing to cooperate with those related to the legal cannabis market.
In 2014, the Financial Crimes Enforcement Network (FinCen) issued guidance to financial institutions for providing financial services to marijuana related businesses. Banks can provide services to legal cannabis companies, provided they comply fully with anti money-laundering regulations. Regardless, most of the big banks choose to stay clear of the industry. While it’s technically legal for a bank to support a legal marijuana business, many simply choose not to because it’s not worth the risk of more federal government oversight.
The Secure and Fair Enforcement (SAFE) Banking Act creates protections for depository institutions that provide financial services to cannabis-related legitimate businesses and service providers for such businesses, and for other purposes. This bill has moved forward under the premise that the American people have already spoken about legalizing marijuana and the government must enable the commerce required to support it. It’s winding its way through Congress, with a major step forward in March 2019; the House Committee on Financial Services voted to issue a report to the full chamber recommending that the bill be considered further. Only about 1 in 4 bills are reported out of committee. Track the progress of H.R. 1595 SAFE Banking Act here.
The bill prohibits a federal banking regulator from: (1) terminating or limiting the deposit insurance or share insurance of a depository institution solely because the institution provides financial services to a legitimate marijuana-related business; (2) prohibiting or otherwise discouraging a depository institution from offering financial services to such a business; (3) recommending, incentivizing, or encouraging a depository institution not to offer financial services to an account holder solely because the account holder is affiliated with such a business; or (4) taking any adverse or corrective supervisory action on a loan made to a person solely because the person either owns such a business or owns real estate or equipment leased to such a business.
Cash Only Risks and How to Avoid Them
Cash is great until it isn’t. Gobs of cash require lots of security. Businesses are at higher risk of internal theft, and higher risk of robberies. Any cannabis payment processing solution must include tools to mitigate risk of internal theft. At a minimum, that means a cash drawer that opens and closes based on transaction need, and full tracking by employee of cash sales. With the imminent change in banking laws, businesses need a solution that supports cash and credit cards, in addition to other payment methods.
Accepting Credit Cards for Cannabis
Can merchants accept credit cards for marijuana? No. Any company offering cannabis credit card processing is doing some type of hack that could get your business services shut down instantly if the card networks are fully informed of the activity. It’s only a matter of time and how will that disrupt daily operations? For example, here’s the stated rule in Visa Core Rules, April 2019:
An Acquirer must ensure that a Merchant, Marketplace, Payment Facilitator, Sponsored Merchant, or Staged Digital Wallet Operator does not accept Visa Cards for, or display a Visa-Owned Mark on a website and/or application that is used in relation to, the purchase or trade of photographs, video imagery, computer-generated images, cartoons, simulation, products that claim or imply a similar efficacy as prescription drugs, controlled substances, or recreational/street drugs, irrespective of claims of legality or any other media or activities including, but not limited to, activities listed in Section X.
Tips for Legal Payment Processing in 2019
- Branded re-loadable stored value cards are the simplest way to provide customers with a cashless experience.
- Accepting cash, have a solution you can remotely audit, including by cashier details. For example, some lower cost solutions let you delete transactions after the sale; that’s not acceptable. A cloud solution that enables businesses to view all transaction types across multiple locations in or near real-time is best.
- Be ready to accept EMV chip and pin. New laws are likely to be enacted. With a plug an play solution, add an EMV terminal either standalone or integrated. Note, semi-integrated has inherently greater risk of data breach.
- Choose a cloud solution that supports all current and future sales channels. This means a payment gateway for in-store and online. Get your advice from a payment professional, not a developer as only the former has the financial expertise to help you understand consequences of choices.
- Maximize customer fraud protection with in-store EMV chip and pin plus 3-D Secure for online purchases; both shift fraud liability, ‘it wasn’t me, I didn’t authorize’ to the issuer.
- If you want to surcharge for credit cards to offset the fees, then only choose a solution that supports the proper rules, including the surcharge amount as a separate line item on the receipt.
In my opinion, it’s only a matter of time before the flood gates open for cannabis credit card processing, Congress moves slowly, but there’s enough money and American will to get this done sooner or later. In the interim, a cloud solution that supports other payment methods, with full cashier transparency, and will support future needs like EMV chip and pin, is the best payment processing solution.
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