Paying with cards at marijuana dispensaries? It’s complicated

Marijuana may be legal in your state. Does that mean you can pay for it with a credit card?

Confoundingly, there are two answers to this question. The first one is, maybe – some marijuana dispensaries claim to accept credit cards.

The second answer, though, contradicts the first one. According to numerous experts, the major credit card networks do not allow merchants to use their cards for marijuana purchases – they do not even have a merchant code for such purposes – and will shut down any account they find out of compliance with this policy.

This is because marijuana is still an illegal drug under federal law.

Card networks have distanced themselves from the marijuana market

“Transactions in the U.S. involving the purchase or trade of marijuana are not permitted on the Visa network, until such time as federal law allows,” a Visa representative wrote in an email.

A Mastercard representative gave a more equivocal statement: “We continue to monitor the situation, seek guidance from regulators and inform merchant acquirers of any new developments.”

To compound the issue, the business of cannabis became even more fraught with uncertainty on Jan. 4, 2018.

That’s when then-U.S. Attorney General Jeff Sessions issued a memo tossing out the Cole Memorandum, an Obama-era policy that gave the marijuana industry a significant degree of shelter from prosecutorial zeal. Instead, Sessions said, future prosecutions should be left to the discretion of individual U.S. attorneys.

Joseph Lynyak III, a partner at the law firm Dorsey & Whitney, wrote in a Jan. 23, 2018 opinion piece for American Banker that the memo “has now significantly increased the risk of prosecution – and if a high-profile criminal action were brought against a bank in this space, it is not hard to envision banks and credit unions fleeing the burgeoning marijuana market.”

Now that Sessions is no longer attorney general, his memo might not be followed under the leadership of Attorney General William Barr. In Barr’s January 2019 confirmation hearing, he indicated that he would not “go after” companies who were protected under the Cole Memorandum, though he is unlikely to issue the same Obama-era protection for the industry.

“I have not closely considered or determined whether further administrative guidance would be appropriate following the Cole Memorandum and the January 2018 memorandum from Attorney General Sessions,” Barr explained following his hearing. “But I still believe that the legislative process, rather than administrative guidance, is ultimately the right way to resolve whether and how to legalize marijuana.”

Since Barr’s confirmation hearing, Congress has, in fact, begun to weigh in on the legality of banks participating in the industry. Currently scheduled for a vote in the House of Representatives, the SAFE Banking Act of 2019 would offer protections from federal punishment to financial institutions who provide services to legitimate cannabis businesses.

Though this bill has a long way to go before it becomes law, its bipartisan support in the House signals a potential shift in the way legitimate cannabis businesses will be able to operate in the future.

Cannabis-only credit card

Regardless of the outcome of this bill, one company might have a solution to the growing problem of operating a cash-only business. On June 13, 2019, Columbia Care, an international medical marijuana company, announced its Columbia National Credit program.

“Until now the cannabis industry has been predominantly cash-based due to restrictions on the use of credit cards for cannabis purchases,” said Nicholas Vita, executive officer of Columbia Care, in a press release. “Through our exclusive network of partners and painstaking attention to detail, we successfully navigated the complexities of the financial industry unique to cannabis and are proud to once again lead the way as the first company to solve this fundamental issue.”

By the end of 2019, Columbia Care plans to roll out this credit card to all of its locations across the country. The company is also considering ways to partner with other companies to provide cashless options to more consumers.

How does this affect consumers right now?

Unless you have access to the Columbia Care credit card and exclusively shop at one of its stores, you might run into problems when pulling out your card at a dispensary. Here are the payment scenarios you are likely to encounter.

Paying with cash at marijuana dispensaries

Many dispensaries struggle to find a bank where they can deposit their funds, so they are all cash, all the time. This extends to paying employees, suppliers, even taxes, said Nathaniel Gurien, founder and CEO of Fincann Corp., which helps connect marijuana-related businesses with banks who will take their money.

The same legality concerns that make Visa and Mastercard unwilling to code cannabis sales also have major banks shying away from relationships with anything marijuana-related. The few financial institutions that will dip their toes in these waters are mostly smaller banks and credit unions.

One Colorado credit union, Fourth Corner, in February received permission from a Federal Reserve Bank to service cannabis-linked businesses, such as accountants and landlords.

Other credit unions – such as Safe Harbor Private Banking in Colorado and Maps Credit Union in Oregon – are willing to accept marijuana industry clients. However, for reasons related to regulatory scrutiny, they tend to only offer accounts to a limited number of well-established businesses.

On-site ATMs – cash and cashless – at marijuana dispensaries

Some dispensaries have ATMs on-site, allowing you to get cash for a terminal fee.

Other dispensaries feature cashless ATMs.

With cashless ATMs, the customer requests, say, $60 from the machine. It spits out a voucher that can be used only at that dispensary. The customer hands the voucher to a clerk, who returns, for the purposes of this illustration, $52.50 worth of product. The customer also is charged taxes and a fee for using the ATM. Whatever is left, the clerk returns in change.

Merchants also pay fees for the use of the machines, and customers may also pay additional fees imposed by their bank for using an out-of-network machine.

In either case, there could be some degree of bank fraud involved with having an ATM machine in a marijuana store. That’s because many ATM-operating banks don’t want to do business with a cannabis dispensary. The workaround? “They may be fudging things,” said Chris Walsh, founding editor of Marijuana Business Daily.

Take a closer look at that receipt you got from the machine: Where does it say the machine is located? “They might say they are a health or wellness company,” Walsh said. But really, they could claim to be a flower shop, a mini-mart – anything but a marijuana dispensary.

Electronic wallet apps accepted at marijuana dispensaries

Imagine a marijuana-driven version of PayPal. While there are a number of such outfits out there, one of the few that experts agreed is legitimate is PayQwick.

The Calabasas, California-based company contracts with a limited number of stores across the country. PayQwick users download an app, which they can load with money from their bank account, and then use that app to pay for purchases at a contracting store.

Founder Kenneth Berke said in 2018 the company is rolling out a credit card function too, which would allow users to purchase marijuana at participating stores using only their credit card and a driver’s license. However, it is unclear where the company is in that process. Berke declined to discuss how this would work in the legal sense.

“[PayQwick] is one of the few [cannabis-related] money transmitters that has gotten buy-in directly from state regulators,” Bricken, the lawyer, said. “To get their endorsement and blessing – I would say you’re probably doing something right.”

The state of Washington, which legalized recreational marijuana in 2012, has licensed only two money transmitters for the marijuana industry as of 2018: PayQwick and another company called Posabit.

“We carefully scrutinize the applications” for cannabis applicants, said Charlie Clark, director of the Washington State Department of Financial Institutions.

In addition to a standard, comprehensive investigation of the company’s owners and business practices, the state also tries to ensure that marijuana industry licensees are not involved in any illegal activity. For example, a cannabis applicant must explain to regulators how it will identify “red flags” and avoid connection with criminal enterprises, Clark said.

Still, Bricken added, the core of the business is about selling an illegal substance, and “at the end of the day, the taking and processing of cannabis cash, whether it’s credit or at the teller, is money laundering” under federal law.

Offering payment with credit cards at marijuana dispensaries

Yes, it’s out there. Weedmaps, one of several websites that help consumers locate marijuana sellers in their area, even allows you to select only those that take credit cards.

But no, it’s probably not legitimate. And yes, you’d be hard-pressed to tell by walking in the door.

Take MedMen, a chain of upscale cannabis dispensaries in Los Angeles, Beverly Hills, New York state, San Diego and Las Vegas, whose website stated, until a few days ago, that it accepted credit and debit cards.

A spokesman for the company, Daniel Yi, said he understood that at least some of the transactions were done through Visa. “I don’t know how exactly the transaction happens,” he said, but the money “ends up in our bank account.”

When asked how MedMen describes its sales to the credit card companies – what merchant category code it uses – he said, “I don’t know how it’s coded.”

The “financial folks” at MedMen would have a better answer, he said, but days later, in response to a follow-up email, Yi said he still was unable to reach them.

A few days later, MedMen’s website and its store details on marijuana store locators had been updated. They no longer claimed to accept credit cards. Instead, MedMen’s details on Weedmaps now say, “We accept all major debit cards.”

Yi didn’t reply to further requests for clarification.

In search of the elusive credit card operator for the cannabis industry

Before Columbia Care’s announcement, if any legitimate credit card operator for cannabis did exist, it was shrouded in secrecy. Lance Ott, CEO of Guardian Data Systems, which provides software systems to cannabis businesses, said he knew of one such program, but “I can’t name the name of the company.” It doesn’t want to draw any attention to itself, he said, either from the public or regulators.

The upshot? There are as many ways to pay for marijuana as there are varieties of bud on a store shelf – and credit cards might, or might not, be one of them. Every method is, in one way or another, skirting around the fact that the federal government still considers marijuana an illegal drug.