One year after Visa first warned cannabis operators, the “cashless banking solution” has become the cashless banking problem.
On December 2, 2021, Visa issued a memo saying that the company was “aware of a scheme” in which retailers utilized cashless ATMs to avoid limitations on sales for which its payment cards would be allowed to make purchases.
“Cashless ATMs are POS devices driven by payment applications that mimic standalone ATMs. However, no cash disbursements are made to cardholders,” the memo reads. “Instead, the devices are used for purchase transactions, which are miscoded as ATM cash disbursements. Purchase amounts are often rounded up to create the appearance of a cash disbursement.”
While Visa did not specifically name cannabis companies as the primary focus, the overwhelming number of cashless solutions touted their ability to process cannabis purchases, as such the devices were used largely in marijuana dispensaries around the country.
In the memo, Visa said, cashless ATMs “are primarily marketed to merchant types that are unable to obtain payment services—whether due to the Visa Rules, the rules of other networks, or legal or regulatory prohibitions.”
Despite the memo being issued more than a year ago, thousands of cannabis retailers around the country continue to use cashless solutions,.with few alternatives and traditional means being extraneously expensive, dispensaries were left with limited options. Now, dispensaries around the country are facing a hard truth as the networks that supported cashless ATMS are shutting down.
What’s behind the shift?
Some of the largest processors of ATM transactions in the country, including NCR Corp.’s Columbus Data Services, have turned off the ability of processors to use their service.
That has left operators in a scramble to try to find alternative solutions.
Bloomberg reported in April that cashless ATMs would move roughly $7 billion in 2022, accounting for nearly 25% of all marijuana sales in the country.
The shutdown has impacted dispensaries of all sizes, with Multi-State Operators and mom-and-pop shops alike left looking for answers.
Curaleaf Holdings Inc., one of the largest cannabis companies in the US, reported earlier this year that roughly 30% of all transactions at its dispensaries flow through cashless solutions. Now one of the country’s largest MSOs is faced with turning customers without cash away from many of its dispensaries.
“The banking industry needs to catch up to the cannabis industry – there are thousands of retailers nationally impacted by this outage,” Rachael Herndon, Chief Communications and Compliance Officer with AJO, a St. Louis-based management, consulting, and investment group with vertical integration, told Greenway.
“Operators have come to expect outages; the industry as a whole needs real, long-term solutions. We will continue to expect interruptions and explore and support solutions,” Herndon continued. “Card transactions are not only convenient and the most popular, they are more secure and provide additional record keeping which improves operations. Having extensive cash on-site is a safety and compliance issue for retailers.
“We have been assured a new solution is coming down the pipe and, as an operation, will continue to explore and support solutions. It is past due for our representatives in Washington, DC, to support the fastest-growing industry in this state.
“Cannabis is responsible for extensive job creation statewide, our political allies need to support this very real industry. This is a very real problem impacting thousands of legitimate, Constitution-protected businesses. Problems like this are reasons dramas glorifying money laundering persist – as an industry we must reject criminal loopholes and embrace best practices as we continue to grow,” Herndon said. “A compliant, above board industry requires a functional financial climate – the hard truth is that this does not currently exist and reform is constantly tied up and pushed aside in politics”
Some of the largest payment processors in the industry have been affected by the shutdown, including Paybotic and Jory Payments. Jory offers integration with Dutchie, one of the largest e-commerce and POS operators in the cannabis space.
It was reported in 2020 that Dutchie processed more than 10% of all legal cannabis sales worldwide, and included a quarter of all legal dispensaries in the US as customers.
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