Mastercard’s recent strict demand instructing banks and payment processors to immediately cease cannabis transactions with its debit card has caused significant upheaval in the marijuana industry and heightened financial risks for licensed operators.
According to Bloomberg‘s initial report, this development is expected to substantially impact adult-use and medical marijuana retailers and their customers.
Mastercard issued its cease-and-desist orders to participating banks just this week.
A spokesperson from the company told Bloomberg, “In accordance with our policies, we instructed the financial institutions that offer payment services to cannabis merchants and connect them to Mastercard to terminate the activity.”
This marks a significant blow to a cannabis industry struggling in many legalized states. While Missouri has seen substantial growth, nationally, marijuana businesses are plagued by falling wholesale prices and over supply contributing to declining returns and recession in several markets.
By instructing payment processors and banks to cease allowing marijuana transactions on debit cards, Mastercard has made it more difficult for current dispensary operators to continue established practices and function as they have for years.
While the writing has been on the wall for some time, in December many cashless ATMs and payment processors suddenly went offline with virtually no warning, the swiftness of Mastercards implementation has been felt by retail operators and consumers alike.
Following the issuance of cease-and-desist letters by Mastercard, companies facilitating PIN debit payments for marijuana have been grappling to find alternative solutions for dispensaries relying on them.
It remains unclear if other digital options exist for marijuana purchases, and Visa Inc., which has also made efforts to curtail cannabis transactions on its networks, is yet to comment. Nationwide card networks are hesitant to support marijuana transactions due to its federal illegality, despite being legal in many states.
As a result of this crackdown, cannabis consumers will have fewer convenient ways to purchase marijuana without cash. For banks and credit-card companies, it marks a hard-won victory in their efforts to combat money laundering and fraud by staying ahead of risky technologies.
Dispensaries have been struggling to determine the legality of the payment solutions they acquire from lesser-known processing companies. These shutdowns have already created tumultuous situations for clients in the US cannabis industry, where marijuana remains illegal at the federal level but legal in 38 states.
Customers have preferred cashless-ATM and PIN-debit systems over cash payments, despite the hefty surcharges involved. These surcharges generated significant revenue for an opaque industry of payment processors but were detrimental to large banks covering out-of-network ATM withdrawals. Smaller, regional banks may still serve cannabis companies, but major institutions and credit-card networks like Visa and Mastercard avoid weed transactions due to federal illegality and the need to comply with “know your customer” regulations to prevent fraud and money laundering.
The cannabis industry, already grappling with low stock prices and stalled national legalization efforts, now faces further challenges. With the crackdown on cashless ATMs many marijuana retailers had switched to PIN debit, the current shutdowns leave them with even fewer options.
While automated clearinghouse (ACH) payment solutions seem to offer lower compliance risk, they are cumbersome for customers, requiring bank routing and account numbers.
Meanwhile, cash, despite being widely used in the industry, creates more risk. Missouri saw a slew of dispensary robberies and theft last summer, and while those incidents targeted product an abundance of cash creates unnecessary risk for operators, security personnel, transportation services, and consumers as well.
Mastercard’s Cease and Desist order serves as a stark reminder that despite progress in cannabis banking in states like Missouri, businesses and consumers still suffer due to obstacles created without federal legalization or reform.