Visa warns of misuse of “cashless ATMs” used by cannabis retailers to circumvent restrictions

Visa, the world’s second largest card payment company, recently issued a compliance memo to its customers warning them that point-of-sale transactions may be incorrectly encoded using so-called cashless ATMs – a practice that some cannabis retailers consider Workaround using this to accept credit or debit cards for purchases – may result in penalties or other unspecified enforcement action.

The warning comes as Congressional lawmakers grapple with how to deal with commercial marijuana banking. The House of Representatives passed a defense bill in September in a language that would have protected banks that work with state-owned cannabis companies, but after talks with the Senate, those provisions were not added to a new bicameral deal tabled on Tuesday.

Visa’s December 2 memo received by Marijuana Moment states that the company is “aware of a scheme” whereby merchants use the cashless ATMs to effectively enforce restrictions on the types of sales that payment cards can be used for bypass.

“Cashless ATMs are point-of-sale devices powered by payment applications that mimic stand-alone ATMs. However, there is no cash payment to the cardholder, ”he said memo explained. “Instead, the devices are used for purchase transactions that are incorrectly coded as cash dispensing at ATMs. Purchase amounts are often rounded up to give the appearance of a cash payment. “

For example, at a cannabis retailer, a purchase from $ 45 can be rounded up to $ 60 and coded as a cash payment. The retailer would then deduct the purchase price plus tax from the apparent payout of $ 60 and return the change to the customer. To the payment processor it would look like a $ 60 ATM withdrawal, but to the customer it looks like they bought cannabis with a card.

While the Visa memo does not specifically mention cannabis, it does note that cashless ATMs, sometimes referred to as reverse ATMs, “are marketed primarily to types of merchants who cannot obtain payment services – be it due to Visa rules or the Rules of other networks ”. , or legal or regulatory prohibitions, ”a category that includes cannabis companies.

With the federal ban preventing most marijuana vendors from accepting credit or debit cards as direct payments, some have viewed the use of cashless ATMs as a customer convenience and, therefore, a wise business decision. Instead of maintaining an on-site ATM or asking customers to show up with cash, they can simply swipe a card like any other retailer. Companies that market cashless ATMs are reminding retailers that customers tend to spend more when they can pay with plastic.

Nathaniel Gurien, CEO of Fincann, which provides financial services specifically for cannabis companies, estimates that thousands of cannabis retailers in the US are currently using what he calls the “cashless ATM solution” to accept cards, a facility he considers “smart , attractive and just as fraudulent. “

“What keeps me up at night is that it has the catastrophic potential of sapping the dynamism of our industry and wreaking havoc if one or more eager US attorneys don’t grit their teeth about progress,” he said in one Email to marijuana moment.

Visa’s compliance memo is short when it comes to enforcement. Cashless ATM abuse “will be subject to non-compliance scrutiny and / or penalties” or “subject to further compliance enforcement” it says but does not provide details.

The company did not immediately respond to emails and a phone message from Marijuana Moment.

Steven Hawkins, CEO of the US Cannabis Council, told Marijuana Moment that cannabis retailers across the country are “being pressured by unfair banking and tax regulations that weed out cannabis companies.”

“We urge Visa and other financial institutions to engage constructively with lawmakers and the cannabis industry about payment options,” he said. “Ultimately, Congress will have to step in by passing the SAFE Banking Act, which we are urgently working to pass.”

Other industry groups expressed disappointment with Visa for targeting, rather than endorsing, cannabis retailers.

“It is unfortunate that Visa is unwilling to partner with the cannabis industry, which is legal in dozens of states and represents billions of dollars in economic activity at a time when this country needs all the financial resources it can take advantage of,” said Morgan Fox, director of media relations for the National Cannabis Industry Association. “But what’s worse, they’re trying to discourage alternative solutions, mainly used by small businesses to protect themselves and their customers from theft and violent crime.”

“The announcement is intimidating,” added Fox, “and will directly put cannabis companies at even greater risk that could cost their lives.”

A Chicago bar association blog entry in January, which investigated the use of cashless ATMs in the cannabis industry, said incorrectly coding cannabis sales not only would violate payment processors’ guidelines but would also be “a violation of federal law.”

Author Kasim Carbide, a corporate and banking compliance attorney, reviewed Visa’s rules and found that such corporate rule violations “result in disciplinary action against the merchant, as well as a potential find of $ 200,000 or $ 2,500 per day can (what can be). apply retrospectively [sic] up to and including the first day of non-compliance) and termination of the merchant account. “

“Merchants are encouraged to remove their cashless ATMs and look for legitimate data and payment processors without breaking network rules,” Carbide wrote. “While many traders are willing to tolerate the risk for immediate profits, most traders have invested too much in their business to risk it for an illegal fad.”

The cannabis industry’s use of cashless ATMs has already led to raids. Leafly reported In 2019, about a third of the licensed stores in San Francisco had to abruptly shut down their cashless ATMs so they couldn’t accept payments.

Nonetheless, the use of cashless ATMs is still widespread in cannabis companies.

“It has been an industry cliché for a decade that getting kicked out of the bank multiple times a year is just another cost to business and an acceleration in the process of slowly mainstreaming our industry,” said Gurien, CEO by Fincann. “The reason for the loss of their bank accounts is of course that they have committed Bundesbank fraud and de facto money laundering by hiding the true nature of their business from the bank and thereby exposing the bank to serious risk.”

Jessica Billingsley, CEO of cannabis technology company Akerna, said some companies in the industry may not even understand that the cashless ATM practice is illegal.

“Given the many unique complexities and challenges faced by the cannabis industry, many operators fail to understand that they have been sold misrepresented products that may not be legal,” Billingsley said in a statement. “The work of some bad actors cannot undermine the important legal work that the majority of the ancillary providers have done.”

Calls for easier access to financial services for cannabis companies have been growing louder since the first states were legalized. Over the past year, however, Congress has expressed an interest in looking into the issue and lobbying from companies and other groups has increased.

Earlier this month, the American Bankers Association (ABA), Credit Union National Association (CUNA), United Food and Commercial Workers Union (UFCW), and 11 other organizations sent a letter asking the Senate leadership to use a language for protection Acquire cannabis companies under the National Defense Authorization Act (NDAA) by banks working with state remedies.

“Our organizations have come together because the status quo is untenable for workers, communities, ancillary businesses and law-abiding financial institutions,” the group said in the letter, adding that the passing of the banking reform “will also give legitimate companies access to the insurance products they need.” would provide “. and protective measures granted to other companies. “

In September, the House of Representatives added the text of the Secure and Fair Enforcement (SAFE) Banking Act in its version of NDAA. The groups wanted the Senate to follow the Chamber’s example, but ultimately did not.

Bipartisan members of the Senate Armed Forces Committee had also sent their own letter asking leaders to incorporate the SAFE Banking Act into the final NDAA. Shortly thereafter, U.S. Senators representing Colorado made the same motion in a separate letter.

The SAFE Banking Act has now been passed in one form or another five times in the House of Representatives, but it has been paused in the Senate so far. Stakeholders have been hoping the house will move the law forward by a Democratic majority, but some key players like Senate Majority Leader Chuck Schumer (D-NY) have insisted on getting sweeping legalization through first – like a reform bill he did just finished.

However, Schumer had indicated that he was open to banking reform by the NDAA if it contained provisions on social justice.

Last month, a bipartisan coalition of two dozen governors pleaded with congressional leaders to finally pass banking reform on marijuana through large-scale defense legislation.

A group of small marijuana business owners also recently argued that the gradual change in banking policy might actually help support social justice efforts.

Rodney Hood, a board member of the National Credit Union Administration, recently wrote in a comment on Marijuana Moment that legalization is inevitable – and that it makes most sense for government agencies to hurry ahead of policy change to resolve banking complications now.

Meanwhile, an Internal Revenue Service official said the agency would like to be “paid” and it would be helpful if the marijuana industry had access to banks like companies in other legal markets so they could more easily comply with tax laws.

However, federal data shows that many financial institutions remain reluctant to take cannabis companies as customers, likely because the plant is a tightly controlled substance under federal law.

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