Banking issues continue to frustrate the cannabis industry. The latest blow comes as Mastercard bans debit cards at cannabis shops. Business owners state that the move will increase the risk of robbery and violent crimes.
Why Mastercard Bans Debit Cards at Cannabis Shops
The financial company prohibits debit cards at cannabis shops because marijuana is still illegal at a federal level. Even though it has been legalized in many states, it is classified as an illegal drug by the United States government.
Mastercard has stated that their debit cards may not be used to buy cannabis in any fashion. Customers will not be allowed to use their cards to access cash for cannabis purchases in states where medical and recreational weed are legal.
“As we were made aware of this matter, we quickly investigated it,” a Mastercard spokesperson said. “Following our policies, we instructed that financial institutions that offer payment services to cannabis merchants and connect them to Mastercard to terminate the activity”.
Cannabis Advocates’ Response to Banning Debit Cards at Cannabis Shops
Mastercard’s decision to ban debit cards at cannabis shops has made several cannabis business owners and advocates unhappy. Many mention that processing cash-only payments make them targets for robberies in stores and when transporting cash for a deposit.
Morgan Paxhia, a co-founder of Poseidon Investment Management which oversees AdvisorShares Poseidon Dynamic Cannabis pointed out that many shops can’t afford the security to stay protected.
“There’s really not a lot of cash left over for just operating expenses like security. And so, that’s where I see a disproportionate impact on the smaller businesses in this industry,” he said.
He also stated that Mastercard’s decision to ban debit cards at cannabis shops was a “painful” example of the government’s failure to recognize cannabis as an industry.
“We’ve also seen this over the years where a payment solution starts to take shape in our industry, and then they get shut down. It’s really because we have not seen federal laws changed and that gives the banking industry confidence to bank,” he said.
And while Mastercard is only one company, Paxhia said that he expects Visa to make a similar decision regarding debit cards at cannabis shops soon.
Critics of the ban have also discussed how cannabis benefits the community. Darren Weiss, president of the multistate marijuana company Verano took to social media posting, “(It) never ceases to amaze me that an industry that employs hundreds of people, provides billions in economic benefits, and promotes safer alternatives to pharmaceuticals and commonplace vices continues to be treated like a pariah,” he said.
The cannabis industry is thriving despite bans on debit cards at cannabis shops and other financial hurdles. National sales are projected to exceed $57 billion by 2030 accounting only for the states where it’s currently legal. If the states considering legalization move forward with their legislation, sales could exceed $72 billion across the country.
Paul Armentano, deputy director of NORML, an organization that advocates for marijuana reform, said that no industry can operate efficiently without bank access.
“Ultimately, Congress must amend federal policy so that these growing numbers of state-compliant businesses and those millions of Americans that patronize them are no longer subject to policies that undermine their ability to conduct transactions safely and effectively,” he said.
Alternatives to Traditional Credit and Debit Cards
Several apps have been created for the sole purpose of enabling cashless cannabis purchases. These include:
However, retailers must work with a financial institution that’s approved by the app. It’s not a perfect solution. The apps are also not legal in every state.
The Secure and Fair Enforcement Banking Act (SAFE)
The government is taking steps to legalize marijuana on a federal level through the SAFE Act. If passed, cannabis retailers and customers would not encounter as many issues with debit cards at cannabis shops and purchasing weed. It would protect financial institutions that serve cannabis businesses from prosecution, asset, forfeiture, and other liabilities.
It also puts the following provisions in place:
- Proceeds from a legitimate cannabis transaction would not be considered illegal and are not subject to anti-money laundering laws.
- Financial institutions would not be liable for asset forfeiture for providing a loan to a cannabis company
- Banking agencies may not terminate accounts based on reputation risks
- The bill decreases the cap on surplus funds for the Federal Reserve banks
The first hearing on the measure took place in May. Senator Tim Scott (R-SC) made opening remarks considering the pros and cons of the bill.
On the downside, he pointed out that the bill “could create loopholes in our money-laundering laws, making it harder to catch criminals that traffic weapons, fentanyl, and even people.”
But as a former small business owner, he also mentioned the bill’s benefits. “A banking relationship is crucial to providing safety and stability for a company, both employees and the customers it serves.”
Legislators hoped the bill would pass this summer. But now things are looking bleak. The Senate will need to focus on other priorities like agriculture, appropriations, and defense.
The likelihood that it will pass soon is contingent on how quickly it moves out of the Senate Banking Committee. And while it’s projected to have the support it needs to pass the chamber; Democrats may request expansions that delay its approval.
For example, Senate Majority Leader Chuck Schumer (D-NY) has announced that he intends to attach an amendment that would facilitate expungements for people with prior convictions.
In the meantime, cannabis companies are dealing with bans on debit cards at cannabis shops and other financial issues that interfere with sales. Mastercard put another roadblock in place, and other institutions may follow. The legislation can’t come soon enough.