Mastercard to Stop Allowing Cannabis Purchases on its Debit Cards

The cannabis industry has always had a cash problem. The problem being it is a cash-only business thanks to banking and finance limitations. While many dispensaries accept debit cards, they’re forced to act as a quasi-ATM, rounding up tabs to even-bill figures in a two-step that conceals the nature of the items being purchased.

However, the industry is facing a new hurdle after Mastercard last week demanded that cannabis retailers stop accepting its debit cards to purchase cannabis products. Mastercard is the second-largest card network in the United States today. If customers can’t use their Mastercard to make cannabis-related purchases, the industry could feel significant financial repercussions.

Paying for Your Cannabis with Mastercard? Priceless. 

Recreational cannabis has been legal in states like Colorado and Washington for over a decade, and more states are opting to join them every election cycle. So it came as something of a surprise last week when card giant Mastercard announced that they want U.S. cannabis shops to stop accepting Mastercard-issued debit cards. Why? The company claims that the move is in response to some shops accepting debit payments from customers despite a federal ban on marijuana. In a statement, the company says, “As we were made aware of this matter, we quickly investigated it. In accordance with our policies, we instructed the financial institutions that offer payment services to cannabis merchants and connects them to Mastercard to terminate the activity.”

Cannabis is still a Schedule I illegal substance under federal law. Mastercard believes that since cannabis remains illegal according to federal law, the technically illegal purchase of cannabis cannot be allowed on their systems. 

Cannabis advocates are blasting the company’s decision. The CEO of Sunburn Cannabis calls the move a blow to the legal cannabis industry and those who want to access the benefits of marijuana. One dispensary owner in Colorado says the move will take a tremendous toll on the already weakened and struggling Colorado cannabis market. The cannabis market in Colorado, Canada, and the Western United States has already seen record-low prices and sales declines. Some fear the move will cause the extinction of several legitimate cannabis retailers and cultivators. 

The Cannabis Cash-Only Model 

Marijuana is a Schedule I illegal drug, according to the federal government. As states passed individual laws legalizing the drug, there was always the challenge of how retailers and cultivators conduct business under the shadow of the federal government, since banks and financial institutions are federally regulated. So when these companies conduct business with cannabis retailers and cultivators in legal states, they can find themselves on the wrong end of a federal investigation and facing severe penalties. It is a risk most large financial institutions will not take. 

The solution was, and still is, a cash-only business model. Transactions must occur in cash. Payroll gets handed out in cash. It is a cash-only industry. For many retailers, it is the only way to conduct business. Unfortunately, the cash-only business model carries significant risks for retailers and employees. There has been a surge in dispensary robberies in states where cannabis is legal because these businesses necessarily have more cash on hand than otherwise similar stores. Legalization was supposed to make obtaining cannabis easier and safer. However, in some respects, it has made it more dangerous for retailers and their employees. 

Some dispensaries moved toward allowing customers to pay for cannabis products with debit cards as a workaround. Retailers can process payments as cashless ATM transactions, through third-party processors, or with PIN debit solutions. Mastercard is demanding merchants terminate the use of PIN debit cards on the company’s network, limiting their exposure to the potential wrath of the federal government. 

As cash slowly falls out of fashion in the American economy, people find it safer and more convenient to forego it and use credit or debit cards for most transactions. Phasing out cash also benefits retailers because people are not limited to buying only what the cash in their wallet will allow. They have the full power of their bank account at their disposal instead. 

Solutions, Not More Limitations 

On paper, the solution is easy. Allow banks and financial institutions to conduct business with retailers and cultivators operating legal businesses in legalized states. Unfortunately, the solution is difficult to come by because of Congressional infighting. For years, the goal of many Democratic legislators has been to pass some form of the SAFE Banking Act. The SAFE Banking Act is federal legislation protecting federally regulated banks and financial institutions, allowing them to serve state-sanctioned marijuana businesses. Cannabis businesses would finally be allowed access to the services of major financial institutions. 

Senate Majority Leader Chuck Schumer (D-NY) continues to push for progress on the SAFE banking Act in the Senate, calling it “must-pass” legislation. However, the lack of support from Republican colleagues may yet again stall movement on the legislation. In the past, key GOP members like Senate Minority Leader Mitch McConnell (R-KY) have blocked efforts to forge ahead with cannabis reform efforts. 

Although it may be possible to reach a consensus in the Senate after serious debate, movement in the House is still being determined. House Speaker Kevin McCarthy (R-CA) has a tenuous hold on the House at best, struggling to keep his party in line and pass anything but signal legislation. Recently, the House has been plagued by Republican infighting, back-and-forth bickering, and struggles to meet the demands of the more dogmatic members of the caucus. 

Lawmakers have not agreed on the SAFE Banking Act, but many in the cannabis and banking industries have. The American Bankers Association, a group representing banks of all sizes, supports the SAFE Banking Act and has clearly stated its positive position on the issue to members of the U.S. Senate. Cannabis business leaders have also voiced their support for the measure. The governors of 20 states, one U.S. territory, and a coalition of state treasurers have also expressed enthusiastic support for the SAFE Banking Act. 

However, support only goes so far. The fate of the SAFE Banking Act is still in the hands of U.S. lawmakers. In the meantime, the cash-only model reigns supreme, especially now that Mastercard is backing out of debit card payments for cannabis-related products. 

You can find more cannabis-related news, recipes, and product reviews online at Cannabutter Digest!