No more buying cannabis with your Mastercard debit card

Mastercard Inc. has issued a directive to payment processors and banks, urging them to discontinue facilitating marijuana transactions on debit cards. The decision is expected to have a negative impact on the already struggling cannabis industry while promoting greater transparency within the banking system. The company took a proactive approach by sending cease-and-desist letters to financial institutions that offer payment services to cannabis merchants, instructing them to terminate such activities.

This development poses a challenge for the cannabis industry, as it limits the options available to pot buyers who relied on PIN debit payments. The companies that facilitated these transactions are now faced with the task of finding alternative solutions for dispensaries, which may not be readily available. Furthermore, it remains uncertain whether other digital payment options exist for marijuana shoppers.

Visa Inc. has also made efforts to restrict cannabis purchases on its networks, further exacerbating the issue.

West Hollywood has 11 licensed cannabis shops and consumption lounges, most of which accept debit cards. In 2021, West Hollywood collected $1.5 million in taxes from adult-use cannabis sales. In 2022, that number grew to $1.9 million, according to public records obtained by Emerald Village.

The underlying reason for these crackdowns on marijuana transactions lies in the fact that despite being legal in many states, the drug remains federally illegal. This has led nationwide card networks to be hesitant about allowing such transactions. As a result, cannabis consumers will now face challenges in finding convenient and cashless ways to purchase marijuana.

From the perspective of banks and credit card companies, preventing marijuana transactions on their networks is a crucial step in safeguarding against potential risks related to money laundering and fraud. Compliance with regulations is a top priority for these financial institutions, and they are actively working to avoid any association with illegal activities.

This is the second wave of difficulties faced by digital payment solutions targeting cannabis consumers. The initial wave affected cashless ATMs, which became a significant loophole in the banking system and subsequently underwent shutdowns. The recent crackdown on PIN debit solutions has added further obstacles for the industry.

For those in the cannabis industry, the recent shutdowns are already causing significant disruptions. Many are scrambling to find alternative payment methods, and consultants in the field are receiving numerous inquiries from clients seeking payment alternatives.

While cash remains an option for transactions, it poses certain risks, such as potential theft, for dispensaries. Cashless-ATM and PIN-debit systems had become popular choices for customers willing to pay additional surcharges for the convenience of card payments. However, with these systems now restricted, businesses are left with limited options, such as ACH payment solutions, which may not be as user-friendly for customers.

The overall impact of these restrictions is a blow to the cannabis industry, which has already been facing challenges due to a lack of progress on national legalization efforts. Additionally, attempts to pass legislation providing better access to banking services for cannabis companies have been unsuccessful so far.

In conclusion, the crackdown on marijuana transactions on debit cards by major financial networks like Mastercard and Visa poses significant hurdles for the struggling cannabis industry. While this move aims to promote transparency and compliance within the banking system, it leaves dispensaries and consumers with limited cashless payment options and uncertain prospects for future developments in the industry.