If you knew that a ticking time bomb was sitting next to you, would you sit and wait for it to blow up, risking death or a crippling injury?!?! For dispensaries currently using a cashless ATM system to accept debit card payments, now is the time to take action to protect your business and your future. No matter what you may have been told or believe, cashless ATMs used by marijuana dispensaries are ILLEGAL. It’s vital that you understand the risks associated with cashless ATMs, up to and including being shut down. It’s also crucial that you know there are entirely legal and compliant payment options available to marijuana dispensaries. You’re not stuck with cash only or a risky cashless ATM solution.

Cashless ATMs are illegal, violating card network standards against cannabis transactions and card network standards against purchase transactions. In addition, cashless ATMs also charge customer fees which violate the Durbin amendment. These high-risk violations can result in your dispensary being fined, shut down, or worse. In 2019, Leafly reported that more than 150 of San Francisco’s licensed marijuana dispensaries had their cashless ATMs shut down without warning, paralyzing their businesses due to the inability to accept payments ¹. And yet, many dispensary owners continue to use cashless ATMs because they are desperate for a solution to the cash-only problem. Peter Su, a senior vice president at Green Check Verified, a company that sells compliance software to credit unions and state-chartered banks that provide banking services to cannabis companies, says, “Everyone knows it’s an obvious workaround. It’s a loophole, and it’s going to get closed down.” Because cashless ATMs are viewed as a workaround, those using them can easily be considered in violation of money laundering laws ².

18 U.S.C. 1956 — LAUNDERING OF MONETARY INSTRUMENTS 3 Whoever, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, conducts or attempts to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity — 1. (i) with the intent to promote the carrying on of specified unlawful activity; or (ii) with intent to engage in conduct constituting a violation of section 7201 or 7206 of the Internal Revenue Code of 1986; or 2. knowing that the transaction is designed in whole or in part — (i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or (ii) to avoid a transaction reporting requirement under State or Federal law, shall be sentenced to a fine of not more than $500,000 or twice the value of the property involved in the transaction, whichever is greater, or imprisonment for not more than twenty years, or both.

How Exactly Do Cashless ATMs Work??

Customers must pay an incremental amount of typically $10 or $20 through the cashless ATM. The customer is then given change for the difference between the “withdrawal” and their total purchase price. For example, if a customer purchases some edibles for $12.50, they will be charged a cashless ATM transaction of $20 and receive $7.50 in change. This doesn’t include the ATM fee that is charged, which typically ranges from $2.75-$3.50. It’s an awkward transaction, to say the least. It’s what is going on behind the scenes that truly makes this a shady means of processing payments. The cashless ATM reports the transaction as a cash withdrawal rather than an actual purchase of goods.

Furthermore, all purchases made using credit or debit cards with a Visa, MasterCard, or other card network logo are required to use a Merchant Category Code (MCC). The MCC is used to describe a merchant’s primary business based on its annual sales volume. Card networks, like Visa, use MCC data for various purposes, including activity tracking, reporting, and risk management. The problem is that no MCC code for cannabis currently exists because cannabis is only legal on a state level, not on a federal level. Cashless ATMs charge a fee to the customer, similar to how an out-of-network ATM charges a fee to use it. However, the debit card is being processed for the sale of goods, not an actual cash withdrawal. Charging a fee for the use of a debit card to complete a purchase violates the Durbin Amendment^4,5, which prohibits card networks from charging consumers add-on fees when processing debit transactions for purchases. In addition, cashless ATMs are often set up to hide the business’s location and name.

How Can Dispensaries Legally Accept Debit Cards?

The good news is that recent developments have made it possible for marijuana dispensaries to access a fully legal and transparent means of accepting debit cards for purchases of cannabis and cannabis-derived products and edibles. This fully compliant payment solution for dispensaries is supported by all the major debit networks, including Star, Accel, NYCE, and others allowing customers to pay with debit cards that display the Visa, Mastercard, Discover, and American Express logos. It’s reliable and easy to use because it works the same as if you were to buy groceries at the supermarket. Some merchant processing companies, like Unity Payments, have done extensive research and development to ensure their clients remain 100% compliant, including dedicated teams whose sole responsibility is to ensure compliance with regulators like the Office of Comptroller Currency (OCC). If your dispensary uses cashless ATMs, there is no better time than now to change to a fully legal, fully compliant payment processing solution designed specifically for marijuana dispensaries. Whether you apply with Unity Payments or another PIN debit program, making the change now will greatly benefit your business in several ways.

What are the Benefits of a PIN Debit Program VS. Cashless ATMs?

When you make the switch from cashless ATMs to a PIN debit program, you’ll be able to take advantage of a number of benefits, including:

1. Lower Fees: You’ll likely see a reduction in your overall processing costs because PIN debit transactions are processed at lower rates than cashless ATM transactions.
2. No More Chargebacks: Chargebacks are not an issue with PIN debit transactions because the customer enters their PIN number to authorize the transaction.
3. Better Cash Flow: With a PIN debit program, you’ll receive your money faster because the funds are deposited directly into your account within one to two business days.
4. Improved Customer Satisfaction: Your customers will be happy knowing they can use their debit card to pay for their purchases without worrying about paying fees. Plus, transactions are not rounded up, which makes the checkout process transparent and less confusing for customers.
5. Fully Compliant: A PIN debit program is a standard merchant account supported by all major debit networks, including Star, Accel, NYCE, and more, that is 100% safe, secure, compliant, and reliable.
6. Safe & Secure: With a PIN debit program, you won’t need to keep as much cash on hand, and most importantly, you eliminate the risk of being shut down by banks and card networks like Visa & MasterCard.
7. 100% Legal & Risk-Free: A PIN debit program maintains regulatory compliance, ensuring you operate within the law. It’s fully transparent, helping you avoid the risk of being charged with money laundering for using a deceptive cashless ATM payment method.

If you own a dispensary, it’s essential to understand the risks of using cashless ATMs and switch to a PIN debit program before it’s too late. Not only will you be able to take advantage of lower fees and improved cash flow, but you’ll also be able to provide your customers with a better overall experience while eliminating the many risks that come with using a cashless ATM.

SOURCES:
¹ Leafly – Why did San Francisco’s cannabis store ‘cashless ATMs’ suddenly shut down?
² Bloomberg – Cashless ATMs Have Grown Into a $7 Billion Marijuana Loophole
³ The United States Department of Justice Archives – 18 U.S.C 1956 – Laundering of Monetary Instruments
⁴ Board of Governors of the Federal Reserve System – Bank Profitability and Debit Card Interchange Regulation: Bank Responses to the Durbin Amendment
⁵ Congress.gov – The Durbin Amendment: Section 1075 of the Dodd-Frank Act