Mastercard this week instructed US financial institutions to stop allowing cannabis purchases on their debit cards, depriving customers of a convenient way to buy marijuana without cash. Cannabis companies say the decision will increase the risk of robbery and violent crime.
Because federal law prohibits the sale, possession and use of marijuana in all its forms, Mastercard said purchases were not allowed on its systems, even when customers use bank cards and PINs to access their own cash to buy cannabis in states, where the substance is legal for recreational or medical reasons.
“When we were made aware of this matter, we quickly investigated it,” a spokesman for Mastercard, one of the world’s largest payment processors, said in a statement on Friday. “In accordance with our policies, we instructed the financial institutions that provide payment services to cannabis merchants and connect them with Mastercard to end the activity.”
Medical marijuana is legal in 38 states, three territories and the District of Columbia. Recreational use of the drug is legal in 23 states, two territories and the District of Columbia.
Because most major banks and credit card providers won’t work with marijuana businesses, many operate with cash only, making them targets for an increasing number of robberies, especially when transporting large amounts of cash for deposit.
Despite the hurdles with banks, the cannabis boom continues to help local economies thrive, legalization supporters say. National sales could exceed $57 billion annually by 2030 just from states where such sales are allowed, Quartz reported. When states ready to legalize it are taken into account, the national forecast exceeds $72 billion in sales.
Cannabis companies have begun to criticize Mastercard’s decision, some raising concerns about safety.
Morgan Paxhia, a co-founder of Poseidon Investment Management, which oversees AdvisorShare’s Poseidon Dynamic Cannabis, said in an interview Friday that small shops may not have the financial resources to fight crime. Once taxes are paid, he said, “there’s really not a lot of money left for, you know, just operating expenses as collateral. And so, that’s where I see a disproportionate impact on the smaller businesses in this industry.”
Paxhia said Mastercard’s decision was a “painful” example of the federal government’s unwillingness 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,” he said. “It’s really because we haven’t seen federal laws changed that give the banking industry confidence to bank.” He expects Visa to soon follow in Mastercard’s footsteps.
Darren Weiss, the president of Verano, a multistate marijuana operator, said on social media that it “never ceases to amaze me that an industry that employs hundreds of thousands of people, provides billions in economic benefits and promotes safer alternatives to drugs and common vices continues to be treated as a pariah.”
Paul Armentano, deputy director of NORML, an organization that works to shift public opinion in favor of legalization, said in a statement Friday that no industry can operate safely, transparently or efficiently without access to banks.
“Ultimately, Congress must change federal policy,” he said, “so that this growing number of state-compliant businesses and the millions of Americans who patronize them are no longer subject to policies that undermine their ability to transact securely and efficient.”
Going cashless has not been easy. In 2017 Hawaii became the first state in the nation to have a cashless dispensing system using the payment app CanPay. The app can be used for cannabis transactions in a handful of other states, including California and Colorado, It was reported by the Associated Press.
Recently, Congress has evaluated the proposed Safe and Fair Banking Enforcement Actor the SAFE Act, which would legalize marijuana banking by providing that the proceeds of a state-sanctioned marijuana business would not be considered illegal under federal anti-money laundering laws.
Senate Committee on Banking, Housing and Urban Affairs held its first hearing on the measure in May. In his opening remarks, Sen. Tim Scott, R-South Carolina, noted that the Justice Department was concerned that the bill “could create loopholes in our money laundering laws, making it harder to catch criminals dealing in guns, fentanyl and even people. “
But the senator, a former small business owner, said he also understood the importance of having a relationship with a financial institution. “A banking relationship is critical to providing security and stability for a business,” he said, “both employees and the customers it serves.”