Payment Options in Legal Cannabis are Shaky at Best

So you’re supporting only legally-owned dispensaries—perhaps even one that opened under a social equity initiative. You buy local products, contribute to a community marketplace, and buy only lab-tested legal cannabis. But did you know that you are still breaking federal law even in legal recreation-use markets?

Since cannabis is still illegal at the federal level, financial institutions (including banks, ATMs, and Point-of-Sale terminal developers) are explicitly in the wrong when they process cannabis transactions. It’s a tricky spot that no one is yet sure how to get out of, especially since little has been established in the way of monitoring for or punishing this supposed “crime.”

While it’s a backburner issue for most as they attempt to secure hardware solutions that circumvent federal regulations, it opens up a question of who or what will be the first above-board means of Legal Cannabis financial processing across a nation edging closer to total legalization every year.

Beyond being immensely helpful for business owners who are afraid of losing their business through no fault of their own, it will be an unthinkably profitable development for an industry already marked by technical innovators.

Today, we are diving deeper into any compliant business owner’s situation—how do you handle recreational-market money the government refuses to see as clean?

The Patriot Act And Legal Cannabis Banking

Unfortunately for federal authorities, their efforts to chase criminals through the Patriot Act have been mostly futile and, in the case of legal cannabis businesses, debilitating.

Financial institutions (as well as Money Transmitters, Merchant Payment Processors, and Money Services Businesses) are required under the Patriot Act of 2001 to know their customers and be aware of their customers’ customers. Due in large part to federal cannabis prohibition that limits banking and lending options, the fact is that cannabis is a cash-dominated sector with anonymous consumer behavior, making it extremely difficult to identify and trace customers as required by federal regulations—putting business owners in the crosshairs for attempting to do honest business.

Despite the intricate web of federal requirements governing due diligence (laws such as Know Your Customer (KYC), Financial Crime Enforcement Network Reporting (FinCEN), Anti Money Laundering (AML), and Customer Identification Programs (CIP), the compliance situation has not improved when it comes to accomplishing market transparency for vendors or investigators. These laws were put in place to keep money from falling into the hands of unscrupulous actors and keep it out of the hands of terrorist organizations—something that cannot be monitored for when cannabis goes ignored mainly due to the grey area the legislation results in.

Financial institutions have been subjected to a great degree of scrutiny since the Patriot Act’s adoption. As a result, they are wary of exposing their assets to federal audits, seizures, and raids. As a result, both the banking and credit card industries have mostly ditched working with the Legal Cannabis businesses.

This leaves the question of what a business owner is meant to do if no clear support is offered for handling non-cash payments? It doesn’t appear that either VISA, the government, or banks have any answers.

Patchwork Solutions

Some dispensary owners have been creative in handling the federal process of cash processing in cannabis—namely, by not tying transactions to cannabis at all.

In some stores, owners will simply round up sales to offer cash-back, turning the transaction into something called a “cashless ATM.” In this way, the cannabis transaction is not tied to a card, despite the glaring inefficiencies. It is ironic further to recognize an enormous cash industry of over $25 billion springing up over a few years with armored truck businesses and safe manufacturers existing with the sole purpose of transferring what is little more than “drug money” in the eyes of the law.

Non-brand payment systems are on the table for dispensaries, but like any shaky regulation, the question becomes “for how long?” Business owners are following the rules and trying to build the businesses that will thrive as a market matures. What they cannot predict is how poorly implemented laws may overlap and force costly changes on organizations who were doing their best with the tools provided.

Until federal legislators offer better, more widespread solutions, the attitude towards handling payments will continue to follow the reasoning of “ask forgiveness” rather than “ask permission.” 

The next wave of legal cannabis businesses will remain in limbo, but hopefully, create spaces where compliant companies can work together to solve mutual challenges. Through collaboration between activists, lawmakers, and communities, we hope to see changes in how the federal government interfaces with cannabis at a state level.

Beard Bros Pharms believes that only through leveling the playing field (both legally and socially) can we experience the full benefits of cannabis in our culture.

For more news on cannabis legality, research, and economics, follow our news tab here.

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