Mastercard recently announced that financial payment companies must stop allowing U.S. customers to purchase legal marijuana in shops with its debit cards. This is because the sale of marijuana remains illegal at a federal level in the United States, despite it being legal for medical use in 38 states and for adult recreational use in 23 states.
As a result, Mastercard has instructed financial institutions providing payment services to cannabis merchants and connects them to Mastercard to terminate the activity. This has raised concerns for many in the cannabis industry, making it even harder for businesses to collect payments and survive in an already competitive industry.
While some shops have accepted debit payments despite the federal ban, this is riskier for dispensaries as it exposes them to potential criminal charges and significant fines. This is why many are calling for new laws to ease sales of legal cannabis and improve access to banking services for the cannabis industry.
The U.S. Senate also hopes to pass The SAFE Banking Act later this year, making it easier for cannabis businesses to interact with financial institutions. However, it remains to be seen whether this bill can be passed into law and what effect it will have on the industry.
Implications of Mastercard’s Decision
Cannabis is currently legal for medical use in 38 states and for recreational use by people over 21 years old in 23 states, including Washington DC and the entire U.S. West Coast.
Meanwhile, Canada legally permits customers to make payments with credit or debit cards when buying cannabis products. Mastercard’s decision to ban debit card purchases of marijuana at dispensaries across the United States has been another blow to the state-legal cannabis industry and customers who want to access this emerging market.
The implications of the Mastercard decision are far-reaching for businesses in the cannabis sector. As most banks in the U.S. refuse banking services over the fear of violating federal law, it is now even more difficult for marijuana dispensaries and related businesses to receive payments and stay afloat.
With Mastercard now joining the list of major credit card issuers that have refused to process cannabis transactions, it is clear that financial institutions are treating cannabis users as 2nd class citizens.
Impact of the Shutdown
The impact of Mastercard’s decision has been felt by both cannabis businesses and customers alike. With limited access to banking services, many cannabis companies are unable to receive payments from customers safely and conveniently. This means they have to rely on cash-only transactions, which can be costly and risky for both the business and the customer.
The impact of the Mastercard shutdown is also being felt by industry stakeholders, such as Sunburn Cannabis CEO Brady Cobb, who said in a statement that “this move is another blow to the state-legal cannabis industry and patients/consumers who want to access this budding category.”
Other firms have also expressed their concerns over the issue, with firm Verano’s (VRNO.CD) President, Darren Weiss, saying, “We will continue to advocate for cannabis reform in Washington through further dialogue with elected officials and stakeholders to advance conversations supporting the growth of safe, legal cannabis across the U.S.”
Why Financial Institutions are so Reluctant to Provide Services
There are a number of reasons why financial institutions are so reluctant to provide services to cannabis-related businesses. The main reason is the risk of violating federal law, as marijuana remains illegal at a federal level in the United States.
Financial institutions also fear potential legal action or fines from the government, which could put them out of business if they are found to be accepting payments for federally-illegal products.
Another factor is the lack of clarity around cannabis laws in different states. As laws vary from state to state and even county to county, financial institutions may need to know which ones they should abide by. This makes it difficult for them to determine whether providing banking services to a cannabis business could potentially put them in violation of the law.
Finally, there is also the issue of public opinion. Many people are still not comfortable with legal cannabis, and this affects how financial institutions view cannabis businesses.
With so much stigma attached to marijuana, many banks and payment companies may be reluctant to offer services to such companies for fear of alienating their existing customers.
Potential Solutions, Such as The SAFE Banking Act
The banking crisis faced by the cannabis industry has led to calls for reform of current laws. The SAFE Banking Act, which is currently making its way through Congress, would provide legal protections for banks and payment companies that offer services to cannabis businesses.
It would also allow them to access federal banking services without fear of prosecution or fines from the government.
Another potential solution is to pass legislation allowing states to pass their laws on cannabis banking. This could make it easier for financial institutions in those states to offer banking services without fear of violating federal law.
Finally, some experts call for greater transparency from the government and the industry. Allowing banks and payment companies to view accurate and up-to-date information about cannabis laws across the U.S. could help to build trust between them and businesses in the industry.
Clearly, some changes need to be made to how banking services are offered to cannabis businesses. Until then, there will continue to be a banking crisis for companies in this burgeoning industry, which could have severe repercussions for their ability to stay afloat.
Hopefully, with the introduction of more legislation and greater transparency, this issue can be addressed in the near future.
Enjoyed that first hit? Come chill with us every week at the Friday Sesh for a freshly packed bowl of the week’s best cannabis news!
