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Thinking About Using a Cashless ATM? They're Not Worth It

Dispensary debit purchases are simple to make and discreet. They're also non compliant.

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If you're a cannabis shopper, you may have noticed payment options at different cannabis retail locations can vary widely. Some only accept cash, some have a digital pin or ACH solution, and others accept debit card purchasing with an added fee.

The dispensary debit card purchases are known as "Cashless ATMs." They show up on your bank statement as an ATM withdrawal or purchase to a completely unrelated, non-cannabis business.

While this payment option may seem like the simplest, most discreet way to go, it is also a bad idea. These transactions intentionally disguise cannabis purchases from banks that otherwise prohibit the transaction.

And financial institutions are pushing back. In December 2021, Visa sent a memo to banks entitled' "Cashless ATM' and Misuse of ATM Transactions Prohibited," clearly stating that Cashless ATMs are prohibited, and violations would be subject to penalties.

This wasn't the first action taken against fraudulent payments in the cannabis industry. A few years ago, the then-CEO of cannabis delivery platform Eaze pleaded guilty to bank fraud for processing more than $100 million worth of credit and debit payments for cannabis transactions.

Related: Cannabis Banking Activity Is On The Rise Inside Legal States

A bad solution to the banking problem

Despite being medically legal in more than 37 states and legal for adult recreational use in more than 18, cannabis remains an illegal substance at the federal level in the U.S. Financial institutions' interpretation of this classification has caused them to direct the networks, such as Visa and Mastercard, from operating in the industry due to fear of federal penalties. A significant repercussion for businesses is that cannabis operators cannot access traditional banking services as a mainstream business would.

Some dispensaries have tried to work around this by creating Cashless ATMs, POS (Point of Sale) devices driven by payment applications that mimic standalone ATMs or other purchases. The devices are used for cannabis purchase transactions but miscoded as physical ATM withdrawals. Consumers are prompted to enter their debit cards into a standalone POS terminal and enter their PIN. The transaction amount is rounded to a multiple of $5 to indicate an ATM withdrawal or other purchase, not a POS transaction.

Many of these predatory solutions have been marketed and sold to cannabis dispensaries as compliant when they are anything but that. This month, it's estimated that more than one-quarter of all U.S. cannabis retail sales are disguised by these Cashless ATMs. This may have serious repercussions for well-intentioned cannabis retailers.

A better way

As a compliance company, Akerna's primary mission is to ensure our clients and their consumers have trusted systems that make it easy to follow governing legislation and compliance regulations without putting their business or license at risk. To legally facilitate payments in the cannabis industry, we partner with Hypur, a digital contactless payment solution that offers our clients and their customers a compliant digital payment solution. We are also preparing for the future, post federal legislation or directive, where we can offer compliant traditional payment solutions that access the Visa and Mastercard networks.

The legal cannabis industry has come so far since its inception. We finally sit poised on the precipice of true change. We have a favorable position in Washington D.C., a day we have strived so hard to achieve. In an industry where we have to work doubly hard to prove our legitimacy, it's troubling to learn of these non-compliant actions that jeopardize the entire sector's efforts.

As we await federal cannabis banking reform, it is on us, as cannabis businesses, to ensure we are providing our clients and cannabis consumers with compliant payments options.