Marijuana Merchant Processing

In February, FinCEN (the financial crimes division of the U.S. Department of Justice) issued its guidelines for financial institutions wanting to do business with the marijuana industry. Though helpful to those interested, this memo did not change federal banking laws that make banking for the marijuana industry so risky.

Recently, ATMs were shut down and will be pulled from medical and recreational marijuana dispensaries in Colorado and Washington. Yet again, federal prohibition rears its ugly head, making doing business for marijuana entities both difficult and risky.

As The Denver Post reports, “the machines in Colorado and Washington were connected to a network served by MetaBank in South Dakota, which in January warned ATM providers by e-mail that machines located in marijuana shops violated federal banking rules.” MetaBank’s electronic arm, Meta Payment Systems, is the largest ATM sponsor in the U.S. Though MetaBank sent out warning letters in January saying that it would be pulling its ATMs from marijuana shops, it did not actually do so until this past week. Not all marijuana shops with cashless ATMs were affected as those doing merchant processing with entities other than MetaBank are still going strong.

Merchant processors have always been hesitant/unwilling to allow debit and credit transactions involving marijuana. PayPal, Square, and eBay will not accommodate cannabis purchases or sales through their websites. And, for the longest time, neither Visa nor MasterCard would allow marijuana purchases on their plastic. Nonetheless, soon after legalization in Colorado and Washington, both merchant processors appeared to relax their “No-Pot” stance to legal cannabis buys.

Or did they? Might this just be the whimsy of these credit card giants to turn a blind eye to various activity for their own benefit? Either way, to ensure protection for themselves and for marijuana businesses with which they do business, merchant processors accommodating marijuana businesses should make sure they comply with FinCEN guidelines.

Just like with banks, merchant processors that act in accordance with FinCEN guidelines can relatively safely provide their services to legally operating marijuana businesses in states with “robust” regulatory regimes. Prior to the issuance of the FinCEN memo, Visa said in a statement in 2014 that “it follows federal law and tries to prevent the network from being used unlawfully.” But it added that “given the federal government’s position and recognizing this is an evolving legal matter with different standards applicable in different states, our local merchant acquirers are best suited to make any determination about potential illegality.” MasterCard simultaneously stated that marijuana is a federal crime and it would “work with” its local merchants if those transactions occurred — whatever that means.

Though the pulling of these cashless ATMs is undoubtedly inconvenient for businesses and customers, if MetaBank was out of compliance with FinCEN guidelines, it is probably good that these ATMs were shut down. A capricious attitude of “we’ll serve you when it’s convenient for us,” without recognition of the rigorous standards set forth by FinCEN does not serve anyone’s main purpose, which is compliance and longevity. Note though that we do not know why MetaBank at one time allowed these ATMs and then pulled them, without any real explanation.

Ultimately, marijuana businesses need to be cautious when dealing with merchant processors. In choosing a merchant processor, it makes sense for you to choose one that complies with the FinCEN memo and FinCEN guidelines. That way, your chances of having your ATM pulled go way down.