Why is My Dispensary an ATM?
“Your total is $78.56, cash or card?”
“Card”
“Thanks, here’s your receipt and change of $1.44. See you soon, enjoy the bud!”
What the Hell is Happening Here?
It’s no secret that the cannabis industry is subject to a lot of different rules and regulations when compared to others. Few other marketplaces have such restrictions on how the product must me packaged down to logo and color choices. There aren’t many stores around where you can’t pick up your own product from the shelf and take to the register yourself for checkout. And most notably (especially for the cannabis operators) there’s no other industry where financial services are so hard to come by, and in some cases, non-existent.
As we all know, cannabis is still a federally illegal plant. Although states have legalized cannabis within their borders, it’s still illegal to take it across state lines (even from legal state to legal state), will still cause you to fail a drug screen for a federal job, and is still considered a gray market good on a national scale. This status, though, affects more than just the actual plant. It affects the way entire businesses are run. The reason? Banks are federally chartered.
What are the Banks Doing?
Largely, nothing helpful. Banks are, rightfully so, heavily regulated entities. To understand how banking regulations have affected the cannabis industry we need to step back to 1970. This was when the US government passed sweeping regulations intended to hamper financial crimes via a series of internal controls required for banks. This package of regulations was referred to as the Bank Secrecy Act, or BSA.
The original requirements put in place by the 1970 BSA were around banks needing to report account transactions over $10k in a single day, reporting on foreign bank accounts owned by US citizens, and creating a paper trail for large financial instrument purchases (such as money orders).
This was bolstered with the Money Laundering Control Act in 1986, which made money laundering illegal (yes, it’s actually that recent). A subsequent set of regulations, Money Laundering Suppression Act in 1994, required banks to develop policies and training to recognize and stop money laundering and mandated the registration of financial institutions with the Financial Crimes Enforcement Network (FINCEN).
The Patriot Act in 2001, among other more questionable mandates outside the banking sector, strengthened certain requirements outlined in the BSA and Money Laundering Control Act. These additional provisions were largely focused on enhancing record retention and sharing of data with governmental entities and other banks, increased scrutiny and regulations on foreign bank activities, and required the actual implementation of AML programs at financial institutions (along with a slew of penalties for non-compliance, naturally).
Now, these regulations were intended to prevent the US financial system from being used to facilitate the financing of criminal and terrorist organizations. But since this is the federal government we’re talking about, that means “criminal organizations” include those that participate in the cultivation, processing, and sale of cannabis. Once states began legalizing cannabis, this clearly became an issue brought about by a difference between state and federal laws. Because of this, banks and payments processors have historically played it safe and not done business with cannabis companies.
What Does this Mean for Dispensary Payments
Until relatively recently, dispensary purchases had to be made in cash. This was due to the fact that banks and payments processors did not want to run afoul of federal AML regulations, and found the risk to not be worth it by tapping into this relatively unserved market. That was until a clever workaround was devised to allow dispensaries to take debit card payments.
In order to accomplish this feat, many dispensaries use what is referred to as a Point of Banking (POB) transaction to allow you to use your debit card to purchase cannabis. Instead of the transaction appearing as a dispensary purchase, it will instead be completed as if it were an ATM transaction. Here’s how it works:
1. Your total is entered on the POB system
2. Since this is technically an ATM, it will usually be rounded up to the nearest $5 or $10, and a “withdrawal fee” may be levied on top.
3. Your transaction goes through, and your bank debits your account and instructs the POB system to dispense your cash.
4. Instead of dispensing your cash, the transaction shows that you have paid for your goods.
5. To complete the rounded up transactions, you are handed change in the amount of the difference between your purchase amount and the rounded up “ATM” amount
Are Cannabis Companies Actually Criminal Organizations?
No. Your local dispensary is not part of a shady cabal threatening competitors and operating under the cover of darkness. Your state’s largest cultivator does not need to hide their farm in the middle of a forest or cornfield to evade the authorities. They are operating legally within the framework set forth by their specific state. They are just at a disadvantage due to financial service corporations playing it safe to not fly in the face of the US government.
Looking Toward the Future
For the past few years now, there has been legislation sitting in congress to open up banking to cannabis companies, referred to as the SAFE (Secure and Fair Enforcement) Banking Act. The goal of this legislation is to allow federally chartered banks to offer services such as payments processing, bank accounts, and financing to cannabis companies operating legally in states where some form of cannabis is legal. Of course, unless we can muster up some bipartisan agreement within the halls of congress, we won’t see this change any time soon. For the sake of our cannabis companies, though, access to banking is a much needed right that is long, long overdue.