Cannabis Dispensaries Move to Cash Payments Following ATM Restrictions

Marijuana shops across the US are scrambling to find new ways for customers to pay after the networks that supported a popular workaround to the banking system began to shut down last week.

Cashless ATMs, also called "point of banking" systems, allow cannabis buyers to use a bank card instead of cash. This method has evolved to get around the fact that credit-card companies and banks don't want to be involved in marijuana transactions because the drug is federally illegal.

However, such technology made pot purchases look like ATM withdrawals coming from different addresses. This made it difficult for banks to track the money and put a stop to potential money laundering. According to Bloomberg, this could amount to $7 billion in cannabis sales this year.

Now the system is faltering because some of the largest processors of ATM transactions, such as NCR Corp.’s Columbus Data Services, have turned off the ability of processors to use their service, according to three people familiar with the issue. NCR declined to comment.

Small dispensaries in Arizona, California and Massachusetts have all experienced outages, according to employees who were recommending that customers use cash. Large dispensary chains of multistate operators were also said to be affected. This has caused many customers to turn to cash instead of credit or debit cards.

Curaleaf Holdings Inc. announced last April that it processes around a third of its transactions through cashless ATMs. However, the company is now telling customers at some locations that it is unable to accept bank cards. Curaleaf has declined to comment on the situation.

The cannabis industry is facing some challenges, with stocks falling sharply in the past year due to a lack of political momentum and ongoing concerns about competition from the black market and questions about the health risks of THC. However, the industry is hopeful that the SAFE Banking legislation will pass this month, giving it more access to the banking system.

"This is a crucial moment for cannabis banking," said Ryan Hamlin, CEO of payment-technology provider Posabit Systems Corp. He noted that the networks began to shut down at the end of November, but the outages intensified last week, leaving only about 20 percent of the cannabis industry able to use cashless-ATM-style payments by the weekend.

Posabit, a Kirkland, Washington-based company, had been migrating away from cashless-ATM transactions for more than a year, and finally got rid of the last of its solutions on Sunday, Hamlin said.

"This sudden change has caught merchants off guard, but it's something that has been coming for a while," said Peter Su, a senior vice president at Green Check Verified, a company that specializes in consulting and software for the cannabis industry.

One year after Visa Inc. announced that it was aware of a scheme involving cashless ATMs and that such transactions are prohibited on its network, a crackdown on these ATMs is now underway. While there are alternative payment technologies that are more compliant, some dispensaries see them as clunky for customers and burdensome. Visa didn’t return a message seeking comment.

The preference of customers for the convenience of cashless-ATM-style systems has generated hundreds of millions of dollars in fees for little-known payment processors. Customers have also been reimbursed by their banks for the fees.

"There has always been some uncertainty surrounding the use of these systems, and in recent years that uncertainty has come under greater scrutiny," Hamlin said. This prompted Posabit to stop selling the systems and begin migrating customers away from them over a year ago, he said.

According to dispensary employees and companies that provide competing payment solutions, some of the largest payment processors in the industry were affected by outages. They named West Palm Beach, Florida-based Paybotic, Sherwood, Oregon-based Jory Payments and Salt Money.

Paybotic, Jory and Salt Money did not respond to requests for comment.

Paybotic experienced a system outage on December 2 which affected some of its merchants, according to a message viewed by Bloomberg News. The entire Paybotic support team is working diligently to fix the issue.

The so-called point-of-sale software that integrates with such payments was also said to be affected. This software is used by businesses to process customer payments, and if it is compromised, it could lead to serious problems for businesses and consumers alike.

Dutchie, a company based in Bend, Oregon that makes one of the most popular point-of-sale products, has software that works with Jory's payment-processing technology. When asked about the shutdowns, a spokesman for Dutchie said that the company is "focused on offering the best payment options that benefit our customers," and urged Congress to pass the SAFE Banking Act to provide "industry-standard payment options" for cannabis customers.

As a result of the outage, competitors were seeking to draw new customers. MJstack, a cannabis consulting firm, posted on LinkedIn recently offering dispensary owners calls with its consultants. The firm urged owners not to make any “rash decisions” about switching to alternatives.

Eli Rubin, a founder of Greenway Payments, said that he had already received a few calls on the afternoon of Dec. 2. He said that contending providers in the industry were now searching for stability and reliable service.