Cannabis Credit Card Processing [Updated Guide]

By Eric Ives
October 16, 2019

In the United States, sales of legal marijuana topped $10 billion in 2018. The black market sold several times more!…

In the United States, sales of legal marijuana topped $10 billion in 2018. The black market sold several times more! It is estimated that global revenue for weed will exceed $146 by 2025, with America holding the lion’s share of the market.

One would think that with so much money involved, cannabis processing via credit card would be a simple matter. Unfortunately, cannabis merchants find processing payments to be exceedingly difficult.

Even though the herb is legal for medicinal use in 33 states plus D.C., and legal recreationally in 11 states plus D.C, it remains illegal on a federal level. Therefore, dispensaries in states such as Oregon, Washington, and California have a real problem. Customers legally can’t pay via credit card, which usually means cash has to exchange hands.

As a consequence, dispensaries, in particular, must carry and store large sums of cash; making them a prime target for robberies. Big dispensaries also have to find significant amounts of storage. One day you open a dispensary, and the next, you’re hiring armed guards and armored trucks!

Marijuana businesses also have to pay their huge tax bills in cash, which are based on gross revenue. The federally illegal status of weed means businesses in the industry are ineligible for the type of deductions normally enjoyed by companies.

Things are getting a little better, and the implementation of credit card processing would be a landmark development. As well as benefiting from the fact that consumers spend up to 30% more when using a card, marijuana firms could finally begin to act like ‘traditional’ enterprises.

Marijuana Processing – Why is It So Hard to Attain Traditional Banking Services?

Processing marijuana payments via credit card has been an impossibility in the United States; although there are a few bills in place, that would relax banking restrictions on the cannabis industry if they are made into law. You can forget about marijuana credit card processing with one of the ‘major’ firms because the likes of Discover, American Express, MasterCard, and Visa all ban weed payment processing on their networks.

The reason why getting banking services is so hard is because of the prohibited status of the herb. Banks are bound by federal law, and as such, they will not do business with any marijuana company; even in states where it is perfectly legal. From a bank’s point of view, there is a chance of incurring the wrath of the Fed; a risk they are unwilling to take.
It is not true to say that NO bank will help you. According to Treasury’s Financial Crimes Enforcement Network, over 630 financial institutions (including Credit Unions) were doing business with cannabis companies by the end of 2018. However, these figures are based on Suspicious Activity Report (SAR) filings.

An SAR is not an indicator of an open and honest relationship between a business and a bank. In reality, there are probably no more than 40 American banks who are knowingly entering into a business relationship with a cannabis enterprise. Don’t be surprised! Bear in mind that accepting deposits from a weed business can technically be classified as money laundering.

Some companies claim to help you open a merchant account for your cannabis enterprise. The problem is, many of these organizations flat out lie and could get you into serious strife. These scammers classify your company as a smoke shop, novelty store, or a seller of tobacco. It doesn’t take banks long to catch out this lie, and by then, you’ve already handed over your cash.

You may also find non-FDIC insured local financial companies that are willing to underwrite your business. The problem is the non-FDIC part. The Federal Deposit Insurance Corporation (FDIC) protects a person’s insured deposits in a bank to the tune of at least $250,000 if that bank or savings association fails.

Therefore, you have the option of banking with a non-FDIC insured institution, but if it collapses tomorrow, you will lose every cent of what you have deposited! At the time of writing, the FDIC will not insure any financial institution or payment processor that works with a marijuana industry; as long as it is a federally illegal substance.

Point of Banking Systems - A Cannabis Payment Processing Workaround

You can reduce the amount of cash in your dispensary by using a Point of Banking system. Known as ‘Cashless ATMs,’ this service operates in your store as a PIN-based swiped transaction. It sounds just like a typical credit card service, but this form of marijuana payment processing acts a little differently to its traditional counterpart.

When a customer swipes their card through the Point of Banking terminal, the terminal acts like a typical bank ATM. However, no ‘physical’ cash gets taken from the customer’s account. The customer enters their PIN, selects a transaction type (withdrawal), and chooses the dollar amount to be taken out.

As is the case with an ATM, you’ll find these dollar amounts in $5 increments. Next, a copy of the receipt is printed, the customer signs, and you put a copy of the receipt in your cash register. Finally, you give the customer change to make up any difference between the cost of purchase and the amount charged by the Point of Banking system.

For instance, if a customer buys $23.80 worth of weed and selects a $25 withdrawal, you give back $1.20 in cash. The swiped payment is deposited into your merchant account within three days in general. Of course, you still need to find a bank that will work with you in the first place!

If you choose this method of processing cannabis payments, it is a good idea to charge a ‘convenience fee’ to make up for the cost of the terminal. Many service providers recommend adding $0.99 to the cost of the purchase. The customer is the one to pay, so make sure they know about the added charge first!

Are Medical Cannabis Payment Solutions Available?

It is possible to have a relationship with a bank but incredibly unlikely. If you somehow get a bank account, expect numerous multi-tier audits which means you’ll need to employ some very astute accountants with experience in the cannabis industry. You can also expect to pay up to $14,000 a month in fees, and your employees may have their accounts frozen for the ‘crime’ of working in the weed sector.

Also, you will probably need to sign a waiver that foregoes insurance on your money. Therefore, if you lose it, it is gone forever!

If you are in the medical herb industry, there are financial institutions that can act as cannabis payment processors. An increasingly popular MMJ merchant account option is what’s known as a ‘High-Risk Merchant.’ With this service, you receive similar banking services to other business financial products without the added stress.

When you find one of these cannabis payment processor firms, their websites usually offer vague features such as:
  • The ability to get all your sale needs from a simple source.
  • Helping you to get accepted and processed quickly.
  • Solutions tailored to your individual needs.
  • Complete banking and processing functionality that meets regulatory standards.
  • Access to a good selection of cannabis POS systems and card readers.
These companies also claim to find you medical marijuana credit card processing solutions; even when other firms suggest your company is too ‘high risk.’

A company called Credit Weed claims that it helps your dispensary accept Visa and Mastercard directly in your store and on the move via a legal processing program. In this case, rates start at around 3.95% with no extra cost to your customer. However, if you look closely, you’ll find that most of these companies deal with CBD sellers. Remember, cannabidiol also comes from industrial hemp, which is now federally legal to grow.

Marijuana Processing Companies – What Are My Options?

The news is good if you are a Canadian company operating in your homeland. Now that the sale and possession of weed is legal in Canada; there are now THC merchant services available to sellers of marijuana. Firms such as Helcim can operate with confidence, and as it is not a high-risk processor, it can offer the same rates as it does to businesses in other sectors.

Sadly, obtaining a marijuana merchant account in the United States is a different matter entirely. You have to be VERY careful and avoid shysters who offer impossible services. We have heard of individuals claiming to be the only FDIC-insured merchant payment processor that serves the marijuana industry in America. Such a claim is a complete lie!

During the Obama Administration, the Cole Memorandum provided the weed industry with some cover from the Feds. However, when Jeff Sessions was the country’s Attorney General, he issued a memo of his own; one that tossed out the Cole Memo. It significantly increased the risk of prosecution so naturally, any banks that had considered getting involved soon changed their collective minds. 

William Barr is the current AG and announced that he wouldn’t go after weed companies in legal states. The SAFE Banking Act of 2019 proposes offering protections from Federal prosecution to financial institutions that provide services to legal marijuana firms. However, the bill is a long way from becoming law, which means banks will not be moved from their current stance.

In June 2019, Columbia Care announced its intention to create a Columbia National Credit program which it plans to roll out by the end of the year. It involves the introduction of a credit card that people can use to purchase marijuana at a dispensary in a legal state.

There are services such as 420 Merchant Solutions that promise to provide a fast, effective, and safe processing solution. Its services include wireless Atlas Payment Processing and a PIN-based Debit Solution. You pay $12 a month statement fee, a wireless fee of $8 a month, and a wireless carrier fee of $34.95. Customers are charged $2.50 per transaction.

Finally, there is also a weed-friendly version of PayPal, called PayQwick, which your customers can use to buy herb. The firm is based in Calabasas, California, and has contracts with a handful of companies. Users download an app which they load with money from their bank account and use it to pay for purchases at a partner dispensary.

Final Thoughts on Cannabis Credit Card Processing

At present, you will find it impossible to process payments using a credit card in the marijuana industry. There are ways to accept debit cards, and the Point of Banking system can at least reduce the amount of cash in your store. However, until marijuana becomes federally legal, having a transparent relationship with a bank will prove exceedingly difficult. As of now, there remains a ban on credit cards being used to buy weed at legal dispensaries.

Some dispensaries are taking a major risk by using less than legal methods of accepting credit cards. Before we proceed, please note that all of these methods are risky and almost certainly illegal. You use any one of them at your own risk, and we do NOT recommend it!
  • Different Category Code: Credit card companies use merchant category codes (MCCs) to classify business types. There is no valid MCC for a weed business, but some firms risk it all by providing a misleading code.
  • Cryptocurrency: A customer can buy the likes of Bitcoin with their credit card and use it to pay for weed. Then, you convert the digital currency back into cash and place it in your bank account. It is important to remember that cryptocurrency is classified as capital gains, so you will pay even more tax than normal!
  • Create a Shell Company: Now we enter dangerous territory! Some cannabis sellers create a ‘parent’ company and open an account under that name. They hide revenue from the dispensary in the shell company. You can certainly get past regulations this way, but it is a clear breach of Credit Card company rules. If the likes of Visa or MasterCard catch you, it will close your merchant account and add you to the dreaded Terminated Merchant File (TMF).
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