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Cannabis Banking and the Card Networks

As cannabis in the U.S. goes evermore mainstream, the federal government has been quick to adopt policies to open up financial services to legal cannabis merchants. However, one large piece of this puzzle still remains: Merchant Services.

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Evolving Landscape

The cannabis industry’s legal landscape is evolving at a blinding speed. For years now, individual states across the nation have been moving to legalize cannabis both medically and recreationally.  Of late, however, the most interesting legal developments have been coming from the federal level. Initiatives like the SAFE Banking Act promise to help propel the cannabis industry into the mainstream by shielding compliant banks and ancillary companies servicing the cannabis industry from prosecution for money laundering under federal laws and clearing the way for banks to work with cannabis companies.  

 

SAFE Banking Act

While the SAFE Banking Act is undeniably a step in the right direction, its passage alone won’t be enough to completely normalize all aspects of banking for cannabis businesses. Unfortunately, banking is only one half of the equation for cannabis retailers.  The other vital half of the equation--for which a viable solution to the federal-state conundrum is yet to materialize--is merchant services. While it’s no secret that there is a number of systems which allow cannabis merchants to process debit (and even credit) cards in their stores, the card networks (VISA, Mastercard, Discover, AmEx) have yet to give cannabis-related transactions their blessing, and each cannabis-related transaction which is processed on their rails is done in opposition to the networks’ internal policies.

 

Rules + Regulations

Each of these credit card companies have internal rules departments who seek out processors who process non-compliant transactions and the acquiring banks who help them abscond the rules in order to revoke their processing privileges and levy retroactive fines.  Until the federally-regulated card networks are given similar protections from federal money laundering laws as are provided to banks under the SAFE Banking Act, the networks are unlikely to reconsider their position on cannabis-related transactions. Until then, it’s important for cannabis companies to understand the banking-merchant services dichotomy as it relates to the cannabis industry.

 

While banks have an indispensable part to play in processing each credit card transaction, they are far from the sole actors involved.  In order to process a credit card transaction, there are a minimum of two banks, a processor, card network, a merchant and a cardholder who all play a part--each with its own regulatory requirements and responsibilities.  Until each link in the chain is able to accomplish their respective part of the transaction compliantly, the whole chain is out of compliance.

 

The Future Industry

Even passage of the SAFE Banking Act as it currently stands would be insufficient to rid the entire chain of institutions of non-compliance since it does nothing to address the credit card networks’ internal rules.  Currently, each credit card transaction has a Merchant Category Code (MCC) attached to it which describes the nature of the transaction and is used to attach the appropriate interchange fee. There is no existing MCC which can be veritably attached to a cannabis transaction and until the networks embrace cannabis and issue guidance about how to properly categorize cananbis-related transactions, all cannabis-related transactions which occur on the networks will do so outside of compliance.


Alt Thirty Six offers the cannabis industry’s only fully-compliant merchant services solution.  To learn more about our proprietary payment rail which eliminates the need to process transactions on the credit card networks, please visit our website or email sales@alt36.com.