Pharmacy cashless ATM transactions are getting the axe
Cannabis dispensaries in several states were forced to look for ways to process cashless transactions when a popular workaround to state banking regulations known as cashless ATMs stopped working for many retailers as of last week. Cashless ATMs, also known as “point of banking” systems, allow customers to use bank cards instead of cash at cannabis dispensaries, giving retailers and their customers alike more flexibility in processing transactions for marijuana purchases.
But early last week, some of ATM’s largest transaction processors, including NCR Corp.’s Columbus Data Services. NCR declined to comment on the situation, according to the report.
“This is a critical issue in cannabis banking,” Ryan Hamlin, chief executive officer of payments technology provider Posabit Systems Corp., told Bloomberg of the cashless ATM closure.
announcement last year
Late last year, international payments processing giant Visa announced in a memo to retailers that it was “aware of a system whereby POS devices, marketed as ‘cashless ATMs’, are used in retail outlets”.
The system worked by rounding up purchases, often to multiples of $20, to make the transaction appear as a cash payment. Instead, only the change from the transaction would be returned to the customer, and the pharmacy would keep the rest to cover payment for the purchase.
“Cashless ATMs are POS devices controlled by payment applications that mimic standalone ATMs. However, no cash payments will be made to cardholders,” the December 2021 memo continued. “Instead, the devices are used for purchase transactions that are mistakenly coded as ATM cash withdrawals. Purchase amounts are often rounded up to give the appearance of a cash payment.
In April, Bloomberg reported that cashless ATM transactions could be processed because they were obfuscated by giving the address of a nearby business, such as a fast-food restaurant, instead of the actual pharmacy address. It is estimated that cashless ATM transactions account for 25% of cannabis sales of the $25 billion projected annual dispensary sales.
“These sales could generate more than $500 million in payment processor fees based on average purchase size,” Bloomberg reported.
Banking laws hinder legitimate cannabis businesses
The popularity of cashless ATM transactions is an indication of the difficulties that federal regulations pose for cannabis companies, even those operating legally under state law. Federal banking and money laundering laws restrict the banking industry, making it difficult for financial institutions to offer traditional services such as credit card processing, lending, and deposit and payroll accounts. But cashless ATMs don’t meet federal regulations.
“The cashless ATM trend is hurting investors, pharmacies and consumers because it is basically blatant money laundering,” CannaTrac CEO Tom Gavin told the High Times. “Rather than creating loopholes and using cashless ATMs, pharmacies should take advantage of other solutions currently on the market that are safe, legal and transparent. A suitable financial solution should be registered with FinCEN and hold a money transmitter license or be the representative of a sponsor or bank with a money transmitter license in their state.”
Hamlin of Posabit said signs of cashless ATM shutdowns emerged in November and increased last week. He estimated that by the end of the weekend, only about 20% of the cannabis industry was still able to use cashless ATM payments.
Cannabis dispensaries in Arizona, California and Massachusetts have reportedly been affected by the closure of cashless ATMs, with staff at those stores recommending paying for their purchases with cash instead. Curaleaf Holdings, one of the largest cannabis retailers in the United States, reported in April that about a third of the company’s pharmacy transactions were processed through cashless ATMs.
“It let traders down because it happened overnight, but the writing has been on the wall for a while,” said Peter Su, senior vice president at Green Check Verified, a consulting and software company focused on Specializing in Cannabis and Banking.
Sahar Ayinehsazian, a partner at Vicente Sederberg LLP and co-chair of the law firm’s Banking and Financial Services Access Group, said the closure of the cashless ATM system highlighted the need to pass legislation now pending in Congress that would allow legal cannabis Business access to banking services.
“This closure further underscores the ongoing need for banking and finance reform for cannabis companies and the passage of the SAFE Act,” Ayinehsazian wrote in an email to High Times. “While there can be no guarantee that the law will open up payment processing for cannabis operators, the industry is very optimistic that its passage will facilitate access to legal and legitimate cashless payment options for cannabis operators.”