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Dispensaries’ Cashless ATM Transactions Get The Ax

Many dispensaries of cannabis in different states had to scramble to figure out how to make transactions with cash because a common workaround for federal bank regulations, known as cashless ATMs, stopped functioning 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 patrons alike more flexibility when processing transactions for marijuana purchases.

But beginning last week, some of the biggest ATM transaction processors including NCR Corp.’s Columbus Data Services have shut down the ability of cashless ATM transaction processors to use their service, according to unidentified sources cited by Bloomberg. The report states that NCR has declined to comment.

“This is a pivotal point in cannabis banking,” Ryan Hamlin, chief executive officer of payment technology provider Posabit Systems Corp., told Bloomberg about the cashless ATM shutdowns.

Notification Given in the Last Year

Late last year, international payment processing giant Visa announced in a memo to retailers that it “was aware of a scheme where POS devices marketed as ‘Cashless ATMs’ are being deployed at merchant outlets.” 

In order to appear that cash was being disbursed, the system rounded up all purchases. The customer would receive only the amount of the transaction, while the dispensary would retain the remainder to pay the purchase price.

“Cashless ATMs are POS devices driven by payment applications that mimic standalone ATMs. However, no cash disbursements are made to cardholders,” the December 2021 memo continues. “Instead, the devices are used for purchase transactions, which are miscoded as ATM cash disbursements. To give the impression of cash disbursement, purchase amounts can often be rounded up.

Bloomberg published an April report that cashless ATM transactions can be processed. They are disguised as listings of nearby businesses such as a restaurant or fast food joint, rather than the actual address. According to estimates, 25% of all cannabis sales are made through cashless ATM transactions. This is a significant portion of the projected 25 billion annual dispensary sales.

“Those sales could generate more than $500 million in fees for payment processors, based on average purchase sizes,” Bloomberg reported.

Bank Laws Make It Harder to Legalize Cannabis Businesses

Cashless ATM transactions are a popular way to get cannabis business owners, legal or not. Federal money laundering and banking laws place restrictions on the banking sector, which makes it hard for financial institutions provide traditional services, such as deposit accounts, credit card processing, loan processing, and loans. However, cashless ATMs do not meet the requirements of federal regulation.

“The cashless ATM trend is damaging to investors, dispensaries, and consumers, as when it comes down to it, it’s blatant money laundering,” CannaTrac CEO Tom Gavin told Chronic News. “Instead of creating loopholes and using a cashless ATM, dispensaries should take advantage of other solutions currently on the market that are safe, legal, and transparent. A proper financial solution should be registered with FinCEN and have a money transmitter license, or be the agent of a sponsor or bank with a money transmitter license in their state.”

Posabit resident Hamlin Hamlin said signs of the shutdown of cashless ATMs began to show in November. They grew over the past week. According to Hamlin of Posabit, 20% of cannabis businesses were still able use cashless ATMs by Sunday.

Arizona, California, Massachusetts and Massachusetts cannabis dispensaries have been reported to be affected by cashless ATM withdrawals. The employees of those shops recommended that patients pay in cash for any purchases. Curaleaf Holdings, one of the largest cannabis retailers in the United States, reported in April that approximately one-third of the company’s dispensary transactions were processed through cashless ATMs.

“It’s left merchants in the lurch because it happened overnight, but the writing has been on the wall for a while now,” said Peter Su, a senior vice president at Green Check Verified, a consulting and software company that specializes 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 that the shutdown of the cashless ATM system illustrates the need for the passage of legislation now pending before Congress that would allow legal cannabis businesses access to banking services.

“This shutdown further underscores the ongoing need for banking and financial reform for cannabis businesses and the passage of the SAFE Act,” Ayinehsazian wrote in an email to Chronic News. “While there can be no guarantee that the Act 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.”