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Visa Warns About Cashless ATM Trend Common in Cannabis Industry

Visa recently issued a memo detailing a common scheme being used by businesses in the cannabis industry—“cashless ATM” point-of-sale (POS) transactions. When a merchant receives an order and rounds it up to an even amount, he then executes a cashless ATM transaction that is miscoded as an ATM withdrawal.

While cannabis companies weren’t explicitly mentioned in Visa’s memo—there’s a good chance it was directed at such companies given the prevalence of cashless ATMs in the cannabis industry. Businesses will do anything possible to offer credit or debit cards, as there are very few cash options.

“Visa is aware of a scheme where POS devices marketed as ‘Cashless ATMs’ are being deployed at merchant outletsAnd are operating in violation of the Visa Core RulesAnd Visa Product and Service Rules and Additional Core Rules, plus Product and Service Rules,” the memo reads.

The usual procedure is to round up a purchase by using twenty dollar bills as the closest denominator. A cashless ATM mimics a standalone ATM machine, thus running the transaction in reverse. They are intended for cannabis purchase transactions that are mistakenly coded as ATM withdrawals. Visa said that it is illegal because it compromises an ATM transaction’s integrity. This was something Visa had never meant to do.

“Cashless ATMs are POS devices driven by payment applications that mimic standalone ATMs. However, no cash disbursements are made to cardholders,” the memo continues. “Instead, the devices are used for purchase transactions, which are miscoded as ATM cash disbursements. Purchase amounts are often rounded up to create the appearance of a cash disbursement…”

Technology providers offer alternatives that can be tailored to the needs of cannabis merchants.

“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.”

Gavin continued, “cashless ATMs harm everyone involved by putting investors’ hard-earned money at risk and the potential of dispensary shutdowns that will hinder medical patients’ ability to access their medicine. Until permanent regulations are available at the federal level, solutions (such as CannaCard) that exist today should be used to manage transactions properly for all parties involved.”

Thousands of dispensaries could be hugely impacted by Visa’s compliance reminder. CannaTrac’s digital payment system simplifies the payment process and provides credit card processing for cannabis business—without having to resort to cashless ATMs.

In a cash industry, you can use cashless ATM transactions

Due to federal cannabis restrictions, most of the cannabis industry is still cash-based. This has led businesses to do almost everything possible to circumvent credit card transaction restrictions. Secure and Fair Enforcement (SAFE), Banking Act was removed from the National Defense Authorization Act.

Major credit card networks—Visa, Mastercard, American Express—all avoid the cannabis industry, given the risk of repercussions from federal agencies.

Visa’s memo isn’t entirely clear what the punishment for violation of rules will be, however enforcement will be applied in the event that Visa becomes aware of ongoing cashless ATM practices.

“Acquirers will be subject to non-compliance assessments and/or penalties, when they—or their third party agents—are found in material non-compliance with the Visa Rules,” the memo continues. “When found to have willfully violated the Visa Rules, adversely affecting the goodwill associated with Visa and/or the Plus system, brand, products and services, an acquirer may be subject to further compliance enforcement.”

As cannabis companies have few options, they will continue using schemes like cashless ATMs or other financial loopholes until cannabis is removed as Schedule 1 on the list.