Mastercard has announced its decision to ban U.S. debit card transactions related to cannabis, causing further turbulence in an industry already battling with restrictions due to the substance’s federal illegality.
Despite cannabis being legal for medicinal and recreational purposes in 38 and 23 U.S. states respectively, customers are now faced with fewer options for cashless purchases.
Mastercard’s prohibition follows its discovery of some dispensaries accepting debit payments in contravention of federal regulations.
In response, the company instructed financial institutions to discontinue their cannabis-related activity on its network.
Critics argue this move by Mastercard poses another substantial challenge for state-legal cannabis enterprises and consumers, limiting access to this burgeoning industry.
“Mastercard’s decision is a further blow to the state-legal cannabis industry and patients/consumers who want access to this budding category,” said Brady Cobb, CEO of Sunburn Cannabis.
Cannabis commerce is primarily cash-based due to its federal illegality, with limited alternatives for cashless transactions.
Cashless ATMs and PIN debit options have become popular among dispensaries, providing a secure, convenient cash-free method for customers.
These solutions helped boost revenue, streamline checkout processes, and mitigate risks associated with large cash transactions.
However, Mastercard’s decision is dramatically reducing these transactional options.
Potential solutions may lie in the Secure and Fair Enforcement (SAFE) Banking Act.
This legislation aims to enable banks to do business with state-legal, compliant cannabis companies, protecting them from federal penalties.
The act would also ensure funds from such businesses are not treated as illegal proceeds, shielding banks, insurers, and other institutions from federal liability.
Despite failing to pass in 2022, the SAFE Banking Act is currently seeing renewed bipartisan support.
If enacted, it could offer crucial advantages such as improved safety, enhanced capital access, and increased transparency for the cannabis industry.
Until a change in federal policy or the introduction of such acts, cannabis businesses are primarily reliant on regional banks and inconvenient automated clearing house (ACH) payment solutions, while customers face restrictions and cash-related risks.