John Schroyer
When financial titan Mastercard Inc. (NYSE: MA) cut ties with a swath of payment processors that had been aiding marijuana retailers across the country, the news sent shivers down the collective spine of the cannabis industry. Analysts predicted the move would only increase the likelihood of all-cash transactions, thus heightening the chances of more violent robberies.
The credit card company sent cease-and-desist letters to an unknown number of payment processors that had been facilitating PIN debit card transactions at cannabis dispensaries, Bloomberg reported on Wednesday, a move that industry trade group U.S. Cannabis Council estimated would affect “hundreds” of state-legal marijuana companies, particularly retailers.
“In accordance with our policies, we instructed the financial institutions that offer payments services to cannabis merchants and connects them to Mastercard to terminate the activity,” a Mastercard spokesman wrote in an email to Green Market Report. “Our rules require our customers to conduct lawful activity where they are licensed to use our brands. The federal government considers cannabis sales illegal, so these purchases are not allowed on our systems.”
The reaction from U.S. cannabis operators was largely one of frustration, but the move also served as a reminder for them of the status quo, given that marijuana businesses have been living under a double standard for the entirety of the industry’s life due to the federal prohibition.
“Everything we’ve learned from our partners is that this will impact a wide number of businesses,” said USCC spokesman Josh Glasstetter.
Glasstetter emphasized that it’s still unclear just how many payment processors were even sent cease-and-desist letters by Mastercard, which means it’s hard to gauge the scope of the impact.
“For many … the latest enforcement action by Mastercard is going to force them to rely entirely on cash for the foreseeable future,” Glasstetter said. He called on Congress to pass the SAFE Banking Act, which has reportedly been stalled once more in a Senate committee.
Tyler Beuerlein, vice president at Safe Harbor Financial, estimated the Mastercard fallout would hit “thousands” of marijuana shops and delivery services across the country, and said there’s been a “flurry” of activity over the past week as companies try desperately to pivot.
“You have physical ATMs on premise that are permissible. But nearly every other payment technology has an Achille’s heel,” Beuerlein said when pressed on what options retailers might have.
Other than cash, the primary alternative for shops that have lost the ability to process PIN debit card sales is the Automated Clearing House network, said Snowden Stieber, senior regulatory analyst at Simplifya. But, Stieber noted, so-called ACH payments are easier to use for industrial purposes such as wholesaling, than for storefront customers buying vape cartridges and edibles.
“Cash remains the top choice, but obviously carries many additional costs and challenges. ACH payments are still available to dispensaries, and will likely be the primary vehicle for B2B transactions within the industry, but will hardly be an easy option for consumers,” Stieber wrote in an email.
Some Processors Unaffected
Some payment processors are still up and running, including Alaska-based Naturepay, whose executives confirmed Thursday that it is still serving marijuana dispensaries in every legal U.S. state market.
“We’re one of the only ones that hasn’t received a cease and desist,” Naturepay Vice President Justin Cummings said.
Cummings estimated that at least six or seven of the company’s competitors did receive the letters from Mastercard, but he asserted that his firm has gone above and beyond to ensure the legality of their system – which is why it’s still running.
“Our solution is 1,000% transparent, all the way to the sponsor acquiring bank. Nothing is miscoded,” Cummings said. “There’s no games played, and everybody knows what we’re doing. We have agreements in place with the debit networks that we run transactions on.”
Naturepay declined to disclose how many retailers it serves in the U.S.
Some Pivots Underway
By contrast, Dutchie – one of Naturepay’s competitors – notified its clients recently of a major pivot to use Bitcoin and cryptocurrency to support digital payments at marijuana shops, which Naturepay and several other industry insiders criticized as a flawed substitute for PIN debit card sales.
Dutchie declined to comment directly on the changeup, but Bryan Barash, the company’s vice president of external affairs, wrote in an email that the company “continues to focus on helping the industry address an unfair playing field when it comes to financial services.”
Poseidon co-founder Morgan Paxhia said that trying to use cryptocurrency to secure digital payments for cannabis shops, as Dutchie is poised to do, is simply too risky and riddled with question marks.
“We’ve looked at this … many times over the years, and never could get comfortable with it, and still are not comfortable with it,” Paxhia said. “It just opens a whole other layer of risk.”
Naturepay’s Cummings also said that his company’s understanding is that using cryptocurrency to support cannabis sales would violate guidance from the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
Naturepay President Jim Lange said Dutchie’s move to use Bitcoin could invite yet another crackdown, this time by the Treasury Department.
“I’m envisioning it could, because there’s no real reporting on that,” Lange said. “We have to file (suspicious activity) reports on every penny.”
‘None Of This Is A Surprise’
Beuerlein and others said the writing had been on the wall for months that the Mastercard shutoff was coming.
“None of this is a surprise,” Beuerlein said.
Paxhia agreed but said it’s basically one more proverbial straw on the camel’s back for licensed marijuana companies.
“We are struggling to rebuild investor confidence, and seeing stuff like this is not helping,” Paxhia said. “Operator confidence is on the rise, but it is not reflected in the value of these (public cannabis) companies, because investor confidence continues to be depressed.”
Paxhia also said the Mastercard news was “cyclical,” and follows a longstanding trend of occasional crackdowns by mainstream financial companies on crafty cannabis operators that have found loopholes to exploit.
The last time such a move was made was late 2021, when Visa shut off cashless ATMs being used by marijuana shops.
What Can Be Done?
For now, cannabis companies remain at the mercy of the federal government and a banking system that only agrees to work partially with the industry.
New York attorney Jeffrey Hoffman suggested Wednesday during a podcast that if state regulators truly wanted to align with their licensed cannabis companies, they could alter state policy to push business away from Mastercard or Visa, as a way to pressure the financial titans into doing business with licensed marijuana firms.
“Every state takes credit cards for state payments and charges a fee. Big biz for the state, big biz for the bank, big biz for MC/Visa/Amex,” Hoffman wrote to Green Market Report. “All the cannabis states should jointly notify their banking and payment processor that whenever the contract renews, accepting cannabis payments for the state’s cannabis industry will be a requirement for the new contract. And they should do pre-emptive action now if their contract allows it.”
Glasstetter and a few others suggested that the SAFE Banking Act could solve the problem for good if Congress can get its act together, but others were much more circumspect and said even that bill wouldn’t force Visa and Mastercard to offer services to marijuana businesses.
But, Glastetter countered, SAFE would attract so many new financial institutions to the cannabis sector that Visa and Mastercard wouldn’t be missed.
“It’s unlikely to bring in Mastercard and Visa overnight, but we absolutely see a scenario where the passage of SAFE opens a new conversation. … and gradually draws in larger and larger players, until even the biggest ones are in the market,” he said.
