By Patti Murphy
I don't understand the hoopla over the creation of a unique MCC for gun and ammo shops. After all, thousands of merchants would be delighted to get an MCC. Any MCC. But the card brands say no.
I'm talking about businesses legally selling cannabis and related products, and the mismatch of state and federal cannabis laws that has forced most businesses in this multi-billion-dollar market off the cad networks.
The major card brands have taken the position that because these products aren't legal under federal law they must be banned from their networks. I understand their position, but it places ISOs and card acquirers at a disadvantage.
Visa and Mastercard began as associations of federally insured financial institutions (FIs). As such, they needed to operate in conformance with the laws and regulations that FIs operate under.
These days, the prohibition hinges on the fact that cannabis is illegal under federal law. So, transacting payments derived from sales of cannabis products, even sales deemed legal under state law, is considered money laundering.
This position, however, ignores long-standing guidance from the U.S. Department of the Treasury and the Department of Justice that created a framework for banking cannabis businesses without running afoul of anti-money laundering laws. At year-end 2021, 553 banks and 202 credit unions were filing required reports with Treasury's Financial Crimes Enforcement Network on deposits from marijuana-related businesses (sometimes referred to as cannabusinesses) in compliance with that framework.
Sure, 773 represents a fraction of the roughly 11,000 federally insured FIs, but it's a far cry from the 30 or so that were banking cannabis businesses in 2018.
Dustin Eide, CEO at CanPay, a closed-loop mobile app that clears pot shop payments using the ACH, told me there are FIs banking cannabusinesses in every state where cannabis sales have been legalized.
"At this point, there is not a single market where we couldn't refer [a cannabusiness] to a bank," Eide said. The over 100 FIs on the CanPay network, which he described as a "closed banking feedback loop," include community banks and credit unions as well as banks with "a national footprint," he said.
Consumers link their checking accounts to a CanPay mobile app, which can be used at more than 800 dispensaries in 31 states. The app generates single-use payment codes dispensaries use to collect monies through the CanPay network. When the card brands finally get around to allowing cannabusinesses on their networks, shoppers will also have options for adding credit and debit cards to the app, Eide said.
CanPay is one in a small army of payments companies jockeying for position in the burgeoning cannabis market.
Grandview Research estimated that legal sales of cannabis products totaled just under $11 billion in 2021, and the market is growing at a compound annual rate of 14.9 percent. It's probably safe to say that 90 percent of those sales are paid for today using greenbacks.
Some enterprising ISOs came up with the idea of offering "cashless ATMs," sometimes called point-of-banking devices, as an electronic payment alternative for dispensaries and CBD shops. A cashless ATM looks like a countertop card terminal and mimics a traditional ATM, except that instead of obtaining cash the cardholder authorizes a transfer of funds to the merchant's bank account. Transactions appear on customer bank statements as ATM withdrawals.
Visa, which owns the Plus ATM network, is trying to put the kibosh on this workaround. Late last year the card giant sent out a warning to acquirers that "miscoding" pot shop payments as ATM withdrawals violates Plus rules. While it made no mention of regional ATM networks—used by many payments companies to clear cashless ATM transactions—some experts insist the warning applies to any credit or debit cards that display Visa/Mastercard logos.
ATM companies don't like the workaround either. As The Green Sheet recently reported, the National ATM Council Inc. urged the Cannabis Regulators Association to dissuade dispensaries from using cashless ATMs, suggesting their use constitutes "Bank fraud under federal law."
I suspect the crux of the matter, though, is that cashless ATMs draw traffic away from the in-store ATMs that have become a staple of marijuana dispensaries.
FIs aren't happy about being locked out of the cannabis market, and have been lobbying Congress for legislation that provides the legal cover needed to bank cannabusiness. That legislation, known as the SAFE Banking Act, has bipartisan support in Congress and the public at large.
A survey of registered voters, commissioned by the American Bankers Association and conducted by Morning Consult, found 68 percent support legislation allowing state-sanctioned cannabis businesses to access banking services and products. At present, 37 states have laws authorizing cannabis sales for medicinal and/or adult-recreational uses.
But the legislation—variations of which have been approved by the U.S. House of Representatives six times since 2019—apparently lacks momentum to secure Senate approval.
Even if the SAFE Banking Act became law, the card brands have been adamant about not processing payments from cannabis shops until all federal prohibitions have been lifted. That's how things played out in Canada, which legalized weed four years ago.
Given the glacial speed at which the U.S. Congress tends to work, and the long list of other priorities, full federal legalization of cannabis isn't likely here in the near term. That offers new payment competitors ample time to build networks that leverage the ACH and real-time payments—networks that need not be exclusive to pot shops.
In an era of hyper-convenience—one-click purchases, instant credit decisions, fast and free deliveries—consumers expect hassle-free payments. The ACH and emerging real-time networks like the RTP network and FedNow put these upstart payments companies in an enviable position. They have plenty of time to create viable new, faster payment networks around the mobile channel—networks that don't charge as much as the card brands. The all-in cost to merchants using CanPay, for example, is less than 2 percent, Eide said. 
Patti Murphy is senior editor at The Green Sheet and self-described payments maven of the fourth estate. Follow her on Twitter @GS_PayMaven.
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