Why Can’t My Dispensary Process Credit Cards?

The landscape of the U.S. cannabis industry is poised for significant growth, expected to reach nearly $40 billion in 2024. However, cannabis has weathered its share of challenges, marked by fluctuating sales and intense margin compression in recent years. As costs of operations escalated and market prices plummeted due to oversupply, the industry underwent a period of consolidation through mergers, acquisitions, and closures. While some markets emerged stronger, many operators continue to grapple with persistent obstacles, including critical issues surrounding banking and financial services.

Since 2015, Safe Harbor Financial has been at the forefront of addressing these challenges, particularly the banking and financial hurdles specific to the cannabis industry. Federal initiatives such as the potential descheduling of cannabis or the enactment of the SAFE Banking Act hold promise for transforming industry dynamics. Yet, until substantive federal reforms occur, cannabis operators confront a fundamental question: why can’t our customers use credit cards for cannabis purchases?

The Demand for Credit Card Payments in Cannabis

Credit card payments are not merely a convenience but a critical expectation among cannabis consumers. According to a December 2023 Forbes Advisor survey, 37% of consumers use a physical or virtual credit card as their primary payment method. The preference for cards aligns with broader consumer trends favoring convenience, security, and ease of transaction.

However, despite consumer demand and technological readiness, dispensaries face a stark reality – they cannot accept credit card payments. This prohibition stems directly from federal cannabis illegality, which effectively bars major credit card processors such as Visa, Mastercard, and American Express from engaging knowingly with cannabis-related transactions.

Dispensaries and cannabis retailers alike have experienced firsthand the disruptive consequences of relying on credit card processors. Sudden shutdowns of merchant accounts are not uncommon, leaving businesses without a compliant payment solution and vulnerable to financial instability. The federal stance on cannabis must undergo substantial reform before credit card companies can legally recognize cannabis businesses as legitimate entities eligible for their services.

While some dispensaries risk accepting credit cards through workaround solutions, such actions pose considerable legal and financial risks. Despite recent federal discussions and initiatives, the present credit and banking challenges remain formidable barriers for cannabis retailers.

Alternative Payment Methods in the Cannabis Industry

In the absence of mainstream credit card acceptance, cannabis dispensaries have explored various alternative payment methods to navigate the cash-dominated landscape:

1. Cash Payments
   • Cash remains the primary and most straightforward payment method available to cannabis consumers. However, operating as a cash-only business presents numerous challenges and limitations.
   • Handling physical cash introduces logistical complexities, security risks, and increased operational costs associated with storing and transporting large sums of money. Dispensaries must invest in robust security measures, such as vaults and armored vehicles, to safeguard their earnings against theft and other threats.
     
2. Card-based Payments
   • Formerly known as “Point of Banking” or “Cashless ATMs,” card-based payments have gained traction within the cannabis industry as a viable payment solution. Unlike traditional credit card transactions, card-based payments transactions allow customers to access their bank accounts directly at the point of sale using a debit card and PIN.
   • Card-based payments systems simulate a conventional debit card transaction, offering convenience and security while reducing reliance on cash. Oftentimes, the transaction is rounded-up to the nearest whole dollar amount and functions as an ATM withdrawal.
   • Get in touch with Safe Harbor Financial’s team of cannabis payment specialists about your best options.
3. ACH Transfers
   • ACH (Automated Clearing House) transfers provide another digital payment option for cannabis transactions, facilitating direct electronic transfers from customers’ bank accounts to dispensary accounts.
   • While secure and reliable, ACH transfers typically require third-party solutions and may necessitate customer registration, impacting transactional efficiency and user experience at the point of sale.
4. PIN Debit Cards
   • Similar to card-based payments, PIN debit cards operate within a different payment network from traditional credit cards. While perceived as a potential alternative, traditional debit card processing remains problematic for cannabis transactions due to regulatory constraints and compliance risks.
5. Cryptocurrency
   • Cryptocurrencies have emerged as a novel yet nascent payment option within the cannabis sector. Offering potential solutions to banking and payment challenges, cryptocurrencies like Bitcoin promise decentralized and secure transactions.
   • Cryptocurrency adoption in cannabis remains limited by volatility, regulatory uncertainties, and practical implementation hurdles, posing significant barriers to widespread industry adoption.

The Risks of Credit Card Processing in Cannabis

The short answer: Don’t risk it. Even as a stop-gap measure. While credit card acceptance may seem a tempting solution, particularly to enhance customer convenience and operational efficiency, the risks associated with such practices are profound and potentially business-threatening:

• Legal and Compliance Risks – Engaging in credit card transactions exposes dispensaries to legal liabilities and regulatory scrutiny, as federal laws prohibit financial institutions from knowingly supporting cannabis-related activities.
• Operational Disruptions – Sudden shutdowns of merchant accounts can disrupt business operations, resulting in lost revenues, operational downtime, and reputational damage.
• Financial Instability – The financial repercussions of lost revenues and potential fines resulting from non-compliance with federal regulations can jeopardize the long-term viability of cannabis businesses.
• Blacklisting and Regulatory Scrutiny – Continued reliance on non-compliant payment solutions may lead to merchant account blacklisting and regulatory penalties, further exacerbating financial and operational challenges.
  

The Path Forward: Embracing Sustainable Payment Solutions

Amidst ongoing regulatory uncertainties and industry consolidation, dispensaries must prioritize sustainable and compliant payment solutions to foster growth and ensure operational resilience. Providing seamless and secure payment experiences, such as through card-based payments, can enhance customer satisfaction and loyalty, driving repeat business and revenue growth, giving dispensaries an edge on their competition.

Continued advocacy for federal cannabis reform, including initiatives like the SAFE Banking Act, rescheduling cannabis and 280E reform, remains crucial to facilitating normalized banking and payment options for cannabis businesses. As the cannabis industry continues to evolve, stakeholders must remain vigilant and adaptable to regulatory changes while advocating for inclusive financial solutions that support industry growth and innovation. By prioritizing compliance, customer experience, and operational resilience, dispensaries can navigate current challenges and position themselves for sustainable success in a rapidly expanding market landscape.