Mastercard's recent stringent demand for banks and payment processors to immediately cease all cannabis transactions involving its debit cards has created upheaval in the marijuana industry. Insiders within the sector have revealed that this move places more licensed operators at financial risk, with adult-use and medical marijuana retailers, as well as their customers, being hit the hardest.
The ban is expected to push consumers back towards cash-only transactions, a step backward in an age dominated by digital wallets for various purchases. This development serves as a stark reminder that such business setbacks will persist until there is federal cannabis reform and marijuana remains illegal under U.S. law, according to industry executives.
This is not the first time that cannabis operators have faced financial challenges. Earlier this year, they had to find alternative payroll providers after Paychex announced it would no longer offer services to marijuana-related businesses.
Mastercard's cease-and-desist orders were directed at participating banks, impacting a significant portion of marijuana debit transactions, typically routed through First Federal Bank of Florida or Dart Bank in Michigan. The resulting situation will lead to an increase in ATMs at marijuana stores, forcing retailers and the supply chain to deal with more cash, which comes with its own set of challenges and risks.
The vulnerability of marijuana businesses to break-ins and robberies is heightened due to the significant cash nature of the industry. Increased cash processes may lead to more theft and create potential opportunities for illicit market operators to resurface.
To adapt to the Mastercard ban, financial service providers in the cannabis space are seeking alternative solutions. One such example is Dutchie, a technology platform that provides point-of-sale hardware and e-commerce solutions for marijuana retailers. Dutchie has introduced a new payment processing service that utilizes Bitcoin and a digital wallet to facilitate transactions and ensure minimal disruption for its marijuana retail partners.
Despite such solutions, experts warn that Bitcoin's volatility and virtual currency status may cause concerns among some marijuana retailers and potentially affect sales volume. As the industry continues to struggle with finding a reliable payment solution, calls for federal cannabis reform have been reinvigorated.
Mastercard's abrupt move has intensified industry appeals for lawmakers on Capitol Hill to address banking and other financial needs for the fast-growing cannabis sector. There is a growing demand for the passage of the SAFE Banking Act, which would allow banks to serve marijuana companies without fear of federal repercussions and provide financial institutions with clear guidance on engaging with the industry. Until federal recognition and support for legal cannabis businesses are achieved, the industry will continue to face challenges and limitations in its growth and development.