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What to Ask Your Prospective Cannabis Payments Provider

Cannabis
July 26, 2021
Ali Jubelirer, J.D., SPHR, CCEP

Cannabis banking is complicated – everything from opening a bank account for a new entity, to getting a loan, to cashless payment options for dispensaries.

When it comes to cashless payment options, however, it’s not just complicated, it’s confusing. There are debit cards, closed-loop prepaid cards, wallets, cashless ATMs, and ACH transfers to name a few. Yet, are all of these cashless payment options really compliant? Can anything truly be compliant when the product itself is illegal? 

The short answer is yes – there are compliant, cashless payment options out there – but like everything, the devil is in the details. From a compliance perspective, you want your payment provider to:

  • Show truthful and transparent information in receipts and online;
  • Stay off the credit card rails;
  • Work closely with, and ideally get the blessing of, state regulators; and
  • Monitor those attempting to use their platform for bad acts like fraud and money laundering.

How can you assure yourself that you’re working with a provider that meets this criteria? Try asking your current or prospective provider some of these questions:

 

Do you “mask” the names of your dispensaries on receipts? 

Take a closer look at that receipt a consumer receives from your store. Does it say the name of your dispensary? Or is it another name, like “health and wellness,” or just the address? If the receipt does not reflect the name of the store, it’s called “masking,” and it prevents credit card companies, regulators, and law enforcement from recognizing a cannabis transaction. 

This is not transparent (nor truthful depending on how the dispensary name is masked) and could also be considered money laundering because the “…transaction is designed in whole or part…to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity.” (See 18 U.S. Code § 1956: Laundering of monetary instruments.)

 

How will transactions you process appear on consumer bank account records?

Ask your provider how the transaction appears on a customer’s bank statement. Does it appear as an ATM withdrawal or as a debit transaction? Does it say the name of the store or the address? If the bank transaction shows an address only, is it even the right address? 

If the bank statement shows an address or another type of transaction, it’s not transparent, and therefore, not compliant.


Do you seek approval and/or exemptions from regulators in each state where you operate?

Ask your provider if and how they work with state financial and cannabis regulators. Do they seek out their guidance and approval or do they just start operating, figuring they will ask for forgiveness if needed. 

Ideally, you want a provider that seeks and receives approval in each state in which it operates and that has an open dialogue with regulators, whether in financial or cannabis divisions or both.  

This should keep you and your provider out of trouble (e.g., a regulator coming in and shutting down your payment system on a Friday afternoon) and in regulatory good graces. Importantly, establishing working relationships with regulators also allows your provider to positively influence interpretations of the regulations as the laws continue to evolve.

 

What financial partner do you work with and are they following all the rules and regulations surrounding cannabis banking?

Cashless payment providers must partner with a reputable and compliant financial institution. What many people do not realize is that cannabis banking can be done compliantly if the financial institution is following the relevant rules and regulations, but it is a heavy lift (see Sundie Seefried’s book on compliant cannabis banking).

Make sure your provider is working with a reputable bank or credit union that has experience in this space and takes compliance seriously.

 

Do you receive, hold or transmit money? If so, do you have a money transmitter license?

While state regulations vary in their definitions of a “money transmitter,” one thing remains relatively constant for cashless payment providers – if they receive, hold, or electronically transmit funds, they will likely require a money transmitter license (subject to possible exemptions). 

Ask your provider if it holds a (state) money transmitter license. If your provider receives, holds and/or transmits funds and operates without a license, it is likely to be operating illegally, and therefore, so are you.

 

Does your cashless payment provider use the “credit card” rails? 

Dispensaries that partner with providers offering cashless ATM services for branded debit cards, e.g., Visa and Mastercard are using the credit cards’ payment system, also known as credit card rails. This is a no-no. The major credit card companies will not work with cannabis companies due to federal illegality, whether using credit or debit (see, for example, Mastercard Network Terms of Use). If the receipt from use of the cashless ATM does not have the name of the dispensary on it, the credit card companies are likely unaware that a cannabis-related transaction is being processed on their rails. If they were aware, they would shut it  - and maybe you - down. See, e.g., SF Dispensary Cashless ATMs Shut Down and CO & WA Dispensary Cashless ATMs Shut Down.

 

At the end of the day, pretty much everyone in the cannabis industry is in favor of moving away from cash. Cash is burdensome, unsanitary and poses unnecessary risks to consumers and merchants. If you own a cannabis business and you haven’t explored cashless payments, you should. It’s a better experience for your consumers, better for your bottom line and helps prevent fraud, among other things. That said, there are a lot of providers out there to sift through, some of which are doing things compliantly and some of which are not. Asking these questions will help you find the most compliant cashless payment provider for your business. 


AeroPay is a fully-compliant digital payments provider for the cannabis industry. Partnering with Safe Harbor, the leading compliance-based banking program for cannabis businesses and an affiliate of Partner Colorado Credit Union, AeroPay assures that all of its payments are secure and compliant. AeroPay has a working relationship with state regulators and focuses on doing it by the book. Learn more here ➜ https://www.aeropay.com/cannabis.


Author

Ali Jubelirer, J.D., SPHR, CCEP

General Counsel and Head of People
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