Indications are that card networks will follow through on their prior warnings that cannabis purchase transactions are not permitted on their ATM networks. A widespread shutdown could be the end of the cannabis cashless ATM era.
Cashless ATMs were always viewed as a temporary cannabis payment solution and ironically their success may contribute to their demise.
Keeping dispensary cashless ATMs running relies on disguising the nature of the transactions from the parties that process the transactions, but as cashless ATM volume increased it became harder and harder to hide what they were doing.
The increased volume also required providers to use larger financial institutions and processors who have a lot to lose by running afoul of Visa and Mastercard network rules.
A 3-legged stool
Cashless ATMs are a three-legged stool consisting of a financial institution, card network (Visa, Mastercard, etc.), and a processor. If one leg is removed everything stops.
There are a limited number of financial institutions and ATM processors willing to knowingly process cannabis cashless ATM transactions so a widespread shutdown that removes several large players may be difficult to recover from.
Enforcing the rules
Visa and Mastercard have both made it very clear that cannabis transactions of any kind are not permitted on their networks. Visa issued a memo in Dec 2021 stating that using their ATM network for cannabis transactions disguised as an ATM withdrawal violates their rules and violators are subject to fines. Mastercard sent a similar letter to participants in the cannabis cashless ATM scheme in the summer of 2022.
Shutting down cashless ATMs used for marijuana transactions is tricky. Visa and Mastercard can’t block transactions, they must rely on processors and financial institutions to prevent non-permitted transactions.
ATM processors and financial institutions claimed they couldn’t tell the difference between cannabis transactions and permitted cash disbursements. Cashless ATMs (or Point of Banking) utilize scrip machines which are also used for permitted cash withdrawals so blocking all scrip machines is not an option.
Further complicating matters, third-party cashless ATM resellers commonly submit ATM contracts using incorrect addresses and business names.
To help processors detect cannabis transactions, Visa and Mastercard issued a whitepaper with guidance on how to identify cannabis businesses and transactions.
A year after Visa issued its warning memo and after giving processors and financial institutions time to implement the guidance in the whitepaper, Visa is expected to begin enforcing its network rules resulting in a widespread shutdown.
Cannabis payments have evolved a lot since cashless ATMs became popular. Cannabis PIN debit processing is now available and offers a traditional checkout experience without violating network rules.
It will take some time before it’s known how severe and widespread the latest cashless ATM shutdown is, but we expect it will motivate many dispensaries to transition to a more modern and compliant payment solution.