By Patti Murphy
Bigsby Farm is a 10-acre cannabis farm in the foothills of southern Oregon. And like most cannabis businesses, Bigsby can't get a bank account, though not for lack of trying. At least four banks have shut down accounts opened by Bigsby and owner Amanda Metzler. One bank, Wells Fargo, even closed her personal credit card account in addition to a trust account she had set up for the business.
As a result, all of Bigsby's business transactions—sales of product, salaries, even license and tax assessments—are paid in cash. "It's the most unsafe thing ever," said Metzler, as she recounted the travails of managing the mountains of cash that accompany every business transaction.
Thirty-nine states and the District of Columbia now have legalized the sale of cannabis products for medicinal and/or recreational purposes. But because cannabis remains illegal under federal law, federally insured banks and credit unions that service the industry confront an extremely high regulatory barrier with strict monitoring and reporting requirements.
The Financial Crimes Enforcement Network, a repository for many of the required filings, reported that just over 700 banks and credit unions (out of nearly 12,000 nationwide) are known to have cannabis businesses as customers.
These include growers, like Bigsby, testing labs, distributors, dispensaries and other businesses that "touch" weed. Businesses that work with these companies but don't touch weed, also are being shunned by banks and credit unions. Examples include packaging producers, plumbers, electrical supply shops, even landlords and attorneys.
One financial institution (FI) that recently joined the ranks of the cannabis-friendly is Orlando, Fla.-based Cogent Bank. "We are committed to being a financial partner to businesses in this space," Chris Hartman, the bank's chief deposit officer, said in a press release.
Cogent is outsourcing the compliance workload to Green Check Verified, a regulatory software and services company that works with FIs as well as licensed cannabis firms. "We're a technology solution that supports cannabis businesses and cannabis-friendly financial institutions," said Mike Kennedy, the firm's co-founder and chief strategy officer.
GCV now counts over 100 banks and credit unions as customers and has more than 2,000 cannabis and related businesses using its platform. "We can automate all the back-office functions," Kennedy noted.
In September 2022, GCV acquired PayQwick, a comprehensive treasury management and financial services platform that includes lending and payment processing. The company holds money transmitter licenses in a dozen states and has applications pending for licenses in three additional states, including New York, the latest state to legalize sales of cannabis for adult recreational uses.
PayQwick developed a "closed loop" settlement network for business-to-business payments, Kennedy stated, adding that the business-to-consumer side "is a wide-open market, but we don't play in it."
For cannabis businesses that manage to secure banking relationships, it's often not cheap. FIs have been known to assess monthly account maintenance fees of $500, or more, plus 10 percent processing fees on cash deposits. "I'd rather keep it in a safe," Metzler griped.
And because credit and debit cards are issued by regulated FIs, the card brands have closed off their networks to these transactions as well.
Legislation approved by the U.S. House of Representatives in July would create a safe harbor for FIs to work with cannabis businesses. The SAFE Banking Act, as the legislation is called, wouldn't eliminate the regulatory requirements around banking these businesses, and there doesn't seem to be much momentum in the Senate for passage, despite broad bipartisan support.
Forty-two members of the Senate, including nine Republicans, signed on as co-sponsors of the SAFE Banking Act, which also has the support of major financial services trade groups and the American Bar Association. A recent poll by Morning Consult found 65 percent of registered voters support allowing cannabis businesses in states where it's legal to have access to banking services.
"We have a critical window of opportunity between now and the end of the year to enact common sense cannabis reforms starting with access to the banking system," said Rep. Ed Perlmutter, D-Calif., who authored the House version of the bill. "Continued inaction on this issue is dangerous and neglectful, and continues to put communities, businesses, employees and patients at risk across this country."
Legal sales of cannabis products in the United States totaled $10.8 billion in 2021 and are expected to post a compound annual growth rate of 14.9 percent between now and 2030, according to Grand View Research. That reflects only the public face of cannabis: retail pot shops, which have become magnets for crime.
Exact numbers are hard to come by, but in Washington state alone, at least 50 armed robberies took place at dispensaries during the first two months of 2022—more than in all of 2020 or 2021. In March, three people, including one suspected armed robber, were killed during dispensary holdups in the state.
Even if the SAFE Banking Act were passed into law, most experts believe it would do little to drive cash out of the business. "We've been told by the card brands that they won't change their position until cannabis is federally legal," said Dustin Eide, CEO at CanPay, a Colorado firm that has built a mobile payment app consumers can use to pay for dispensary purchases.
CanPay is part of an emerging category of financial technology firms that target cannabis businesses and cannabis-friendly FIs. It created a closed-loop payment system, although Eide said he prefers to think of it as "a payment network built on the ACH."
Consumers link their checking accounts to a mobile app, which can be used at more than 800 dispensaries in 31 states. The app generates a single-use payment code that authorizes the merchant to collect payment through the CanPay network.
When the card brands do finally approve cannabis-related transactions in the United States, consumers will also have the option of linking credit and debit cards to the app. Eide said. CanPay charges dispensaries a transaction fee of less than 2 percent; there are no merchant set-up fees, annual fees or long-term contracts, he noted, adding that no fees are assessed consumers.
More than 100,000 consumers have signed up to use CanPay. Earlier this year the company surpassed $500 million in dispensary transactions. "That may not seem like a lot in the Visa and Mastercard worlds, but it's a big deal for transparent cannabis sales," Eide said.
One dispensary workaround that has received significant attention is cashless ATMs, or point of banking devices. The devices look more like POS terminals than ATMs and are driven by applications that mimic standalone ATMs. They accept debit cards, or like ATMs, can be used to access the cash advance function on a credit card.
In some cases the consumer receives a piece of script, which gets presented to the dispensary at checkout; in other iterations they simply approve an amount that appears on the device's screen.
In every case, the transaction amount is rounded up to the nearest dollar to present the appearance of an ATM withdrawal, which is how the transaction is described on the customer's monthly statement. The difference between the total purchase and the rounded-up amount is returned to the consumer as change. Typically, there are no merchant fees, but customers pay convenience fees comparable to ATM fees.
Akerna, a Denver-based enterprise software company focused on the cannabis sector, estimated that half of all dispensaries across the country use cashless ATMs. "In an industry where we have to work doubly hard to prove our legitimacy, the actions around cashless ATMs by others in this industry jeopardize the entire industry's efforts and businesses," said Akerna CEO Jessica Billingsley.
Late in 2021, Visa warned acquirers against "miscoding" POS purchases as ATM cash withdrawals. "Visa is aware of a scheme where POS devices marketed as 'Cashless ATMs' are being deployed at merchant outlets and are operating in violation of the Visa Core Rules and Visa Product and Service Rules and Plus Core Rules and Plus Product and Service Rules," Visa said in a memo.
"Additionally," Visa continued, "any obfuscation of information from transactions to further this scheme also violates these requirements. This includes misidentification of a merchant outlet (as these are POS purchase transactions) or using altered or fictitious location information." Such misuse of cashless ATMs "will be subject to non-compliance assessments and/or penalties," as well as "further compliance enforcement," Visa added.
The memo doesn't detail assessments and penalties. However, Kasim Carbide, a Chicago-based lawyer, puts the monetary cost at $2,500 a day. In a 2021 post to the Chicago Bar Association blog, Carbide wrote that "processing a credit card payment for cannabis would be not only a violation of Network Rules, but it would be a violation of federal law as well."
Some payment services providers that offer cashless ATMs to dispensaries suggested the memo only applies to debit card payments processed through Visa's Plus network. Cashless ATM transactions processed through regional ATM/POS networks, like Shazam and NYCE, shouldn't be affected. Eide said his understanding is that as long as a card contains a Mastercard or Visa logo (which is the case for most ATM cards) dispensary purchases are prohibited transactions. 
Patti Murphy is senior editor at the Green Sheet and co-host of the Merchant Sales Podcast. Follow her on Twitter @GS_PayMaven.
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