The end of 2022 gave the cannabis financial world a glimpse of what some experts believe will be the inevitable fate of popular alternative payments used by most of today’s U.S. dispensaries. Cashless ATM network shutdowns, beginning in early December, had concerned and affected American dispensary operators scrambling to find alternative ways for customers to pay for products.
Some of the largest alternative payment processors of ATM transactions, such as NCR’s Columbus Data Services, turned off the ability of processors to use their service at the time. Both small, and multi-state operators, were impacted by these shut downs, and it was predicted as much as one-fifth of the industry’s Cashless ATM payment systems were unavailable at one point.
The Cashless ATM Quandary
Cashless ATMs, also called “point-of-banking” systems, have long been the go-to method for marijuana retailers that don’t have access to traditional banking services to give their customers cash-alternative payment options. These systems allow cannabis buyers to use a bank card, pin pad, and card insertion device in lieu of an ATM terminal.
With Cashless ATM cannabis retail payment solutions, the total dollar amount selected by the customer is directly transferred to the retail dispensary operator for a purchase, while the customer receives the remaining balance in cash, along with their products.
For a customer purchasing $110.50 worth of cannabis goods, for example, a cashless ATM transaction would have the cannabis retailer returning $8.50 in cash. While accounting logic is consistent in both ATM and Cashless ATM payment scenarios, the latter transaction is considered bank fraud and the $8.50 of change paid to the consumer is considered money laundering.
But this technology is made to have ATM withdrawals appear as if they are coming from separate entities, and sometimes different addresses altogether, such as a neighboring Massachusetts McDonald’s, as a Bloomberg article reported in April, 2022. At that time, such transactions looked likely to move about $7 billion past the usual money-laundering controls of the banking system last year — or about a quarter of all U.S. cannabis sales.
“A Cashless ATM doesn’t make much sense, because instead of an automated teller machine that dispenses cash, but what it’s really doing with cashless ATM transactions is hiding their origination,” said Ethan R. Smith, an Executive Assistant with Las Vegas based ATM Merchant Systems. “So, it’s not giving the right address, it’s not giving the right business name, or industry the business is in, which is important, especially for ATM regulations and transactions.”
The Crackdown Will Continue in 2023
This past December’s round-up and shut down of select Cashless ATM service providers came exactly a year after Visa had said it was aware of the scheme, and declared it prohibited on its network. And unfortunately, most cannabis business locations are relying on these non-compliant ATMs to do business, resulting in “outlaw” ATMs.
So, what we saw just last month was merely a foreshadowing of what we can expect in 2023 with greater federal banking enforcement. “This is a pivotal point in cannabis banking,” said the CEO of one payment-technology provider affected by the chain of events.
“It’s left merchants in the lurch because it happened overnight, but the writing has been on the wall for a while now,” said Peter Su, senior vice president at consulting and software firm Green Check Verified.
Cashless ATM Works, It’s Cannabis Cash That Doesn’t
It’s worth clarifying on thing about Cashless ATMs. From a customer standpoint, they’re convenient and effective. Essentially, the Cashless ATM is just a normal payment at the counter, rounded up to the nearest dispensable increment, and given back with change.
For the retailer, the process itself wouldn’t be illegal were the money put into a bank and not the owner’s bank account. A proper solution does exist, and it’s one where a compliant, 3rd party provider owns the end-to-end solution, the funds that finance it, and keeps them distinctly separate from the dispensary’s money.
This is where ATM Merchant Systems has emerged as an industry leader filling the void as an ATM/vault cash services provider completely independent of cannabis business ownership and involvement.
“With ours, we own the ATMs, we’re bank sponsored, we’re regulated by the networks, we follow all the rules and compliance, we load the cash (which is bank funded since it’s loaded completely out of the loop from the dispensary), and none of the dispensary money touches the ATMs,” explained Smith.
“So, it’s clean going in, and clean going out, which is then used to purchase, the customer can purchase it wherever they’re at,” Smith continued. “Our machine just happens to be in the dispensary and they’re able to use their money, understand and purchase the product.”
This is what it takes to be truly compliant with ATM systems in the realm of cannabis dispensaries. Up until recently, it wasn’t necessary, as enforcement hadn’t tightened up on the prevalence of onsite dispensary money fueled workarounds. But look for all that to change in 2023 as authorities firm up regulations and cannabis banking draws nearer and nearer to a federally approved reality.