You’re going into the legal cannabis business. For many, that’s an oxymoron because “legal” and “cannabis” don’t always go together.

In some locales like Canada, medical marijuana has been legal for quite some time, with recreational use regulations expected to roll out in 2017. Not so in the United States.

Even though voters in 29 states and the District of Columbia approved initiatives legalizing marijuana in some form, it remains federally classified as a Schedule 1 substance. Distribution is a federal offense.

(It’s unclear what to expect regarding prosecution by the DOJ, though sales of medical CBD appear protected in states where legalized.)

Regardless of the details, the market for legal cannabis is exploding — and rapidly changing. Legal cannabis merchants can expect to see solid market growth in an already large North American market.

Merchants must also expect to face certain unique challenges. One reality is that banks and other service providers often consider CBD businesses to be high risk. Naturally risk-averse, banks operating in the United States and Canada are federally regulated.

Concerned about facilitating payments in the CBD space, many banks simply refuse the business. That makes it difficult to be approved for a CBD merchant account — a prerequisite for processing credit cards.

Enter cashless ATMs for legal cannabis.

But what are cashless ATMs, and what are the pros and cons when compared to an individual merchant account for your business?

Cashless ATMs Described

Nicknames for traditional ATMs include “Hole in the Wall” and “Cashpoint” in the U.K, “DAB” (for distributeur automatique de billet in France) and “Bankomat” elsewhere in Europe. Most of us know how to use an ATM to retrieve cash from our bank accounts.

But what’s a cashless ATM for legal cannabis, and how does it work? Also called Point of Banking systems, cashless ATMs aren’t exclusively for legal cannabis purchases, but also for many other high risk businesses (such as adult products, strip clubs, and hair salons).

A key difference from traditional payment processing capabilities is that cashless ATMs or point of banking systems process only debit card transactions. Credit card transactions aren’t supported.

The user-interface is familiar to customers, who swipe their debit card and enter their PIN. The transaction goes through the regular issuing bank authorization process via the payment system.

Instead of cash, the system produces a voucher (known as “scrip”) for the approved transaction amount in increments of $5 or $10 plus a convenience fee. The voucher proves that the cash was debited from the customer’s bank account and earmarked for the merchant.

The customer then uses the voucher to make a purchase. Funds are paid into the merchants’ bank account, and show up as cash withdrawals on the customer’s account statement.

The voucher can be used only at the establishment where the cashless ATM is registered. Change is normally paid to the customer in cash when the purchase price is less than the voucher amount, with merchants setting the upper limit for cashless ATM transactions.

Depending on the payment processing provider, merchants pay a monthly fee plus a “per swipe” fee — a percentage of the transaction amount plus the “per swipe” fee — or a combination of all three.

As ecommerce merchants understand, payment acceptance plays a pivotal role in every online business. Cashless ATMs for legal cannabis are no exception. They could help a dispensary stay afloat.

Pros and Cons of Cashless ATMs for Legal Cannabis

Bricks and mortar stores can benefit from cashless ATMs for legal cannabis. Whether trading in medical or recreational marijuana, domestic merchant accounts that support “normal” payment processing can be scarce for these merchants.

On the plus side you’ll hear these arguments:

  • Provide a safe and more secure business model because there’s no need to retain large amounts of cash on hand at the business.
  • Cashless ATMs take up little space (many sit on the counter), and do not require frequent maintenance to refill with cash.
  • Merchants avoid the high rates and fees that may accrue with traditional credit card processing merchant accounts.
  • Cashless ATMs may be used by any business with “face to face” customers where card-present debit transactions occur. The customer must be present to swipe the card and enter a PIN.
  • Card present transactions reduce (but do not entirely eliminate) the risk of fraud and chargebacks. Lost or stolen cards not yet reported may still be used fraudulently.
  • Charging a convenience fee to the customer offloads processing fees from the merchant, potentially reducing operating costs and increasing profits.

Negatives reported include:

  • Customers complain being double charged a fee. Their bank will charge an ATM transaction fee, plus the merchant charges a “convenience fee” to make a purchase.
  • Because transactions are labeled “cash withdrawals” banks might not be aware they’re actually for a cannabis dispensary — if merchants deliberately obscure the nature of cannabis accounts. (See a story here describing the sudden shut down of hundreds of cashless ATMs for legal cannabis in 2014.)
  • Some merchants describe cashless ATMs for legal cannabis as a hassle, while others see them as “just another way to accept money.” You’ll find a few opinions from merchants in this story from American Banker.

Conclusion

There’s not one payment processing solution that’s best for all merchants. Cashless ATMs for legal cannabis businesses might make good sense for your shop, or they might not.

What matters most is that you find a payments processor who works with you to determine the best solutions for your needs and objectives. A payments industry expert with banking relationships around the world can help you choose the right options.

At MerchACT we want to be your business partner and help you succeed. We’ll help you get set up for secure payments processing, and stick around to help manage any chargeback or fraud issues that arise. Because that’s what good partners do.

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