A Guide to the Legal Aspects of Cannabis Payment Processing

February 22, 2022


Many states have recently passed legislation to legalize marijuana for medical or recreational purposes, and it has been ground-breaking. Not since the legalization of alcohol in 1933 has a product pervaded the legal market with such prevalent demand. Each year sees an increase in vociferous calls for cannabis legalization, which still remains problematic at the federal level.

A survey from New Frontier Data indicates that the current legal cannabis market will record growth in sales worth $30 billion by 2025. While the cannabis industry might have an optimistic outlook toward the future, the existing federal classification of marijuana still bottlenecks this growth.

The main challenge is the ban on credit cards as a means of cannabis payment. Cannabis businesses cannot accept credit card payments from customers. This is a decision that is curtailing the industry from growing to unprecedented heights.

Read on as we explain the legal stance on credit card processing. We'll also have a look at the alternative cannabis payment options available to customers.


In today's world, the average customer is used to paying for almost everything using a credit card. Statistics show that about 83% of American consumers between ages 30 and 49 years have a credit card. According to another source, card payments are the preferred form of payment for 70% of Americans, with only 10% of consumers preferring cash payments. This paints a clear picture of why dispensary owners would love to accept credit cards. However, with the exception of CBD-only stores in some states, most dispensaries are barred from accepting credit card payments. But why?


According to the Controlled Substances Act of 1970, cannabis is classified as a Schedule 1 drug and controlled substance. This means that it falls under the same group as heroin and MDMA (ecstasy). Thus, despite scientific research providing proof of medical usage for marijuana, it still remains prohibited at the federal level. However, the federal government has allowed individual states to set their own regulations on medical and recreational marijuana.

Because of the classification of cannabis as a Schedule 1 drug, it is illegal for credit payment processors, such as MasterCard, AMEX, or Visa, to consciously get involved with any cannabis businesses.

When you visit a merchant store and swipe your credit card into a POS system, the credit card processing must adhere to MasterCard and Visa network rules. The role of these network rules include:

  • Directing the processing of credit cards
  • Generating specific merchant codes to allow for a successful credit card transaction

One of the Visa rules, for example, states that "An Acquirer must not knowingly accept from a Merchant for submission into the Visa payment system any Transaction that is illegal or that the Acquirer or Merchant should have known as illegal."

Simply put, credit card processing for cannabis payments would constitute a contravention of both network regulations and federal law. Therefore, a merchant found guilty of accepting credit card payments risks hefty fines or even account closure.


With traditional credit card processors ruling out cannabis credit card processing, it begs the question, can banks help?


Initially, banking institutions also feared dealing with cannabis companies. They would risk losing their licenses or facing heavy fines.

However, the Cole Memorandum issued on August 29, 2013, signalled a change in federal law enforcement on cannabis in America. The memo spelled out the Department of Justice’s (DOJ) eight cannabis enforcement objectives in states that allow medical cannabis. Anything not captured in the eight DOJ cannabis objectives couldn't be enforced by federal prosecutors and was left to state enforcement. Therefore, federal prosecutors couldn't take legal action against any business or individual adhering to state law.

The Cole Memo saw financial institutions start to provide banking services to cannabusinesses. In fact, by the start of 2019, more than 720 banks and credit unions had begun serving weed businesses.

However, the Cole Memo was rescinded on January 4, 2018. In doing so, federal prosecutors regained the discretion to do as they please. This complicated things once again for cannabusinesses and financial institutions with the risk of federal prosecution coming back into effect.


With credit card processing and banking out of the equation, cannabis businesses have resorted to other alternative weed payment options. What may be unknown to dispensary owners is the fact that all payments in the cannabis industry are considered “high risk.” This is as per transaction industry standards.

This “high risk” typically attracts higher transaction fees and a host of other limitations. Alternative cannabis payment options allow dispensaries to employ payment rails without incurring high-risk charges or restrictions, however. These modes of payment include:


Cannabusinesses often use just cash payments, despite the risks and issues that come with them.

From the sales standpoint, cash limits your ability to upsell to consumers. This is because whatever products they pick will depend on the amount of cash they have in their pockets. Cash transactions are also prone to blunders. Your dispensary personnel is expected to count and process huge amounts of cash every day, making errors likely.

Besides that, physical cash poses a greater security risk as well as increased expenses when it comes to ferrying the cash around. Profitable dispensaries might face more attempted break-ins.

And finally, the Covid-19 pandemic has signaled a shift to more paperless transactions. This is because the exchange of physical cash poses a greater threat of spreading the virus from one person to another.

Regardless of the dangers of being a cash-only dispensary, the truth of the matter is that the cash payment option is unavoidable in this limited industry. The trick is to adopt best practices for retail cash management. But there are other options, too.


Picture this scenario: A 30-year-old woman enters a cannabis dispensary in Las Vegas to buy some gummies. She reaches for her purse and notices she doesn't have adequate cash to pay the $48.95 bill. The budtender suggests she can instead use her debit card at the point of sale. However, the transaction will be rounded up to $50, and she'll be given the balance in cash. The budtender explains that this is referred to as a cashless ATM.

This cannabis payment method has surfaced as perhaps the most stable platform for cannabusinesses’ payments because of several reasons:

  • Reliability
  • Wide usage
  • High customer satisfaction
  • Expands cart size
  • Cashless

A cashless ATM is a payment method that allows customers to use their bank cards to purchase cannabis products. This means they can access their bank accounts at your company’s POS system, where they insert their bank card and when prompted, enter their PIN.

Instead of spitting cash, money is debited from the bank account and into the dispensary's bank account. The whole process is electronic and shows proof of the successful transfer of payment. After a successful transaction, the dispensary hands over the selected cannabis product to the customer. On their bank statement, the transaction charges will appear as ATM cash withdrawals and not as payments to a cannabis dispensary.

This method circumvents the laws on using the federal banking system to make cannabis payments. It disguises the buying of cannabis as a cash withdrawal. This means that amounts are rounded into even numbers to make them resemble typical ATM withdrawals. For example, a $47 purchase will have a customer withdraw $50 from their account. Then, they get their cannabis product, plus the $3 as cash change.

From a customer's perspective, the cashless ATM transaction looks like a conventional debit card transaction. In fact, it is the method through which most cannabis businesses accept debit card reimbursements indirectly.


For dispensaries that don't fancy handling a lot of cash but lack a cashless ATM solution, ACH transfers represent a stable middle ground. It's simple, legal, secure, and reliable.

ACH is the acronym for Automated Clearing House. It involves the transfer of funds electronically from the customer account to the merchant account. With ACT transfers, there's no use of:

  • Bank cards
  • Wire transfers
  • Checks

Given the electronic nature of the funds transfer, dispensaries can instantly confirm that the funds have landed into their accounts.

Customer satisfaction is one of the main advantages of bank transfers. Unlike cashless ATMs, you don't have to tell your customers that you will charge them an ATM fee, round up the bill to the nearest $5, and then give them back their change in cash. And not only are digital payments easy for the dispensary, but they are also affordable and simple for the average customer.

For a dispensary to accept ACH transfers from its customers, third-party applications have to be used. This is the only challenge associated with ACH. A customer would first need to sign up through a third-party solution and download the app. Then, they would log in at the dispensary via the app.


Crypto is a novel payment solution that is anonymous and apparently secure. However, using cryptocurrency directly for payment is not yet an ideal payment option in the cannabis industry. Here are the reasons why:

  • Government laws and conflicting regulations in the weed industry make it hard to adopt a crypto-based payment platform directly.
  • Few pot users own any cryptocurrency to start with.
  • Not many dispensaries have implemented this technology and are currently using it.

Some companies have experimented with using crypto as an intermediary, giving customers the option to use their debit card to purchase bitcoin in store and walk out with cannabis with no exposure to the other complications of bitcoin.


Cannabis payment alternatives are limited. And dispensaries may be stuck in this difficult circle until some drastic changes are effected. Some pieces of legislative action will change everything altogether. These include:


The More Act 2021 bill was introduced in the House of Representatives. It seeks to legalize cannabis federally. It specifically eliminates cannabis from the list of Schedule 1 substances as per the Controlled Substances Act. It also abolishes criminal penalties for businesses or individuals who process, distribute, or possess cannabis.

Removing cannabis from the list of Schedule 1 substances will change everything. Just as hemp is legal federally, decriminalizing cannabis at the federal level would allow credit card processors and banking institutions to work with cannabis companies.

All eyes are fixed on Congress to enact the bill into law.


The SAFE Banking Act 2021 strives to synchronize both federal and state regulations. It would do this by outlawing federal prosecutors from enforcing punitive actions against financial institutions that provide banking services to legal cannabis-related companies.

Simply put, the bill seeks to open up the federal financial system to authorized marijuana companies. It has already passed the House of Representatives in 2019 and is facing a vicious fight in the Senate.

IRS 280E

Another particularly maddening economic challenge is the Tax Code 280E. It prohibits any deduction or credit in running a dispensary or any other cannabis-related business. This discriminatory code makes a huge chunk of dispensary revenues vulnerable to tax. This results in unnecessary economic and operational stress. It also hampers legal cannabis businesses from making various investments like:

  • Giving budtenders pay raises
  • Operational developments
  • Community development programs

With more legalization and normalization of cannabis across the country, chances are this specific tax code may need to be revisited and rescinded.


Currently, the banking and credit card processors have a black and white stance. Their payment railways are off-limits to cannabis-related companies until federal regulations change. In the meantime, cannabis businesses have eased the payment headache by adopting alternative cannabis payment solutions like cash, cashless ATMs, and ACH transfers.

Proposed pieces of legislation like the MORE Act and SAFE Banking Act would change the cannabis payment processing landscape. However, these need political goodwill to become law. Until then, the payment landscape in the cannabis sector will continue to be laden with restrictions.