National credit card company Mastercard dealt a blow to Maryland’s growing cannabis industry and legal weed retailers across the country last week, telling financial institutions to shut down marijuana purchases made with their company’s debit cards.
This means that if banks comply, Mastercard debit card customers will no longer be able use the brand’s plastic at Maryland dispensaries.
Even as 38 states and the District of Columbia have loosened cannabis laws within their borders, the federal government’s classification of cannabis as a Schedule 1 controlled dangerous substance, the same category as drugs such as LSD and heroin, repels financial institutions from taking a risk.
A statement from Mastercard said the company discovered banks were processing some transactions and reminded institutions of the federal government’s cannabis prohibition.
“As we were made aware of this matter, we quickly investigated it,” said Seth Eisen, Mastercard’s vice president of communications. Eisen did not respond to questions about the timing or what findings prompted the investigation. However, it appears from the rest of the company’s statement that some banks that were working with or considering working with cannabis companies were told to break it off.
“In accordance with our policies,” Eisen continued. “We instructed the financial institutions that offer payments services to cannabis merchants and connects them to Mastercard to terminate the activity. Our rules require our customers to conduct lawful activity where they are licensed to use our brands. The federal government considers cannabis sales illegal, so these purchases are not allowed on our systems.”
But Mastercard’s sharp reminder, while frustrating to cannabis businesses who are poised to ride the wave of nascent state-sanctioned markets, should not come as a surprise. Visa and Discover Network also do not allow cannabis purchases with their debit cards, and credit card processing has never been allowed.
Wendy Bronfein, co-founder, chief brand officer and director of public policy at Curio Wellness, said inconsistent debit card processing is nothing new and happens with many major cards.
“What we see is depending on who your bank is, that’s usually where a transaction may or may not go through,” Bronfein said, adding that some bank debit cards work while others don’t. Some dispensaries have automated teller machines in their stores as a backup.
The solution to customers making legal purchases with their own cards and businesses reducing a reliance on paper money sits with Congress, Bronfein said.
Bronfein and other industry leaders for years have eagerly watched as Congress has tried and failed to pass bills legitimizing cannabis businesses under federal banking laws.
Until Congress changes federal banking law or reclassifies or declassifies cannabis, a drug now sold as medicine in more than 75% of states and D.C., broad access to capital and expensing business costs on federal returns will remain out of reach.
Both chambers again introduced the Secure and Fair Enforcement Banking Act of 2023, or the SAFE Banking Act of 2023, in April. The bipartisan bill would protect financial institutions, including card processors, like Mastercard, from regulators’ penalties, such as terminating or limiting a bank’s federal insurance.
After Mastercard’s decision made national news, the Senate bill’s lead sponsor, Oregon Democratic Sen. Jeff Merkley, vowed on Twitter he’ll continue to fight for cannabis businesses’ banking access.
“Cannabis businesses are still in dire need, and the majority of the country with state-legalized recreational cannabis can’t wait,” Merkley wrote. U.S. Rep. David P. Joyce, an Ohio Republican, introduced the bill in the House of Representatives.
Members of Maryland’s federal delegation have offered their support for the bill. Sen. Chris Van Hollen, a Democrat, said in a statement that his chamber is “working to resolve some final issues so we can pass it through the Banking Committee.”
“Without these federal guardrails this growing industry has largely operated on a cash basis, which puts these businesses at high risk for theft and makes it more difficult to access capital,” Van Hollen said.
Until legislation is passed, merely accepting a deposit from a company selling a federally illicit product could be seen as money laundering, according to federal law.
But advocates for bankers and marijuana legalization argue that an undocumented legal weed industry clears the path for an illicit cannabis trade to go undetected.
The American Bankers Association, a trade association that lobbies at the federal level on behalf of the nation’s banking industry, urged Congress to pass the law this year.
“Processing transactions through bank accounts instead of in cash would ensure that regulators and law enforcement have the necessary tools to identify bad actors and also enhance tax collection and financial transparency,” wrote Kirsten Sutton, who deals with legislative issues for the association.
Paul Armentano, deputy director of NORML, a nonprofit advocate for the legalization of responsible cannabis use by adults, said no industry can operate safely or effectively without access to banking.
”It is self-evident that the players in this industry (smaller and minority-owned businesses in particular), and those consumers that are served by it, will remain severely hampered without better access to credit and financing,” he said.
“Every day that Congress fails to act endangers the livelihood of these businesses and their customers, puts local regulators and law enforcement at a disadvantage, and facilitates the activities of unlicensed operators and criminal organizations.”
At least two Maryland dispensaries have experienced break-ins in the last nine months. It’s not clear whether the actors targeted the stores because of the cash-heavy nature of the business.
On Tuesday, police responded to a burglary alarm at an Inner Harbor cannabis dispensary, CULTA, on Key Highway. Five men wearing masks had broken a storefront window and entered the store, according to a police review of security footage. Store owners told police they did not immediately know what, if anything, was missing without performing an inventory, according to a report.
In December, two men smashed the front door of a Montgomery County dispensary, Herbiculture, and allegedly breached the safe, stealing an undisclosed amount of products.
CULTA declined to comment because of the ongoing investigation, and Herbiculture did not respond to messages requesting comment.