Let’s get one thing clear. You can not legally accept credit cards for your legal marijuana business. Period.
You want to, I know, desperately.
Dispensaries are trying to provide a need for their patients, store owners are trying to run legitimate businesses, following all of the rules, and doing their part to provide integrity to the industry. But, they are desperate. Desperate to finally operate their businesses the way every other “stand-up” citizen gets to, to stop shoving cash under the mattress, storing profits in vaults, and putting their employees and patrons on the radar of the real criminals.
Unfortunately, where there is desperation there is generally a leech waiting to feed on that desperation. So, in walks Mr. Greedy Processor, swooping in like some knight in shining armor, promising you the world(for a price) and using big, pretty words like “transparent”, and “compliant”, and “ethical”.
They promise they have jumped through all the hoops, cut through all the red tape for you, and now they can finally set your business up with credit card processing legally! Have all your dreams come true or are they just selling you snake oil?
There are several illegal practices and loopholes that these unscrupulous processors, or salespeople, can be using to try to deliver on their promises, such as Shadow Banking, Aggregate Accounts, and mis-coding.
They might suggest you open a LLC with a very non-descript name at a location other than where your shop is located and process cards through that so called business, a practice called “shadow banking”.
They might try to skirt the law by writing your business under a general Merchant Category Code(MCC), or one that seems close enough, like tobacco products, gardening, or aromatherapy. This practice is known as mis-coding, a deceptive practice that is considered bank fraud and a federal offense.
Or, they may place you in an aggregate account hoping that you get lost in the crowd. This is how it works: the aggregate account holds one merchant ID, they place a bunch of what we’ll call “regular” businesses in and sprinkle in a few cannabis businesses, everyone processes through the single ID and the account holder will dole the money back out to the individual businesses.
Seems harmless enough right?
Well the facts are the facts – and the fact is that marijuana remains a federal Schedule 1 drug. The law also makes it illegal for financial institutions that depend on the Federal Reserve System’s money transfer system to take any proceeds from marijuana sales. Even in the states where marijuana is legal any national bank can be convicted of money laundering if it knowingly accepts a business account from, and provides services to, a marijuana related business. State banks, on the other hand, are able to provide deposit banking services with the appropriate FinCEN compliant reporting system in place.
Oh yeah, while we’re on the subject, let’s talk about money laundering……
You know, when you take money and try to make it seem like it came from anywhere other than where it did in an attempt to “clean” it. Specifically, money laundering refers to “a financial transaction scheme that aims to conceal the identity, source, and destination of illicitly-obtained money. Often, criminals achieve these objectives through the use of shell companies, holding companies, and offshore accounts” and it is a Federal crime per the Money Laundering Control Act of 1986.
Those “loop-holes” aren’t sounding so harmless anymore, are they? In an article written for his law firm, Theodore F Monroe wrote: “It bears note that neither Visa nor MasterCard has thus far seen fit to create a Merchant Category Code (MCC) for marijuana-related merchants, which means that a marijuana-related merchant must process under a general MCC, or operate in violation of card association rules by using inaccurate MCCs to falsely describe their businesses”
Further, if process marijuana products under a general MCC and you get caught lying about your products by listing them as oil extracts, aromatherapy etc. you will be placed on the Terminated Merchant (MATCH) File, an industry-wide blacklist forever, putting at risk any chance you may have in the future at running your business legitimately as laws evolve.
Brett Taylor, President of Bankcard Brokers and an ETA Certified Payment Professional says that “To my understanding there is no credit card processing at this time that is legitimate,” additionally stating that “Currently, neither Visa, MasterCard, American Express will allow PIN-debit or credit card transactions by any business in the U.S. that is declaring to be a licensed cannabis retailer – regardless of compliance to state laws.”
Something’s fishy here…..
These credit card processors aren’t offering you legitimately legal services, they’re offering a bait and switch. Operating through illegal solutions, loopholes and shady “workarounds”.
If you allow your cannabis business to operate under any of these false pretenses you are putting your business yourself and your family in danger. Any activities that can be viewed as a scheme to defraud the bank or obtain money under fraudulent premises or representations is money laundering and all involved face the risk of prosecution for bank fraud and criminal conspiracy; a crime that carries hefty fines of $500,000, or twice the value of the property involved in the transaction, whichever is greater, or up to twenty years imprisonment, or both.
To further the point let’s take a look at the general flow of accepting credit cards. The sponsoring banks are the ones who have membership in Visa or MasterCard. Processors form relationships with these banks in order to get access to these networks and bring their services to businesses. The processors have salespeople and organizations to promote their service. These salespeople are often times not managed nor are they required to meet any educational minimums or achieve any certification. Currently, say industry experts, there are no sponsoring banks that will accept cannabis transactions.
So, if Visa and MasterCard have not issued a MCC for marijuana related businesses and if there are no banks that will legally accept the transactions, legal being the key word here. Then how is it that these so called merchant service providers can promise you real, legal credit card processing with “No gimmicks, No scams, 100% up front and honest”?
Megan Michiels, Senior Counsel to the American Bankers Association agrees that “Until federal law is changed, we just don’t see any way to go forward”.
Until that time when banks are freed from the fear of federal regulators shutting them down or cancelling their FDIC protection – legal cannabis businesses will be best served by remembering that patience is a virtue and remain operating within the full letter of the law.
If you care about your industry, if you care about your business, if you care about your family, be an advocate for equality, transparency and legitimacy. Don’t be sucked in by the promises of snake-oil salesmen, who are muddying the waters, operating through loopholes, and risking the reputation of the entire industry.