Cannabis Payments | A Dispensary's Guide for Compliant Processing Solutions in 2024

The cannabis industry is highly-regulated, highly-competitive, and deemed “high-risk” by major card networks. 

Cannabis businesses are caught in the middle of a confusing time period — where most states have legalized cannabis in some form, but the federal government hasn’t (although we’re heading toward a Schedule III designation). 

Historically, traditional payments processing solutions haven’t been allowed for dispensaries, leaving operators stuck as cash-only businesses. 

Now, cannabis payments solutions are everywhere, promising compliant debit and credit card payments. There are also alternative payment methods, like Automated Clearing House (ACH). 

The question is, what methods are dispensaries actually allowed to use? And what’s the best cannabis payments solution for your business? 

There’s a misinformation epidemic when it comes to payments in the cannabis industry. This guide sets the record straight with the most up-to-date, accurate information on cannabis payments in 2024.

The cannabis industry is evolving fast. New solutions are brought to market as an alternative to cash, but many carry hidden risks you won’t hear about in a sales pitch. 

Below, we explain the benefits, compliance, and hidden risks for the most common cannabis payments options: 

• Cash
• ACH transfers (Pay-by-bank)
• Point of Banking (Cashless ATMs)
• PIN debit
• Credit cards
• Buy now, pay later (BNPL)
• Cryptocurrencies
• Apple Pay

Point of Banking, also called Cashless ATM, is a popular workaround offered by many cannabis payments companies. 

How Point of Banking works 

Point of banking mimics an ATM withdrawal process, where a customer inserts a debit card and enters their personal identification number (PIN) at checkout. Payment is rounded up to the nearest $10 (like a traditional ATM transaction) and typically includes a $2 to $5 fee. Then the budtender processes the payment and returns back physical change to the customer. 

While it feels relatively similar to paying with a card, Point of Banking transactions actually just withdraw cash from a customer bank account for the purchase. On the consumer’s bank statement, rather than charges appearing as a payment made at a dispensary, the transaction appears as a cash withdrawal from an ATM.

Point of Banking cannabis transactions violate card network policy agreements. Visa has issued warnings about this scheme in the past, leading to nationwide shutdowns of Point of Banking systems.

Note: Some cannabis payments providers take further precautions to comply with card networks. They use a process called “Remote Dispensing” where cash is actively withdrawn in a remote offsite warehouse when a transaction is completed at a dispensary. This “loophole” may enhance perceived compliance, but it’s not a compliant solution. Remote Dispensing POB solutions are still violating card network rules and hold the same risks as traditional Cashless ATMs. 

Benefits of Point of Banking 

POB enables customers to pay for cannabis with a familiar card payment process (although there’s still cash involved and a consumer-facing fee). 

Is Point of Banking cannabis compliant? 

Point of Banking is not compliant for cannabis payments. 

Risks of POB 

1. Sudden shutdowns. Due to their non-compliance, Point of Banking payment processors are shut down regularly. This means you could be left without card processing at a moment's notice. 

2. Cash requirements. Point of Banking payments aren’t entirely cashless since they’re rounded up to the nearest $10. 

3. High customer fees. Point of Banking fees can be between $2 to $5. These charges lower average customer spend and deter cashless payment. ‍

4. Can’t be used for online payment. You can’t accept online pre-payments with Point of Banking because customers aren’t able to physically enter their PIN.

Takeaway: Point of banking is a high-risk, non-compliant cannabis payment solution.

Traditional debit card payments, where a customer inserts their card, enters their PIN, and pays the exact amount owed, are another popular payment offering for dispensaries. 

On the surface, the payment process, which is often called PIN debit, looks legit. However, it’s actually a clever miscoding of information to trick card networks into thinking the transaction doesn’t involve cannabis at all, here’s how:

• MCCs (merchant category codes) are used to identify the industry that a receiver of card payments is in. 
• PIN debit providers tout that the MCC code 5912 is compliant to utilize in the United States for legal cannabis transactions, but this statement is inaccurate. 
• 5912 was created for traditional drug stores & pharmacies and has recently been considered the appropriate code for legal cannabis transactions in Canada (where cannabis is federally legal) but not the United States (where cannabis is not federally legal).

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By improperly categorizing cannabis transactions as drug store purchases, PIN debit is in direct defiance of card network rules. In 2023, Mastercard told banks to stop processing cannabis related transactions made through debit cards on their network.

Benefits of PIN debit 

PIN debit enables customers to pay for cannabis with a familiar card payment process (although there are high consumer-facing fees). 

Is PIN debit cannabis compliant?

PIN debit payments are not compliant for cannabis transactions. 

Risks of PIN debit

1. Lack of reliability. PIN debit solutions can go from operational to shut down in a single day, meaning you can suddenly lose that payment method without warning.

2. High customer fees. PIN Debit fees can be between $2 to $5. These charges lower average customer spend and deter cashless payment. ‍

3. Hidden merchant fees. There are many predatory PIN Debit providers that lock cannabis merchants into unfavorable predatory contracts. These may be long term (3-5 years in length), liquidated damages (have to pay a large amount to get out), or “free” hardware (that’s made up for in the form of higher fees).

Takeaway: Pin debit is a high-risk, non-compliant cannabis payment solution.

Credit cards are widely used by consumers. In fact, 37% of Americans use a physical or virtual credit card when making a purchase. 

But shoppers absolutely cannot use credit cards to buy cannabis. As cannabis remains federally illegal and classified as a Schedule I → Schedule III controlled substance, major credit card companies like Visa, MasterCard, and American Express, prohibit cannabis transactions. 

Until cannabis is federally legalized (and potentially even afterward), do not trust any payment processor offering you credit card processing services.

Buy now, pay later financial services divide a payment into multiple installments so consumers don’t have to pay all at once.

This form of short-term financing is catching on quickly growing from 50 million users in 2021 to an expected 94 million by the end of 2024.  

Cannabis consumers want to leverage BNPL too. However, the most popular buy now, pay later services, like Affirm, do not allow BNPL financing for cannabis products. 

There are some BNPL services popping up that are specific to cannabis, but these businesses are small and carry the risk of being too new to ensure full compliance and efficacy. 

For now, avoid offering buy now, pay later at your dispensary.

In theory, cryptocurrencies are positioned well as a viable payment option in cannabis. They’re digital, anonymous, and circumvent card networks for payment. 

There have even been attempts by one of the largest cannabis POS companies to offer crypto payments for cannabis dispensaries as a fallback when their PIN debit solution was shut off. However, this solution was also shut down almost immediately. 

The problem with cryptocurrencies is they’re very volatile and risky. Prices fluctuate constantly and there are continual changes in the regulatory landscape, meaning cryptocurrency is not a realistic payment option for dispensaries right now.

Apple Pay is a mobile payment service that allows users to send money directly from their phone’s digital wallet. Apple Pay is a convenient form of payment, but according to Apple’s guidelines, it’s not allowed for cannabis transactions. 

Here’s why: 

Apple Pay relies on the same card networks that banned cannabis payments. This means dispensaries are not legally allowed to accept Apple Pay at this time. If they do, these transactions are not compliant.

To better understand the current cannabis payments landscape, let’s walk through a timeline of payments in the industry and how they’ve evolved over the years. 

Early days 

When cannabis was first legalized in California back in 1996, cash was the only form of payment. Cannabis businesses would ask customers to either bring in cash or make withdrawals from an in-store ATM. They would not accept any form of credit or debit card payment for cannabis.

This reliance on cash started a standard practice in the cannabis industry. Dispensaries hired additional security, carried large bags of cash into banks, and operated more like drug dealers than businesses. But consumers didn’t care. They were just happy to purchase legal weed.

COVID

During the COVID-19 pandemic, the cannabis industry experienced explosive growth and dispensaries began moving away from cash to avoid the spread of illness and a nationwide change shortage. This accelerated a widespread desire for cash alternatives. 

While Cashless ATMs were already being used throughout the cannabis industry. 2020 marked a rise in the cannabis payment processing space, along with new “solutions” that guaranteed compliant card payments. 

The Visa warning

Major card networks took notice of strange transactions that were eventually linked to cannabis, and in 2021, Visa warned dispensaries that miscoding point-of-sale transactions through Cashless ATMs could lead to penalties and was strictly forbidden. 

But cannabis was already transitioning away from cash. And cannabis card processors were getting rich quick.

The rising value of cards

At this point, large cannabis POS companies pivoted into cannabis card processing in order to justify massive fundraising rounds predicated on upcoming federal legalization (which still hasn’t happened). 

These companies (along with other cannabis payment processors) devoted entire teams and extensive partnerships toward workarounds to skirt major card networks.

The Mastercard warning

Another stern card network warning, this time from Mastercard, came in 2023:
"In accordance with our policies, we instructed the financial institutions that offer payment services to cannabis merchants and connects them to Mastercard to terminate the activity,” said a Mastercard spokesperson. 

Following the Mastercard warning, many PIN debit solutions were shut down. And many dispensaries found themselves without a payment solution, while their customers had already become accustomed to cashless dispensary transactions.

The result

The result of rising cannabis card processing and new “compliant solutions” has been nothing short of a disaster — leaving cannabis retailers to deal with the aftermath of regular processor shutdowns, unreasonably high fees, and unreliable, often predatory partnerships. 

At the same time, these cannabis card processors have made money hand-over-fist — some simply start a new company each time they’re shut down.

This will be an all-too-common trend in cannabis until there is massive legislative change. Rescheduling will not fix the cannabis payments crisis. But that does not mean dispensaries are without reliable cashless payment options…

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There is still one viable alternative to cash that also satisfies the rising consumer desire to pay digitally — ACH (pay-by-bank). 

ACH is 100% compliant for cannabis because it does not rely on card networks. Instead this pay-by-bank method uses the Automated Clearing House (ACH) Network — an electronic payment system that facilitates the transfer of funds between bank accounts in the United States.

ACH enables a direct transfer of funds from a customer bank account to a merchant account, with no need for cash or cards. 

Dispensaries should not rely on unreliable payment processing. Onboarding an ACH solution is incredibly easy and offers a compliant, secure digital payment solution that many consumers actually prefer over cards.

ACH has quickly become one of the primary payment solutions for cannabis merchants. More and more dispensaries see the value and onboard pay-by-bank to offer compliant, digital payments. 

At the same time, there are a growing number of cannabis ACH providers coming to market. You may wonder, what makes Aeropay different?  

Aeropay has focused on ACH for cannabis since 2017. We set the industry’s standard for compliance, security, and user experience when it comes to ACH payments.

Aeropay does not offer cannabis payment loopholes, PIN debit, or cashless ATMs because we care deeply about our merchant partners. 

Aeropay’s pay-by-bank solution offers: 

• 100% compliance. Aeropay won’t get shut down. 
• 1.3 million existing Aeropay accounts. As a leader in cannabis ACH payments, many consumers are familiar with our solution and already have an account. 
• Fast payouts. We offer same and next day payouts. 
• Guaranteed payments. Avoid returned payments. 
• Robust integrations. Integrate Aeropay with your ecommerce, POS, delivery, and marketplace technology. 
• 25% increase in average spend. Customers spend more with pay-by-bank. 
• 30% increase in completed online orders. Pre-authorize online payment and automatically adjust the transaction amount if a shopper adds more products when they pick up in-store. 

A zero-risk redundancy like Aeropay gives you the peace of mind to accept cashless payments.

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Aeropay is the most trusted and largest pay-by-bank provider in the cannabis industry for a reason; we’re compliant, effective, and integrated with all your dispensary technology. 

‍Contact our cannabis sales team to add pay-by-bank at your dispensary today.

How do I find out if a cannabis payments provider is legit? 

The easiest way to determine whether a cannabis payments partner is trustworthy is based on what solutions they try to sell you. Because 

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Can you use a credit card at a dispensary?

No, you cannot use a credit card to purchase cannabis. Major credit card companies like Visa, MasterCard, and American Express strictly prohibit cannabis transactions. 

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Can you pay for cannabis with a debit card?

While some dispensaries offer payment methods that feel like traditional debit card transactions, they are actually loopholes that involve workarounds like Point of Banking (Cashless ATM) or PIN debit, where card networks are deceived. These methods exist because debit card payments are not compliant with card network rules. 

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What is a cannabis payment processor?

A cannabis payment processor facilitates transactions between customers and cannabis businesses. Due to regulatory complexities, legitimate processors do not offer credit or debit processing because it is not compliant and puts your dispensary business at risk. Trustworthy cannabis payment processors use methods like ACH (pay-by-bank) to ensure compliance and secure transactions. 

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Can you pay for cannabis online? 

Yes, you can pay for cannabis online using ACH transfers. ACH payments allow customers to authorize payments online, making it possible to place and pay for orders without needing to visit the store physically.

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Can I accept digital cannabis payments with Aeropay? 

Yes, Aeropay offers a compliant and seamless digital payment solution for dispensaries through ACH transfers. This allows for both in-store payments using payment links or QR codes and online pre-payments.

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When will dispensaries be able to accept card payments? 

Dispensaries will likely be able to accept card payments once cannabis is federally legalized and major card networks update their policies to permit cannabis transactions. Until then, ACH transfers remain the most compliant and reliable non-cash payment method for the cannabis industry.

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