Cashless ATMs

Despite this increased cultural and legal acceptance of cannabis, the industry still faces some tough challenges. Federal law still classifies cannabis as a Schedule I substance, meaning that traditional banking and payment solutions remain out of reach for dispensaries and cannabis-related businesses. As a result, many merchants are seeking out alternative payment solutions, but not all are compliant—or even legal. Regulators, card networks, and financial institutions are increasingly cracking down on these methods, leaving merchants at risk of frozen accounts, lost revenue, license revocations, and even legal consequences.

Because of the risks associated with these problematic workaround payment solutions that are becoming increasingly widespread, merchants in the cannabis industry must stay aware of the ramifications and take measures to protect themselves as the cannabis payments landscape continues to shift.

Cashless ATMs: A Short-Term Solution With Long-Term Consequences

Cashless ATMs, PIN debit loopholes, and other workarounds are widespread in the cannabis industry. Bloomberg reported in 2022 that Cashless ATMs turned into a $7 billion industry, and it’s only grown since then. But just because they are a common practice in the cannabis industry doesn’t mean they’re a good choice for your business. Let’s dive into how Cashless ATMs work and the dangers they pose to merchants.

How Cashless ATMs Work

Cashless ATMs are used at the point of sale by dispensaries to bypass traditional banking restrictions. They work by misrouting a sale through the card network using the Merchant Category Code 6011, used for ATM cash withdrawals. When a customer pays with their debit card, the transaction gets processed under MCC6011 and categorized as an ATM withdrawal, which is often rounded to the nearest $5/$10 increment (the difference is given to the customer as change). The result is a disguised card transaction that shorts processors and card networks while also being convoluted for the customer.

Why Cashless ATMs Are Dangerous

Cashless ATMs can cause issues on multiple levels. Since the transactions are misrouted as ATM withdrawals, the card networks (like Visa and Mastercard) collect lower fees than if the transaction was correctly processed. This not only causes them to lose money but also exposes them to significant compliance risk.

Crackdowns are intensifying, and merchants using cashless ATMs are in the crosshairs as a result. You could be subjected to regulatory fines or lawsuits, have your merchant account frozen/funds seized, and risk significant reputational damage that could lead to your business being forcibly shut down in the long run. There is even evidence that the card networks are using secret shopper programs to catch merchants in the act by dispatching undercover agents to dispensaries across the country. The fact of the matter is that cashless ATMs are a band-aid solution to an addressable problem (which we discuss later in this blog), and the window for operating cashless ATMs without consequences is shutting fast.