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    By Jim Regna - CEO Triad Bank

    They say cash is king. But when it comes to Missouri’s soon-to-open marijuana businesses, cash can also be a giant headache. The federal laws that push many marijuana-related businesses into cash transactions have never been ideal. But now, with the emergence of COVID-19, there is renewed urgency from both customers and businesses to look for alternatives to cash payments.

    One alternative found in other states (including neighboring Illinois) is the use of cashless ATMs, which allow customers to purchase medical marijuana at dispensaries using a debit card, with the purchases rounded up to the nearest $5 or $10 denomination. For example, if a dispensary purchase totaled $87, the customer’s debit card would be charged $90, with the customer receiving $3 in change. This system, while not as ideal as simply accepting credit cards, is far better than customers having to pay cash, a practice that is now not only a public health danger but which remains a security risk for businesses that must face the added concerns that accompany keeping large amounts of cash on hand. “Taking the cash out of cannabis is both safer and more profitable. Offering cashless ATM boosts average transaction sizes by 25% among our cannabis business customers,” said Brian Bauer, chief strategy officer at Abaca, a company that offers safe, compliant financial services to the cannabis industry. Abaca operates in seven states and has helped marijuana licensees bank over $100 million in cannabis deposits.

    Financial institutions are subject to various federal Bank Secrecy Act and other anti-money laundering requirements, and the use of cashless ATMs provide some unique challenges. Before working with dispensaries that provide cashless ATM solutions to their customers, financial institutions should work with marijuana-related customers and vendors to determine how the financial institution can adhere to these requirements. Key in this determination is open communication between the bank, its dispensary customer and the cashless ATM vendor. Banks need to understand and vet the cashless ATM provider’s services and technology. Some cashless solutions have run into problems in other states and have been forced to shut down, primarily because they run afoul of the Visa, MasterCard, and other card processors’ terms of service. It is important for a dispensary to partner with a vendor offering a solution that does not touch the card processors’ systems.

    Before doing business with a dispensary utilizing a cashless ATM, the bank needs to perform a due diligence review of the cashless ATM provider, and dispensaries should be prepared to help facilitate the bank’s review. For example, ATM provider Activate Payments, which successfully processes over $2 billion annually for 15,000 merchants and has been in business since 2007, is beginning to partner with dispensaries in Missouri. Despite this vendor’s long track record, a financial institution still has to roll up its sleeves and take a good long look under the hood. “We are excited to share our deep expertise in merchant processing by partnering with dispensaries and we have proactively worked with financial institutions in Missouri to provide transparency in how transactions are processed and promote our compliant cashless ATM solution,” said Scott Kabel, Activate Payments President. “Our solution is the industry standard and the adoption of the cashless ATM has accelerated with the recent COVID related operational changes in dispensary transactions.” Even when a vendor like Activate Payments passes this upfront customer due diligence, it doesn’t mean a financial institution’s work is done. The financial institution will need to do ongoing customer due diligence checks, and most importantly monitor transactions for suspicious activity, just as it would for cash transactions.

    Dispensaries utilizing cashless ATMs will need to provide accurate records of transactions to their banking partners and be able to reconcile cashless ATM transactions with seed-to-sale records. To avoid potential money laundering issues, the bank and its marijuana related business customer should agree on a “cash back” limitation when sales are made using the cashless ATM solution. The limitation should be large enough to allow dispensary customers to receive change in cash for their purchase, but not large enough to encourage significant cash back transactions like customers may be used to when using a debit card in a traditional retail setting. Limiting the amount of cash back will make recordkeeping practices much easier for both dispensaries and their banks.

    Will we ever take cash completely out of the cannabis business? Probably not, and that’s OK. But there are solutions such as cashless ATMs that provide cannabis businesses and customers a safe, compliant alternative. But for these to work, cannabis businesses must work closely with their bank, vendors and regulators to establish, implement and review these compliance measures to combat these unique challenges faced by the industry.


    Jim Regna is CEO and Founder of Triad Bank, headquartered in St. Louis, as well as a MoCannTrade board member.

     August 27, 2020