U.S. News
Mastercard Drops Debit Transactions for Cannabis Industry
By Mara Lafontaine · July 28, 2023
In brief…
- Mastercard has issued cease-and-desist letters to financial institutions to halt Mastercard debit transactions for marijuana purchases.
- The move comes after a crackdown on cashless ATM purchases for cannabis products
- The situation leaves marijuana businesses with limited payment options beyond cash and Automated Clearing House payments.
- The cannabis industry generated an estimated $35 billion annually; many US politicians are involved in it.
- At the federal level marijuana is still highly illegal.
- Most financial institutions are wary of providing services to cannabis businesses due to the potential risk of federal enforcement.
Mastercard has sent cease-and-desist letters to financial institutions to stop accepting Mastercard debit transactions for marijuana transactions. Asked about debit cards being used for marijuana purchases on their network, a Mastercard spokesman told Bloomberg, “As we were made aware of this matter, we quickly investigated it… In accordance with our policies, we instructed the financial institutions that offer payment services to cannabis merchants and connect them to Mastercard to terminate the activity… “The federal government considers cannabis sales illegal, so these purchases are not allowed on our systems.”
After a crackdown on cashless ATM purchases for cannabis products, marijuana companies are left with few options beyond cash and Automated Clearing House (ACH) payments.
“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,” Mastercard said.
New Frontier Data estimated that the cannabis industry would bring in about $35 billion in 2023. In fact, numerous U.S. politicians are actually making money in the cannabis industry. Yet according to federal rules, cannabis is as illegal as heroin.
A video by Bloomberg Law, featuring legal scholar Jay Wexler, explains that when Nixon declared the “War on Drugs,” the Controlled Substances Act of 1970 classified marijuana as a Schedule I drug, claiming it had maximum abuse potential and no medicinal value, despite the findings of the Shafer Commission, which determined that it was safe.
Since then, 23 states have legalized marijuana, avoiding federal preemption by citing the 10th Amendment, which says states cannot be forced to enforce federal laws. Nevertheless, Marijuana is remains a Schedule 1 drug. Cultivating 100 plants is a federal drug crime carrying a 5-year mandatory minimum for a first-time offense.
Wexler said, “They could send federal agents into… every house all over America and just start arresting people for smoking weed. But the federal government doesn’t have those kinds of resources, and it doesn’t have the will to do that.”
Even so, since most banks are federally licensed, they are reluctant to support cannabis businesses given the the risk of federal enforcement. This means cannabis businesses can have difficulty securing commercial loans or even basic financial services.
“Banking and taxes are maybe the biggest issues,” said Wexler. “But there are all sorts of other areas which are important, too. Cannabis companies cannot take advantage of federal bankruptcy law if they go bankrupt, which many of them do. The US Patent and Trademark Office will not grant trademarks to companies that are doing illegal things,” he continued. “Eventually, the federal government will stop this craziness and will take marijuana out of Schedule One.”