The medical marijuana market once represented a new opportunity for merchant processors, but it dried up almost overnight when the major U.S. credit card networks more or less banned them from processing such sales — even in states where it is legal.
The federal government doesn't recognize the legality of medical marijuana, regardless of each state's position. Discover and American Express say they follow federal law on the matter. Though Visa says it follows state laws, it says acquirers may block marijuana payments anyway. MasterCard would not explain its position.
So the market essentially went cash-only. But some independent sales organizations say they have found a way to enable dispensaries of medical marijuana to continue accepting cards without violating credit card network rules.
Atlas Payment Processing of San Jose, Calif., for example, offers dispensaries both a countertop terminal and a wireless one (both made by VeriFone) to accept PIN-debit purchases of medical marijuana at either their locations or at patients' homes. And Maxx Payment Processing in Denver deploys what it calls the Green ATM, a countertop "cashless ATM" device that supports debit card withdrawals or credit card cash advances to enable patients to pay electronically for medical marijuana within dispensaries.
Maxx Payment Processing assesses a $2 fee when consumers use the company's Green ATM, which requires a debit or credit card PIN to complete the transaction.
"Because the merchant is charging a convenience fee for the cash advance, the credit card is not being used to buy medical marijuana" directly, says Alex Neir, the ISO's vice president of business development.
The Green ATM has buttons noting various payment options, such as $20, $50, $100 or "Other." If the bill is $49, the customer chooses $50, and the dispensary pays the customer $1 back in change, Neir says. The payment transfers electronically from the customer's account to the dispensary's.
Maxx Payment began offering terminals to dispensaries about six months ago and has distributed about 25 thus far, Neir says. Neir would not name specific clients because of privacy issues. Dispensaries pay $200 per month for the terminal but no processing fees.
"It's a much better solution for the business, but whether the customers want to enter their PINs remains to be seen," he says.
The ISO handles about 5,000 to 10,000 transaction per month through the devices, Neir says.
Atlas began offering VeriFone's Vx 570 about four months ago and it plans to offer the wireless Vx 610 on Sept. 17, according to Fiona Walshe, Atlas vice president and director of national sales.
Hundreds of dispensaries use the countertop terminals, which combined handle about 1,000 transactions per month, Walshe said in an email. Consumers who use either device pay a $2.50 surcharge.
"One advantage to our solution is all transactions are 'in-network,' meaning the patient is only charged the flat $2.50," Walshe wrote. The card's issuer does not charge additional foreign fees, as it might for using a third party's ATM, she said, noting Atlas has the endorsement of "all the PIN-debit networks."
Though Atlas charges no merchant-processing fees, dispensaries pay $12 per month for the countertop terminal, which covers the statement fee, the cost of 12 rolls of receipt paper and insurance for the equipment. They pay $8 monthly for the wireless device plus $34.95 per month in wireless carrier fees.
Atlas works with other ISOs and agents to distribute the VeriFone terminals, and it provides them 50% of the gross profit earned on the surcharge, Walshe said.
The wired terminal costs $365, plus an additional $40 for an IP terminal. The wireless one costs $650, though Atlas offers an introductory pre-order price of $450, Walshe says. Walshe declined to disclose the name of its sponsoring acquirer.
Visa has "not taken a specific position on this issue," spokesman Ted Carr said in an email, but its policies indicate that medical marijuana sales should be allowed in states where they are legal.
"Our policy is that Visa cards should only be used in connection with legal transactions," he says. If dispensaries are unable to accept Visa cards, it likely is due to acquirer policies and not those of Visa, Carr says.
"Acquirers are responsible for ensuring that their merchant customers comply with all applicable laws," he says. "An acquirer may have made a change based on its interpretation of the law."
Representatives from both First Data Corp. and Chase Paymentech, two of the top merchant processors, declined to discuss the controversial issues around payment acceptance for medical marijuana. A MasterCard representative did not return repeated calls seeking the card brand's position on use of its cards for similar purchases.