Mastercard tells banks to stop allowing marijuana purchases on debit cards

The financial services company sent cease-and-desist letters to U.S. banks and financial institutions over dispensary transactions on its debit cards

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Mastercard is the latest entity to deal a blow to the marijuana industry.

The company has demanded that U.S. banks and financial institutions stop allowing purchases of cannabis on its debit cards, citing marijuana's federal illegality in cease-and-desist letters sent last week to banks and financial processors.

"As we were made aware of this matter, we quickly investigated it," a Mastercard spokesperson said Wednesday. "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 statement continues, "The federal government considers cannabis sales illegal, so these purchases are not allowed on our systems."

Medical marijuana is currently legal in 37 states, with 21 states allowing recreational use for adults. Cannabis use remains illegal at the federal level.

In states where marijuana is legal, dispensaries have to use cash or debit cards. They're unable to accept credit cards or other forms of payment due to their product, cannabis, still being illegal under federal law. But the SAFE Banking Act, if it passes the Senate, would allow marijuana businesses to do more banking on the books and create a safer industry.

While most dispensaries operate as cash-only businesses, some allow customers to use a debit card with their PIN to purchase marijuana.

The cannabis industry didn't take Mastercard's move well.

American cannabis company Curaleaf said in a statement, “Current prohibitions on banking in cannabis are unfair to communities, law enforcement, cannabis workers and business owners."

Currently, traditional banking services are out of reach for the cannabis industry due to the federal classification of marijuana as a Schedule I drug — the same category as heroin and LSD, with no recognized medical use or value. Subsequently, FDIC-backed banks have been prohibited from doing business with dispensaries, growers, distributors and other marijuana-related businesses that are operating legally under state laws.

Mastercard's blockage poses a challenge for the marijuana businesses in the U.S., leaving dispensaries scrambling for already-limited alternative financial options. The high-risk cannabis industry, which deals primarily in cash, suffered a blow last year when Visa cracks down on cashless ATMs at dispensaries, shutting down a popular workaround to the banking system.

Hawaii is the first state to implement cashless marijuana transactions, encouraging the use of the debit payment app CanPay to facilitate sales. California and Colorado are among the states that have the app as an option for cannabis consumers, according to the Associated Press.

On the federal level, the Secure and Fair Enforcement Banking Act is looking to free up banking services for the cannabis industry. The bipartisan bill seeks to protect banks from working with legal cannabis businesses and shield them from federal penalization, CNBC reported.

Amidst state and federal efforts to establish a more convenient transaction means, the cannabis industry may have to rely on cash for now, a method that poses risks of robbery and money laundering.

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