TL;DR
Cannabis businesses face unique challenges with cannabis payment processing due to federal regulations. This blog answers the top 7 questions dispensary owners ask—covering legal risks, digital payment options, required documentation, and how to avoid shutdowns. Learn how to safely accept debit and ACH while steering clear of non-compliant credit card schemes.
The cannabis industry continues to grow rapidly, but one persistent challenge remains: payment processing. Due to cannabis’s unique legal status, securing reliable and compliant payment solutions can be a daunting task. Whether you’re a dispensary owner, a cultivator, or a related business operator, understanding the nuances of cannabis payment processing is essential to running a smooth, secure, and profitable operation.
Bankcard International Group, as a trusted payments industry thought leader, has compiled the top 7 cannabis payment processing questions that we encounter regularly, and answered them with clear, practical insights to help you navigate this complex landscape.
Why is cannabis payment processing so complicated?
The core challenge stems from cannabis’s federal classification as a Schedule I controlled substance in the United States. This classification creates a conflict between federal and state laws. Although many states have legalized cannabis in some form, banks and credit card networks are federally regulated and must comply with federal laws.
This means most traditional banks and payment processors avoid working with cannabis businesses to steer clear of potential federal penalties, including money laundering charges. The result is a limited pool of payment solutions, often at higher cost and with more operational restrictions.
What types of payment processing are available for cannabis businesses?
There are several options, each with pros and cons:
- Cash transactions: Still common, but risky and inefficient. Handling large amounts of cash is not only expensive but it increases security concerns and complicates accounting.
- Cashless ATMs: These operate as ATM withdrawals rather than direct purchases, allowing customers to access cash on-site. They help reduce cash volume, increase ticket size and reduces costs, however, there is debate about their transparency.
- ACH (Automated Clearing House): Enables electronic bank-to-bank transfers, ideal for recurring payments and large transactions. ACH is gaining traction because it bypasses Credit and Debit card networks. ACH can be a powerful tool for online cannabis transactions and in store purchases. Customers will require some education on the use of ACH to maximize its benefits.
- Debit and prepaid cards: Some processors enable debit card transactions by structuring them to avoid credit card networks. When done properly this can be an option, however, the number of debit networks willing to allow for cannabis payment processing transactions is highly limited and will not be an option for a majority of customers.
- Digital wallets: Often used to allow credit cards to be used. These wallets are almost never legitimate because the payment processor and acquiring bank (the one who funds the transactions) do not know that the wallet is being used for cannabis. These solutions rarely last and should be approached with extreme caution and a good understanding of your risk exposure.
Each option requires working with a provider experienced in cannabis payments and well-versed in compliance. Any and all statements of transparency should be verified when possible.
What documentation do I need to get approved for cannabis payment processing?
Payment processors for cannabis require thorough documentation to meet legal and regulatory standards, including:
- Business licenses specific to cannabis operations
- Proof of compliance with state regulations
- Detailed information on ownership and management
- Financial statements and tax returns
- Bank statements
- Merchant processing applications that disclose cannabis-related activities
Providing accurate, complete documentation upfront speeds up approvals and demonstrates your commitment to operating responsibly.
What are the biggest risks to watch for when choosing a cannabis payment processor?
Since cannabis payment processing is a very fluid environment, there are some risks:
- Volatility and shutdowns: Some providers operate without clear compliance or bank backing, which can lead to sudden service disruptions. These operators often negligently or naively claim full compliance with banking and card brand regulations.
- Hidden fees and unfavorable terms: Some processors charge premium fees, have large “fluff” or hidden fees, or impose rigid contracts with severe early termination clauses.
- Lack of transparency: Providers that are not forthcoming about their regulatory stance or banking relationships should raise red flags. For example, ANY provider that claims to offer transparent and compliant credit card processing is not being transparent with you, their processor, or their acquiring bank.
- Security concerns: Handling cannabis payments involves sensitive data and large sums, so security and fraud protection must be prioritized.
Vet your processor carefully and seek providers with strong reputations, clear compliance frameworks, and transparent pricing.
How can I accept digital payments at my dispensary without getting shut down?
Until cannabis is federally legalized at some level or there is specific federal guidance, payment processing for cannabis can be volatile. However, you can safely accept digital payments for cannabis by following key guidelines:
- Avoid working with companies that promote credit card processing for cannabis, as these carry high risks of shutdown.
- Partner with reputable payment providers specializing in high risk and highly regulated payments who understand the legal nuances. Those that ONLY do cannabis payment processing often lack the payments and banking experience to effectively provide stable cannabis payment processing.
- Conduct independent research to verify the provider’s credentials and banking relationships.
- Accept debit cards and ACH payments that are structured properly to avoid credit card and unauthorized debit networks.
- Ensure all funds are traceable, bank-backed, and processed in line with Anti-Money Laundering (AML) and Bank Secrecy Act (BSA) guidelines.
By doing so, you minimize your risk of disruptions and maintain operational stability.
How do cannabis payment processing fees compare to traditional merchant accounts?
Cannabis payment processing generally carries higher fees compared to traditional businesses. This is due to:
- Elevated risk profiles perceived by banks and processors
- Specialized compliance and regulatory monitoring required
- Limited banking options, reducing competition among providers
Typical fees range from 3% to 8% per transaction, plus possible additional costs for setup, compliance audits, and chargebacks. While these costs are higher, partnering with a knowledgeable provider can help optimize your payment solution to balance fees with reliability and security.
What does the future hold for cannabis payment processing?
The landscape is evolving. Recent developments suggest growing momentum toward federal cannabis legalization or reform, which would open banking and payment opportunities significantly.
Meanwhile, technology innovations, such as blockchain-based payments and further adoption of ACH and digital wallet solutions, promise safer, more scalable options.
The key for cannabis businesses is to stay informed, work with trusted payment partners, and prepare to adapt as regulations and market conditions change.
BIG, Bringing it all Together with Reliable Cannabis Payment Processing
Navigating cannabis payment processing is challenging but not impossible. With a clear understanding of the legal context, available options, and best practices, cannabis businesses can access secure, compliant payment solutions that support growth and operational efficiency.
If you’re in the cannabis space and want to explore payment processing options tailored to your needs, it’s essential to work with experienced providers who know the industry and can guide you safely through the complexities.
At the intersection of payments and cannabis, knowledge, trust, and compliance are your strongest allies.
Would you like guidance curated to your specific cannabis business? Reach out to our industry experts at BIG who specialize in cannabis payment solutions to ensure you get the right fit and avoid costly pitfalls.
