Colorado Marijuana Industry Recoils After Mastercard Ban | Westword
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Mastercard Marijuana Ban Hurts Already Struggling Dispensaries in Colorado

"Usually this is followed by more action and some percentage of the industry is lost."
Mastercard is one of the country's largest debit card issuers.
Mastercard is one of the country's largest debit card issuers. Flickr/Håkan Dahlström
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Already weakened by a two-year-long recession, Colorado's marijuana industry sustained another blow this week when reports emerged that Mastercard was banning debit card transactions for marijuana.

Although marijuana dispensaries still largely operate in cash because of the plant's federal prohibition, a growing portion of retailers are able to accept debit cards through third-party processors and cashless ATMs. But on July 26, Mastercard confirmed a Bloomberg report that the card company was issuing cease-and-desist orders to banks and payment vendors, demanding that they stop processing any marijuana-related transactions.

Still reeling from record-low prices and a 20 percent decline in annual sales, Colorado dispensaries are worried about what comes next.

"This is hitting dispensaries, 100 percent. On the manufacturing side, you have much less volume of payments," explains Tom Scudder, a dispensary owner in Aurora and Colorado Springs and president of the Colorado Springs Cannabis Association. "It's going to hurt sales, and that's really sad. We've just started coming out of the depths of an industry recession, which was so serious that it caused the extinction of 35 percent of our cannabis producers."

After two straight years of falling prices and closing businesses, the Colorado Department of Revenue reported a slight uptick in wholesale pot prices earlier this month. But this small ray of good news was quickly overshadowed by the Mastercard announcement, according to Scudder, who spent over a decade working with private-label credit cards and managing credit portfolios before entering the marijuana space.

"I certainly understand Mastercard's point. I spent fifteen years in the credit card business and know a lot of folks on that side. I certainly understand their perspective of federal law, but I would make the argument that cash-only industries increase danger and cost and put a lot of people at risk," he says. "I can tell you as a former credit card executive, when we sold credit cards to a business, we knew it increased sales 10 to 20 percent."

Ever since January 1, 2014, when Colorado became the first state to allow recreational dispensaries, the process of buying legal weed has been tenuous. Because of federal prohibition, marijuana-related businesses are banned from financial services, putting banks serving those companies at risk for federal drug charges. Although some smaller banks and credit unions will take on that risk for high fees, the majority of legal marijuana transactions are still done in cash.

"I've literally never heard of any action or threats from the Department of Justice, FDIC, Comptroller's Office or any other body that oversees banks. Honestly, they shouldn't be worried about it, but occasionally they do. A lot of it is the conservative nature of banking: They don't want to lose their bank charters, and Mastercard feels responsible for their partners," Scudder notes.

This isn't the first time that a company in the finance sector has issued warnings, but the others have usually come from third-party payment vendors or firms that offer accounting or payroll services. Mastercard debit cards account for about one-fifth of all debit card purchases in the United States, according to Nilson Report data.

"Usually this is followed by more action, and some percentage of the industry is lost. In the past, it's usually the processors who are doing this rather than Visa or Mastercard," Scudder says.

Despite the hard-line stance from Mastercard, one marijuana business veteran who asked to remain anonymous out of fear of banking retribution says they believe dispensaries can find a new debit card processor if they look hard enough.

"Marijuana merchant vendors are shady as fuck, and they will do whatever they need to do to get a contract signed. Maybe it's on a different rail, or maybe they use a different LLC name," the stakeholder says. "There might be accounts that get shut down, and maybe it costs more next time, but within a week or two, they will be up and running."

Scudder says that he and his industry peers remain hopeful that Congress will pass federal banking reform for state-legal marijuana industries, but a bill proposing such protections has stalled out in the Senate for four years now.

The Colorado Legislature passed a bill earlier this year that allows dispensaries to accept online payments, in hopes of reducing the cash stored at dispensaries while opening up retailers to more transactions. Nothing in the measure's language mandated that banks or card issuers must process the transactions, however; as signed into law, though, the payment only goes through if a customer's bank approves it.
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