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Credit Cards Blow Off Cannabis Customers

Stocks in this article: MA BAC PHOT

NEW YORK (TheStreet) -- Consumers use credit cards and debit cards for just about every purchase they make, even if it's a cup of coffee. The one thing they can't buy with plastic is legal marijuana.

Since dispensaries are unable to open bank accounts due to the designation of marijuana as a controlled substance, these small businesses can't offer their clientele the simple convenience of using plastic, forcing them to deal in hard, cold cash and creating a security problem for these companies.

"When it comes to the marijuana issue we're facing a situation where there's an inconsistency between federal and state laws." Said MasterCard (MA) spokesman Jim Issokson. "As such, we're now seeking guidance from the federal government. In this instance, the federal government considers marijuana sales illegal but is currently not challenging state laws that legalize marijuana sales. Given the complexity of this situation, we will continue to seek guidance and inform merchant acquirers of any new developments."

American Express (AXP) is opting to just stay out of it completely, legal or not. William Tsang, manager of Corporate Affairs for American Express said, "American Express prohibits the use of the Card for marijuana transactions. We adhere to federal law in such matters."

There was a report that Bank of America (BAC) would begin banking with legal marijuana dispensaries in Washington state, which would have paved the way for credit cards. However, Bank of America denied this and had no comment on credit cards for cannabis transactions.

"Merchants must have a relationship with a bank in order to process payments through debit and credit cards," said Rob Rowe of the American Bankers Association. "The same restrictions come into play for processing payments that apply to all other bank products and services. Once a bank identifies the true nature of the [marijuana] merchant business, an account is likely to be very quickly terminated."

That was the case for Patients Choice clinics in Colorado. Executive Administrator Brianne Bartz said that when the company did have a bank account, credit cards were 40% of its business. They have since lost that banking relationship. They do provide an ATM machine and only charge 25 cents to use it. While that is convenient for the customer, it still creates a cash problem.

"It's definitely a security risk," said Bartz. "When we had a bank account, we used Brinks for security, but now they have stopped working with us." Patients Choice has since developed new security measures.

Chase (JPM) declined to comment and a different bank spokesperson said they take their cues from the American Bankers Association. The Washington Bankers Association had no comment on the subject.

The Department of Justice is signaling its desire to address the banking situation with some guidelines and Sterling Scott CEO of Grow Life (PHOT) believes the DOJ involvement is a huge positive. Scott thinks that if the big banks aren't willing to take the risk, then local banks will jump in and that would be a positive for them.

In the meantime, Scott's company, specializing in indoor gardening equipment, is rolling out a line of kiosk boxes that would complement a dispensary's business. The box would replace the cash transaction and provide the states with visibility into the transaction, such as meeting regulatory requirements and ID verification. The dispensaries are receptive to using the boxes as it reduces regulatory risk and employee theft.

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