Planning to buy cannabis in Colorado with a debit card? Not if you use Mastercard

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Hart Van Denburg/CPR News
An ATM at the LivWell Dispensary on Belleview Avenue in the Denver Tech Center, Friday, August 11, 2023. Mastercard is banning the use of its debit cards to purchase cannabis-related products.

It just got more difficult to buy cannabis in Colorado with a debit card — Mastercard recently told banks they can’t let people use their cards to buy marijuana.

The state’s dispensaries have always operated in a kind of legal limbo when it comes to banking. Most financial institutions are reluctant to work with them because cannabis is still illegal under federal law, which means banks are technically running afoul of U.S. regulators by doing business with cannabis companies.

But there’s a workaround for debit card transactions as long as customers are using a PIN, or personal identification number. The move from Mastercard could be a blow to the industry.

“It could have a terrible impact on us if there were teeth to it,” said Trey Biles, the general manager at a LivWell dispensary in the Denver Tech Center. According to Biles, 80 percent of his customers use debit cards, and roughly a quarter of the chain’s Colorado sales are conducted using Mastercard.

Hart Van Denburg/CPR News
Trey Biles is the manager of the LivWell Dispensary on Bellevue Avenue in the Denver Tech Center, Friday, August 11, 2023.

It’s pretty seamless for customers who still want to use a debit card to buy cannabis, as I found out on a recent visit to LivWell. I decided to test the system with my Visa debit card. 

Kenny Carlson, my budtender, suggested I purchase a single joint. Biles ran my ID while Carlson walked me through the different options, taking out a jar from behind the counter to let me smell it. Then, I took out my debit card to pay. The card reader looked just like any other card reader at a retail checkout. The transaction sailed through in less than a minute.

Biles said Mastercard transactions are still going through, too, even though it’s been several weeks since Mastercard said people aren’t allowed to buy cannabis on its networks. That could be because it’s practically impossible for banks to monitor. Debit cards are used for everything, and it’s not as if a cannabis sale shows up as a joint on a bank statement.

How are those banks logistically going to go through every single transaction, figure out which codes are equating to cannabis sales and make that happen? It's not going to happen,” Biles said.

The federal ban puts Mastercard in a tough spot, Biles said. Afterall, they get a cut of every sale.

“I don't think they want to cut their amount of money that they're getting from these cannabis transactions. I think they're pigeonholed because of laws in the federal system that make it to where now they're forcing [Mastercard] to almost alienate some of their customers,” he said.

Hart Van Denburg/CPR News
Budtender Matt Sepulveda speaks with customers at the LivWell Dispensary on Bellevue Avenue in the Denver Tech Center, Friday, August 11, 2023.

The cannabis business, one of Colorado’s marquee industries, has been taking it on the chin lately. Sales totaled about $126 million in May, according to the most recent data from the state’s department of revenue. That’s down from nearly $148 million in May of last year, and $194 million two years ago.

There are several reasons for slipping sales, including increased competition from other states as legalization spreads across the U.S. and stubborn inflation that is eating into people’s recreational budgets.  The last thing the industry needs is an added banking headache, according to the Marijuana Industry Group, an organization that lobbies for Colorado’s cannabis businesses.

“We need lawmakers at every level to start looking at streamlined, commonsense policies,” MIG said in an emailed statement.

The U.S. House has passed legislation, called the SAFE Banking Act, that would protect financial institutions from federal charges for doing business in states where cannabis is legal. But it’s been languishing in the Senate for years.

One likely outcome of Mastercard’s move is to push more people to use cash, according to Jeremy Unruh, senior vice president of public and regulatory affairs at PharmaCann, the parent company for LivWell. That’s the last thing the industry wants to do, he said.

“Not only is there a physical security risk when you accumulate too much cash in dispensaries, but cash is not transparent and it's not auditable, and it's not trackable the way electronic transactions are,” Unruh said.

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Budtender Vivian Walker handles a cash transaction at LivWell Dispensary on Bellevue Avenue in the Denver Tech Center, Friday, August 11, 2023.

Tom Scudder sits on the board of MIG, the Colorado lobbying group, and owns dispensaries in Colorado Springs and Aurora. According to Scudder, it’s the payment processing companies that act as intermediaries between credit card issuers and retailers that facilitate debit transactions at dispensaries. 

Those companies are always trying to get a cut of Colorado’s cannabis business, he said, but are often forced to back out if the major credit card companies get wind of what they’re doing.

“We've had, I don't know, three or four different debit card processors get shut down,” Scudder said. “So it's just kind of the nature of the beast. Everybody’s trying to still get access to the system and they're having to do it in a little bit of creative ways.”

Back at LivWell, I confessed to Biles that I felt vaguely uncomfortable about buying cannabis for a work assignment, even though it’s perfectly legal. He said that’s the stigma the industry is fighting. Actions like the one recently taken by Mastercard underscore the uphill battle, he said.

“This is a normal business where we are giving a consumer a legal product that they want and everything should be the same as if you're going to the grocery store,” Biles said.