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The cannabis industry has experienced explosive growth in the past couple of years with no signs of slowing down. The U.S. cannabis market was estimated at $38.5 billion in 2024, with an expected annual growth of 11.51% through 2030. The rising legalization of cannabis for both medical and recreational purposes in states across the country is a big reason why we’re seeing accelerated growth in the industry.
Despite this increased cultural and legal acceptance of cannabis, the industry still faces some tough challenges. Federal law still classifies cannabis as a Schedule I substance, meaning that traditional banking and payment solutions remain out of reach for dispensaries and cannabis-related businesses. As a result, many merchants are seeking out alternative payment solutions, but not all are compliant—or even legal. Regulators, card networks, and financial institutions are increasingly cracking down on these methods, leaving merchants at risk of frozen accounts, lost revenue, license revocations, and even legal consequences.
Because of the risks associated with these problematic workaround payment solutions that are becoming increasingly widespread, merchants in the cannabis industry must stay aware of the ramifications and take measures to protect themselves as the cannabis payments landscape continues to shift.
Cashless ATMs: A Short-Term Solution With Long-Term Consequences
Cashless ATMs, PIN debit loopholes, and other workarounds are widespread in the cannabis industry. Bloomberg reported in 2022 that Cashless ATMs turned into a $7 billion industry, and it’s only grown since then. But just because they are a common practice in the cannabis industry doesn’t mean they’re a good choice for your business. Let’s dive into how Cashless ATMs work and the dangers they pose to merchants.
How Cashless ATMs Work
Cashless ATMs are used at the point of sale by dispensaries to bypass traditional banking restrictions. They work by misrouting a sale through the card network using the Merchant Category Code 6011, used for ATM cash withdrawals. When a customer pays with their debit card, the transaction gets processed under MCC6011 and categorized as an ATM withdrawal, which is often rounded to the nearest $5/$10 increment (the difference is given to the customer as change). The result is a disguised card transaction that shorts processors and card networks while also being convoluted for the customer.
Why Cashless ATMs Are Dangerous
Cashless ATMs can cause issues on multiple levels. Since the transactions are misrouted as ATM withdrawals, the card networks (like Visa and Mastercard) collect lower fees than if the transaction was correctly processed. This not only causes them to lose money but also exposes them to significant compliance risk.
Crackdowns are intensifying, and merchants using cashless ATMs are in the crosshairs as a result. You could be subjected to regulatory fines or lawsuits, have your merchant account frozen/funds seized, and risk significant reputational damage that could lead to your business being forcibly shut down in the long run. There is even evidence that the card networks are using secret shopper programs to catch merchants in the act by dispatching undercover agents to dispensaries across the country. The fact of the matter is that cashless ATMs are a band-aid solution to an addressable problem (which we discuss later in this blog), and the window for operating cashless ATMs without consequences is shutting fast.
What About Other Workarounds Like PIN Debit & P2P?
Cashless ATMs aren’t the only non-compliant tactic used for cannabis payment processing. Other workarounds cannabis businesses use include PIN debit transactions and peer-to-peer apps like Venmo, PayPal, and Zelle. Although they may seem like solid options for cannabis businesses, these payment solutions are just as problematic as cashless ATMs. P2P apps explicitly prohibit cannabis-related transactions in their terms of service, and payments can be flagged and reversed if identified as such.
Some PIN debit processors have shut down without notice, leaving merchants unable to accept payments and having no lead time to find an alternative. Additionally, card networks could reverse past transactions and force merchants to eat the costs. If your business is small to medium-sized, it‘s likely that you don’t have enough cash reserves to withstand an abrupt shutdown in your payment acceptance capabilities.
Compliant Payment Solutions for Your Cannabis Business
Accepting payments in the cannabis industry doesn’t have to be risky. As a merchant in a high-risk industry, you need options that are not only legal but also reliable and practical. Fortunately, the Evolve Payment team has compiled a list of payment solutions you can trust so you can grow your cannabis business with peace of mind.
ACH (Bank-to-Bank Transfers) With Integrated Invoicing
ACH (Automated Clearing House) transfers are one of the safest and most cost-effective ways to move money in the cannabis industry. With ACH, customers can pay you directly from their bank account using secure links or payment portals. ACH is the perfect option if your business has subscription programs, repeat customers, and/or operates in the B2B space. Another great feature of ACH is how integration-friendly it is. By utilizing accounting integrations like Biller Genie, ACH payments are automatically reconciled, saving you time and money by reducing the amount of manual admin work you’ll need to do. Plus, when you work with an implementing partner like Evolve Payment, setup is a breeze with little to no effort on your end required.
Cash Payments
Cash is still king for all businesses, and this applies to merchants in the cannabis industry, too. By leaning into cash as a payment solution for your business, you can simplify your payment process by eliminating regulatory hoops to jump through and completely avoiding risks associated with compliance. The best part about a cash-first approach is that your business has immediate access to your money after completing the transaction. Not only that, but you also won’t have to deal with as many transaction fees and high overhead costs. Ultimately, cash is a win-win for cannabis businesses, and we don’t anticipate that changing anytime soon.
Cannabis-Compliant Partnerships
Above all else, working with specialized payment partners who understand the rules and regulations of the industry is the #1 priority. Compliant processors and reputable merchant service providers have the expertise your business needs to stay within the boundaries of the law. Trustworthy high risk merchant service providers like Evolve Payment are especially important for protecting your cannabis business because they will know the right steps to take to prevent your merchant account from getting frozen overnight. Also, if something ever does go wrong, they know the right numbers to call and people to talk to, so everything gets resolved quickly and efficiently.
Partner With Cannabis Industry Experts
Evolve Payment is an experienced merchant services provider with compliant payment solutions for the cannabis industry. Fill out the form below and tell us about your business. We’ll engineer the perfect payment solution for you that’s compliant and effective.