Mastercard Cuts Service to Cannabis Providers, Experts Say Visa is Next
Recently, Mastercard and text-messaging platform Twilio banned cannabis businesses from using their services, and industry experts foresee similar actions by Visa and other service providers in the near-future.
Cannabis Industry Continues to Face Irregular Hardships
These are just recent examples of the irregular hardships that the cannabis industry continues to face due to outdated, contradictory federal laws. Though the businesses affected are legitimate operations in legalized states, marijuana remains illegal under federal law, which puts financial institutions and other service providers–such as Twilio, Visa, and Mastercard–at risk of federal prosecution and regulatory fallout: risks that these high-profile companies have chosen to avoid by cutting ties with the industry altogether.
The solution? The SAFE Banking Act, which would protect institutions offering financial and other services to legal cannabis operations from federal penalties and regulatory backlash. The SAFE Banking Act was created in 2019, and it has gained enough votes to pass the Senate, and has now passed the House seven times.
But clearly, the SAFE Act remains low on the list of Congressional priorities. Instead, various newer proposals have been privileged ahead of SAFE, including legislation that would only harm the industry further: the 2023 Cannabis Administration and Opportunity Act has proposed to raise dispensary sales taxes by a staggering 25% nationwide, despite the fact that the industry is already taxed excessively.
All of these difficulties stem from outdated, now-obsolete federal laws established decades ago that have resulted in the stigmatization and overregulation of marijuana as a federally illegal substance.
In this article, we provide up-to-date information on recent and upcoming bans by Mastercard, Twilio, and Visa, as well as recently proposed tax increases–just a few of countless examples of the unique difficulties that will continue to distress the industry until SAFE and other measures are passed.
Mastercard Ban “Unsurprising” to Industry Experts, Who Predict Similar Actions from Visa
The Mastercard ban dealt an unexpected blow to the industry in July, when the company announced that it would no longer accept cannabis-related payments or purchases on its debit cards. Upon announcing the ban, Mastercard immediately halted all cannabis transactions, leaving retailers scrambling for payment solutions.
Mastercard justified the decision by citing the fact that marijuana remains federally illegal, despite the fact that medical marijuana is now legal in 38 states, 3 territories, and DC, while 23 states, 2 territories and DC have legalized recreational use. These businesses are key contributors to these states’ economies and job markets, yet the industry–which was declared essential business during the pandemic–remains steeped in complications due to contradictory federal laws.
What’s worse? Many experts say the ban is “unsurprising” given the legal complications that arise from federal cannabis legislation, and even predict that Visa and other card providers will soon follow suit:
“I think it is safe to say that we will likely see something similar coming from Visa soon as well,” said cannabis lawyer Josh Korbin. “Until there is action at the federal level to pass the SAFE Banking Act or some regulatory reform, the $60 billion global cannabis industry will continue to rely heavily on legal workarounds.”
Many of these workarounds are not only inconvenient, but also unsafe. Bans by financial providers such as Mastercard are forcing some dispensaries to operate exclusively in cash, which creates obvious dangers for dispensary employees.
Responding to a recent string of dispensary burglaries in her state, Washington Senator Patty Murray acknowledged that “It makes absolutely no sense that legal businesses are being forced to operate entirely in cash, and it’s dangerous–and sometimes fatal–for employees behind the register.” Meanwhile, dispensary burglaries in California doubled from 2021 to 2022 alone.
Nonetheless, few other options are available, and John Glasstetter–spokesperson for the US Cannabis Council–anticipates that the industry’s estimated $30 billion in revenue this year will be “overwhelmingly” generated through cash transactions, since “state-legal cannabis businesses are locked out of most banking and financial services.” For Glasstetter, “The announcement by Mastercard is a powerful reminder of the need for action by Congress,”
Twilio Bans Cannabis-Related Businesses from Using SMS Marketing & Communications Services
Just a month after the Mastercard ban, text-messaging platform Twilio announced last week that it would prohibit cannabis businesses from using its services. Twilio has hitherto been a key resource for dispensaries who use its software for basic marketing and communications services, and it allows businesses to communicate with customers regarding delivery services, announcements, and loyalty programs. The ban has deprived dispensaries not only of the immediate need to engage with their customers, but also of the opportunity to partner with larger, industry-leading companies.
Like Mastercard, Twilio’s ban is based on the fact that marijuana remains illegal under federal law, despite the fact that the service is primarily used by retailers in legalized states. Nonetheless, experts suspect that, “given Twilio’s size and market position, the company may have found it easier to cut ties with the industry rather than risk regulatory scrutiny,” according to a report by MJBizDaily.
Only the SAFE Act can eliminate these risks for service providers, and until then, these prohibitions will most likely continue, leaving the market and dispensaries in disarray.
SAFE Act Remains Dormant, While Congress Eyes Legislation Proposing Sales Tax Increase
So–why the delay in passing the SAFE Act, a seemingly simple solution to these problems? For Korbin, the legislation simply isn’t a priority for Congressional leaders: “I think Congress is extremely divided and we are walking into an election year. If it were a priority for leadership, it would have passed by now. I don’t think [these bans are] enough to make it a priority for Congressional leadership, unfortunately.”
Instead, Congress has diverted its attention to various, much newer legislative proposals–including potential tax increases that could bring an already distressed industry to its knees. The 2023 Cannabis Administration and Opportunity Act is being pushed ahead of the SAFE Banking Act, and proposes a 25% increase in sales tax for cannabis transactions nationwide.
If passed, the Act would have devastating implications for cannabis retailers who are already facing excessive taxation by the IRS, which continues to discriminate against cannabis businesses in areas where even the DEA has softened its stance in legalized states. Cannabis businesses are taxed at both the federal and state level, with some states collecting up to 40%. As a result, annual tax revenues from the cannabis industry totals more than $2 billion per year, surpassing even cigarettes and alcohol, which cost Americans millions in annual damages.
On top of upfront taxes, cannabis retailers are also prohibited from claiming standard deductions granted to nearly all other businesses. Under IRS Section 280E, cannabis operators cannot deduct business-related expenses, making their remaining margins dangerously narrow–and soon, those margins could be virtually nonexistent, if the bill for an additional tax increase is passed.
All of these challenges are rooted in antiquated federal laws that continue to harm legitimate cannabis operations in legalized states, while burdening the industry as a whole. And until Congress takes action on the SAFE Act, these challenges will continue to harm industry operators and consumers alike.
Luckily, cannabis consumers can still take action to protect the market, and to ensure that patients receive access to the treatment they deserve. Want to help? Contact your US senator today to ask that the SAFE Banking Act be passed this year.
