Do Marijuana Dispensaries Only Take Cash?

Marijuana dispensaries in the United States frequently operate as cash-only businesses, a practice rooted in the complex legal and financial environment surrounding cannabis. While a growing number of states have legalized cannabis for medical or recreational use, federal law continues to classify it as an illegal Schedule I controlled substance under the Controlled Substances Act. This fundamental conflict creates significant challenges for dispensaries seeking traditional financial services.

Why Cash is Common

Financial institutions, including banks and credit card companies, are typically regulated at the federal level. Engaging with businesses involved in federally illegal activities, even if state-legal, exposes these institutions to risks of money laundering charges, forfeiture of assets, and other federal penalties. This reluctance by federally regulated banks to offer services means many dispensaries struggle to open and maintain bank accounts, process electronic payments, or secure loans.

This situation forces many cannabis businesses to operate largely in cash, leading to increased security risks such as theft and robbery. Dispensaries often invest heavily in security measures like safes, secure cash transport services, and on-site security personnel to mitigate these dangers, which adds to their operational costs. The lack of access to traditional banking also complicates daily financial management, including paying employees and vendors.

Internal Revenue Code (IRC) Section 280E significantly impacts the financial viability of cannabis businesses, compelling many to maintain large cash reserves. This section prohibits businesses trafficking in Schedule I or II controlled substances from deducting ordinary and necessary business expenses from their gross income, with the exception of the cost of goods sold (COGS). This means that while a typical business can deduct expenses like rent, utilities, and marketing to reduce its taxable income, a cannabis dispensary cannot.

Consequently, cannabis businesses often pay federal income taxes on their gross profits rather than net income, resulting in effective tax rates that can exceed 70%. This substantial tax burden, coupled with the inability to access standard banking services, necessitates holding large amounts of cash to cover operational costs and tax liabilities.

Exploring Non-Cash Payment Methods

While cash remains the dominant payment method, the cannabis industry has developed various alternative solutions to address the limitations imposed by federal banking regulations. Some dispensaries offer debit card payments, often facilitated through systems that process transactions as PIN-based debit purchases. These systems typically involve customers entering their PIN, with funds transferred directly from their bank account to the dispensary.

Another workaround that gained popularity was the “cashless ATM” or “point of banking” system. This method involved customers swiping their debit cards, with the transaction disguised as an ATM withdrawal, often rounded up to the nearest $5 or $10 increment. However, major card networks like Visa and Mastercard have increasingly cracked down on these systems, deeming them violations of their network rules because they misrepresent retail transactions as cash withdrawals. This has led many dispensaries to seek more compliant alternatives.

Proprietary payment apps and closed-loop systems have also emerged, offering digital payment solutions specifically designed for the cannabis industry. Examples include platforms like CanPay, which allows consumers to link their checking accounts and make direct debit payments to approved dispensaries without transaction fees. Other solutions, such as Aeropay, facilitate secure bank-to-bank transfers for purchases. These specialized services aim to provide a more compliant and convenient cashless experience, bypassing traditional credit card networks and their federal restrictions.

Tips for a Smooth Transaction

Customers visiting a marijuana dispensary should prepare for a transaction that may differ from typical retail experiences. It is advisable to bring sufficient cash to cover your purchase, as many dispensaries still primarily operate on a cash-only basis. This ensures a smooth transaction regardless of the dispensary’s specific payment options.

Most dispensaries provide an on-site ATM for customer convenience. However, be aware that these ATMs often come with service fees, which can range from $3 to $5 or more per transaction, in addition to any fees your own bank might charge. While some dispensaries might offer to cover or reduce these fees, it is not a universal practice.

Before visiting, check the dispensary’s website or call ahead to confirm their accepted payment methods. This proactive step prevents surprises.