The crackdown on cashless ATM transactions at legal cannabis dispensaries has landed at multi-state operator Trulieve Holdings’ (TCNNF) door, by way of a lawsuit filed in Arizona by an ATM service company.
Switch Commerce, an Irving, Texas-based company that provides ATM processing services, sued Trulieve and an assortment of that company’s Arizona businesses in Maricopa Superior Court in Arizona on Feb. 19 for allegedly using cashless ATMs in dispensaries to allow customers to use debit cards to purchase products.
Cashless ATM systems offer dispensaries an option to avoid becoming exclusively cash enterprises, despite violating the rules of both Visa and Mastercard.
About two years after announcing that it would be cracking down on improper transactions, Visa used secret shoppers during the first three months of 2024 and identified over a hundred shops with cashless ATMs that were using Switch’s system, according to the lawsuit. Visa also identified Colorado-based Pueblo Bank & Trust as being involved with the transactions.
Visa levied a $950,000 fine against Pueblo Bank & Trust, of which the company demanded $250,000 in an immediate payment with the remaining $700,000 temporarily suspended with the option to demand collection at a later date. Pueblo Bank & Trust then passed that $250,000 fine and $700,000 contingency to Switch. Switch, in turn, filed a lawsuit against Trulieve, seeking those damages.
The lawsuit charges Trulieve and its related Arizona businesses with fraud, negligent misrepresentation, unjust enrichment and conspiracy. The plaintiff seeks payment to cover the fines it incurred due to defendants’ alleged conduct, as well as an as-yet-undetermined amount of damages based on the defendants’ allegedly avoiding transaction fees it would have otherwise incurred from standard credit or debit card purchases.
Trulieve accused of acting with an ‘evil mind’
“Defendants acted with an evil mind, and their conduct was outrageous, oppressive, or intolerable,” said the complaint. “Defendants consciously and deliberately disregarded Switch’s interests and rights, creating a substantial risk of tremendous harm to Switch.”
Trulieve did not respond to requests for comment.
As long as they have existed, legal cannabis dispensaries have faced a dilemma with how to process customer transactions. They cannot typically accept credit or debit cards due to the federal prohibition of cannabis. That leaves cash as a payment option, which is also problematic because it leaves cash-flush dispensaries as targets for robberies.
In order to mitigate this problem, cashless ATMs have become commonplace in the industry. These ATM systems appear like standard credit or debit card transaction machines at the front registers.
“By using special software and hardware modifications to ATMs, or POS devices that are programmed to utilize the Terminal IDs of ATM terminals and mask their use as a POS device, merchants can set up a cashless ATM at their store that allows customers to use their card to purchase marijuana in a POS transaction although it appears to the processor, networks and issuing banks as an ATM transaction,” explained the complaint.
Transactions are typically rounded up to the nearest $10, with the difference being returned as cashback. Electronically the transaction appears to be a cash withdrawal. In reality, the dispensaries keep most of that cash to cover the cost of the purchased product.
“All ATM and traditional payment card networks have policies against accepting or facilitating POS purchases for marijuana products, even in states where marijuana may be sold legally,” said the 26-page complaint. “The policies are implemented in large measure due to federal prohibitions against the use of the banking system for transactions involving the purchase or sale of drugs or substances categorized by federal legislation as Schedule I drugs under the Controlled Substances Act.”
Alternatively, dispensaries can use stand-alone ATMs to allow customers to withdraw their cash before making their actual purchase.
“At that point, it arguably does not matter if the customer uses the cash to purchase marijuana because the network is not directly connected to the purchase,” said the complaint.
Legitimate or not, cashless ATMs have long been a frequent transaction method for dispensaries.
Two years ago, Puerto Rican credit union TuCoop sued a dispensary on the island for allegedly using a cashless ATM system. The defendant was a client of the credit union, which was seeking legal cover to shut down the defendant’s account. Ultimately, a federal judge tossed the lawsuit for lack of jurisdiction.
Visa issued a warning on Dec. 2 2021, saying cashless ATM systems that allowed customers to use Visa debit cards to purchase cannabis were against the creditor’s terms of service. Mastercard sent out a similar warning in July 2023. In both cases, the warnings were directed at financial institutions rather than the dispensaries that use those institutions.
