Marijuana dispensaries have come a long way in a short time.

When my stoner niece brought me to her favorite dispensary recently, I was blown away by what I saw. When it was time to make a purchase, we went to a kiosk, paid, took a ticket to the counter, and received the product. The staff never handled any money or payment cards.

Across the board, payment processing has gotten quicker, more sophisticated, and less fraud-prone. The technologies that can be used to verify identity and prescription info have become seamless. Why shouldn’t an industry as forward-thinking as this one be an early and enthusiastic adopter of the most efficient technologies?

By ditching cash, dispensaries save time, reduce fraud risk, and create an all-around superior experience for customers and employees. But how do they do it?

Here are 7 non-cash payment methods for MJDs.

1) Misrepresentation

Lying to the processor is — and has always been — the leading method for MJDs to process credit card transactions. An agent sets the MJD up using a false name or an incorrect MCC code, or arranges for another merchant to act as a straw man. Weed transactions are reported to the bank as something else. Once the merchant gets caught, it’ll be shut off for bank fraud. Why do MJDs use this method? Some feel they have no other option – the two major card brands prohibit the sale of marijuana products in the U.S.

Advantage: Allows merchant to process quickly and relatively cheaply.

Disadvantages: Not legal. If caught, merchant will be shut off for bank fraud.

2) Point-of-Banking

Here’s a method that gets around the bank fraud issue. In point-of-banking, cardholders use the ATM as an intermediary. This method requires a special ATM that’s loaded with proprietary software. When a consumer puts his PIN-based credit, debit, or ATM card into the ATM, he receives a piece of paper that he takes to the merchant. This eliminates the need to report and categorize the purchase type.

Advantages: No lying to the bank. The system receives authorizations from a decent number of credit and debit cards.

Disadvantages: Transactions must be done in fixed increments – usually multiples of 20USD. Requires a PIN. Can be expensive for the consumer, as many will be charged an out-of-network ATM fee or cash advance fee.

3) PIN Debit

I’m only aware of one bank that offers this. It’s similar to the point-of-banking method, but it tends to work better. By doing this, MJDs can take advantage of the regional debit networks, and they can ride those rails to avoid VISA’s and MasterCard’s systems. The acquiring bank knows what’s going on. This can be used for any amount of money that a debit will work for.

Advantages: No out-of-network ATM fee. Cheapest method for merchant and consumer.

Disadvantages: Requires PIN. Limited to credit cards.

4) ACH

This method rides the NACHA network rails for transactions. It’s fairly straightforward, and involves the same mechanism used for direct deposit, payroll, and vendor payments. In this case, the consumer is the payor and the MJD the payee.

Advantages: Cheap. NACHA hasn’t banned the transaction.

Disadvantages: Consumer must use his checking number – few people know it. More importantly, reversals are a bit too easy for most merchants.

5) Offshore

This is exactly what is sounds like: Merchants insert an extra layer between themselves and the transaction by using processing solutions in places like Asia and Mexico. This can allow CNP gateways to be used for processing – which wouldn’t be possible given that the transaction occurs in-person and face-to-face before being routed through the offshore processor. This method likely isn’t in compliance with some card brand rules.  

Advantages: It’s a fallback after other options have failed.

Disadvantages: Low authorization rates. Not clear whether it’s compliant with card brand rules.

6) Closed loop

In a closed-loop payment system, consumers pay for purchases using a form of payment – such as an app, gift card, or barcode – that can only be used at the MJD. The funding source can be a credit card, ACH, cryptocurrency, etc.

Advantages: Works well. Helps the MJD keep track of consumers, which is useful for compliance. Promotes better customer awareness, which helps merchants handle chargeback issues more effectively.

Disadvantages: Unclear whether this is compliant with card brand rules. Some commentators consider it a staged wallet that’s out of compliance if it’s mostly or exclusively used for MJ transactions.

7) Cryptocurrency

Now that crypto has gone mainstream, it’s no surprise that MJDs are turning to it too. Cryptocurrency can be funded by credit card and then used as tender. Other times, merchants add an extra layer through the use of a wallet solution.

Advantage: Arguably, this method is compliant.

Disadvantages: Cost, volatility, and the inconvenience/uncertainty with dealing with cryptopayments (e.g., wait periods, confusing wallet systems, etc.).