Quick Hit: The Risks of Cannabis PIN Debit Payments

Risks of cannabis pin debit payments

For dispensaries, the same scenario keeps playing out:

Retailers want to satisfy consumer demand for card payments by offering an alternative to cash. They’re sold a cashless payment solution that promises compliance but it ends up being shut down, leaving the dispensary high and dry.

This same scenario is playing out right now with PIN debit cannabis payments. Some of the biggest names in cannabis software are being shut down and Mastercard is telling payment processors to stop allowing marijuana transactions on debit cards.

What is PIN Debit?

A PIN debit transaction is an electronic funds transfer from a dispensary customer's bank to a merchant bank. Customers make purchases by entering a personal identification number (PIN) associated with their debit card at the point of sale, instead of providing a signature. The PIN acts as a secure authentication method, allowing the transaction to be processed directly through the customer's bank account. This type of payment is commonly used at retail stores, gas stations, and other businesses where customers use their debit cards for quick and secure transactions.

PIN debit is an instant charge that covers payment to the exact penny. Many people think debit is a compliant way to pay for marijuana products, but it's actually very risky.

This post explains why PIN debit payments are high-risk for the cannabis industry.

The risks of PIN debit for dispensaries

If you’re considering or currently using a PIN debit solution at your dispensary, it’s important to understand the inherent risks that come with the solution.

Common PIN debit cannabis payment risks include:

Misclassifying transactions

Because traditional debit transactions are in violation of card network policy, processors have to reclassify where transactions are coming from. Instead of listing them as dispensaries, they’ll say something like “Flower shop.”

Mastercard has even told Bloomberg, “The federal government considers cannabis sales illegal, so these purchases are not allowed on our systems.”

That means if a processor says they’ll enable you to accept PIN debit transactions, they’re not being transparent to companies like Mastercard about where those transactions are coming from.

Bottom line: The federal-level illegality of cannabis prevents credit payment processors, like Visa, Mastercard, or AMEX from knowingly participating with any marijuana businesses – meaning PIN debit is not a sustainable or safe payment solution.

Hidden (and higher) fees

While fees are completely normal for payment processing, many cannabis payment companies have developed unreasonable fee structures for dispensaries. It’s not unusual to see processors charge 3.5% plus $0.50 per swipe.

Let’s put that into context:

If a dispensary averages 100 transactions at $100 per day and the processor charges 3.5% and $0.50 per swipe, the dispensary is paying $146,000 per year for PIN debit payments. This pricing is absurdly expensive!

At first glance, a low percentage amount and a few cents per transaction don’t feel like much, but the added cost is dramatically higher than any other payment type.

In other industries, the average debit processing fee for retailers is only 0.74% per transaction, according to the Federal Reserve.

Predatory contracts

Predatory contracts in cannabis are often the result of one-sided promises and unfavorable terms for the signing business. The severity of these contracts can vary from generally unfair to illegal and unenforceable.

Watch for these predatory contract practices with PIN debit:

  • Long-term contracts. Many PIN debit processors will rope dispensaries into a 2,3, or even 5-year contract that they can’t get out of, even if the solution fails or is shut down.

  • Liquidated damages. This means if you terminate your contract with a merchant service provider early then you have to pay the average amount you paid in previous months, multiplied by the remaining months left on the contract.

  • Offering “free” hardware. When a company offers you “free” equipment, they’re making up for it somewhere. Usually, it’s in the form of higher rates or card transaction fees for cannabis payments merchants.

👉 Read next: How to avoid predatory cannabis contracts

predatory cannabis contracts

Alternatives to PIN debit for cannabis businesses

On the surface, PIN debit seems like an ideal solution for cannabis retailers. It offers them a way to accept debit cards and allows customers to pay to the exact penny.

The Complete Guide to Cannabis Payments

Plus, it has traditionally appeared that PIN debit is compliant for cannabis. So it’s assumed to be legitimate. But this isn’t true. As long as cannabis is federally illegal, there will always be a risk of PIN debit solutions and credit card processors suddenly being shut down.

Instead of PIN debit, try these options instead:

Compliant debit payments

Compliant debit solutions exist in cannabis, but they’re not always easy to find. Point of banking (sometimes called "cashless ATM") has the potential to be compliant, depending on the processor.

Be aware: Not all point of banking solutions are created equal. Any cannabis payment processor that claims to be entirely cashless is not compliant for cannabis. The solution may be in violation of network rules and is at risk of being shut down.

Before choosing a point of banking provider, triple-check that they are compliant and that network rules are being followed.


Another viable cannabis payment option is to accept electronic funds transfers from bank accounts.

This digital payment process facilitates transfers through ACH (Automated Clearing House) and refers to the process of transferring money between banks without checks, wire transfers, or cards.

The challenge with accepting ACH payments from your customers is the need for third-party solutions which can create friction in the customer experience during checkout. With these, customers have to first register through the third-party system in order to make payments at your dispensary.

For a seamless customer experience, your POS should be integrated with your ACH payment solution. In this instance, the customer simply scans a QR code to pay.

You can enable ACH payments today with the Flowhub and Aeropay integration.


While it comes with a number of issues, cash is still a compliant form of payment for dispensaries.

We don't recommend it, but if you're going to rely solely on cash then you'll need rock-solid cash-handling SOPs and workflows to avoid shrinkage.

👉 Read next: Cash management tips for dispensaries

flowhub compliant cannabis payments

Ready for reliable cashless cannabis payments?

Flowhub Pay is a long-term, compliant debit card solution for cannabis built directly with an in-house payment processor. There are no middlemen or re-sellers involved. It’s fully integrated and automated with Flowhub Maui point of sale, meaning it does not require manual data entry into Flowhub or on the terminal.

Flowhub also offers compliant ACH payments through our integration with Aeropay.

Schedule a payments consultation to learn more about Flowhub Pay and get approved in 1 day.

Will headshot

Will Zinsmeister

Will is passionate about providing more payment options for customers and retailers in cannabis. He uses data to help dispensary owners understand the value of cashless payment solutions and has been working in startup tech for the last 10+ years. Will is excited to continue building industry leading digital payment solutions across cannabis markets to make purchasing products as simple as any other industry. Connect with Will on Linkedin.

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