Mastercard Inc. has demanded that U.S. financial institutions block cannabis purchases on its debit cards, marking another setback for the legal marijuana industry.
Bloomberg News reported Wednesday that Mastercard MA, -0.39% sent cease-and-desist letters last week to banks and payments processors that facilitated debit-card purchases of pot.
“As we were made aware of this matter, we quickly investigated it. In accordance with our policies, we instructed the financial institutions that offer payment services to cannabis merchants and connects them to Mastercard to terminate the activity,” a Mastercard spokesperson told MarketWatch in an email Wednesday night. “The federal government considers cannabis sales illegal, so these purchases are not allowed on our systems.”
Cannabis industry executives criticized the move.
Morgan Paxhia, co-founder and managing director of Poseidon Asset Management, which runs the AdvisorShares Poseidon Dynamic Cannabis ETF PSDN, +4.09%, said Mastercard’s move marks another “painful reminder” of the current status of cannabis as a Schedule I substance under federal law, in the same bucket as heroin.
“Criminal organizations are seeing the headlines about Mastercard shutting off debit card transactions, which will likely result in more cash in legal cannabis retail stores and more crime,” Paxhia said in an email to MarketWatch.
Curaleaf CURLF, +6.79% CEO Matt Darin said medical cannabis is now legal in 40 states as a tax-paying, job-generating sector and one of the fastest-growing businesses in the U.S. that currently produces $3.7 billion in tax revenue last year.
“Current prohibitions on banking in cannabis are unfair to communities, law enforcement, cannabis workers and business owners,” Darin said in a statement.
Although medical and recreational marijuana is legal in many states, cannabis retailers are largely shut out of the U.S. financial system because it remains illegal at the federal level. Transactions at legal cannabis retailers are generally conducted through cash or debit cards.
A bill to open up the financial system to pot companies, known as the SAFE Banking Act, has advanced in Congress but still faces an uphill climb. Earlier this week, an analyst said no major pot-legalization breakthroughs in the U.S. are expected in the next 18 months.
It was unclear if Visa Inc. V, +0.56% — which has cracked down on ATMs at cannabis dispensaries — would also crack down on debit-card usage at dispensaries, and the company did not immediately respond to a request for comment.
Also read: Mastercard earnings bring the latest signal of healthy spending
Steve Gelsi contributed to this report
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