Cashless ATMs Have Grown Into a $7 Billion Marijuana Loophole

The McDonald’s in Great Barrington, Mass., had hired extra employees to keep up with the flow of hungry customers from a marijuana shop nearby. What its managers didn’t realize, on a Saturday afternoon in December, was that the payment processing technology at the dispensary was misidentifying a purchase of pear-flavored THC chews as a withdrawal from an ATM—at the burger joint’s address.

The dispensary, Theory Wellness, didn’t know about the wrong address either. But why did the purchase show up as a cash withdrawal? Theory’s payment machine, which looked to a customer a lot like a card reader at a coffee shop, was in fact running a so-called cashless ATM. Instead of spitting out $20 bills, the machines work with software that programs them to send signals down debit rails, where they eventually run through a sponsor bank before triggering a sweep of funds from a customer’s account to the store’s. Still, the bank saw the sale of edibles as a cash withdrawal and reimbursed its customer the $2.75 they paid to use a debit card, just as it would have for an out-of-network ATM.