eli5: why in the state of California, when you buy from a dispensary with a debit card, do they give you cash back?


i’m from an illegal state, so i go to a dispensary and i pay with my debit card and they handed me some cash back. why is that?

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In some situations, since dispensaries can’t process card transactions as banks don’t like dealing with illegal transactions, dispensaries mimic ATM transactions: you’re essentially withdrawing cash at the point of sale, and using some of it to pay for the goods, and the excess is returned.

Technically marijuana is still illegal in California since the law which make it illegal is a federal law. But there is no federal police to enforce growing and trading marijuana, only the smuggling. It is up to the state police to enforce these laws. And in California and many other states they have stopped enforcing this law. So it is still technically illegal, there is just no police to catch you.

But debit card processors do not want to be implicated in any criminal activity. There is a small chance that if things change the FBI could arrest a payment processor for helping organizing illegal drug trading. So payment processors want as little as possible to do with dispensaries.

I do not know the details of how things work which allow you to even pay with a debit card. But I would suspect that the dispensary is working more like an ATM. That way you are not paying for drugs with your debit card, you are just withdrawing cash and using this cash to pay for the drugs.

Marijuana in the US is in a weird semi-legal state where it is legal to various degrees in most states, but it is still illegal at a Federal level.

So a business that is perfectly legal as far as the State is concerned can still be shutdown by the FBI under certain circumstances. Generally speaking the FBI does leave legal dispensaries alone these days, but technically they could come down like the Sword of Damocles whenever they feel like it.

As a result banks don’t want to touch marijuana money because it opens them up to legal action. It’s at least theoretically possible that the FBI could seize the cash or charge the banks with being involved with the illegal drug trade. So they take the safe route and refuse to provide banking services to dispensaries.

This in effect forces dispensaries to operate as cash only businesses.

Some of them get around this by functionally acting as an ATM. You use a debit machine (likely registered to a different numbered company) to take out cash which can then be used to buy marijuana in the dispensary.

The important distinction is that the debit machine and the Marijuana business are acting as separate legal entities.