Buying Marijuana With a Credit Card Just Got Easier

Federal guidelines for financial institutions provided some clarity for banks -- and, perhaps, credit card companies.

Feb 23, 2014 at 12:00PM

Weed

Source: Matthew Kenwrick.

The recently released guidelines from the Department of Justice and Treasury are being heralded as finally giving the go-ahead to banks to allow the legalized marijuana industry to bank like any other enterprise.

Basically, the government declared that chasing those involved with the newly legal pot business is definitely not at the top of its priority list.

Banks aren't the only financial entities standing in the way of the fledgling pot industry -- credit card companies Visa (NYSE:V), MasterCard (NYSE:MA), and American Express Company (NYSE:AXP) have been reluctant to allow their cards to be used for the purchase of legal weed -- but, that may now change.

An evolving situation
Last September, both Visa and MasterCard forbade the use of their cards at various medical marijuana dispensaries in California, probably because of a rumor that legal action was being considered by the U.S. Attorney against a specific dispensary in Oakland. Since January 1, when recreational use became legal in Colorado and Washington state, that stance has eased a bit.

While there has been no change in official policy, it appears the two payment giants are leaving the decision up to the local banks used in their networks. A statement by Visa in early January noted it will rely on the judgment of banks, given that the federal government "will not challenge state laws that legalize and regulate marijuana sales," according to the Denver Post. Though not commenting publicly, MasterCard seems to be following Visa's lead.

American Express, however, isn't taking any chances. The Wall Street Journal reported last month that the payments company was refusing to allow its cards to be used in any type of marijuana transactions, and the company kept a close eye on websites that request new contracts to enable them to accept the cards, just to be sure their policy is enforced.

That was then, this is now
With the new guidelines, American Express may soften its position. For Visa and MasterCard, the guidance could mean more profits -- without the card companies having to do anything extra on their end. But, despite the giant step taken by the Obama administration to clarify the situation, banks themselves still seem leery.

For instance, the president of the American Bankers Association has responded with caution, welcoming the guidelines, but noting banks that involve themselves in the marijuana trade could still face sanctions, regardless of the legality of the weed at the state level. An executive vice president of FirstBank in Colorado was more succinct, noting the guidelines do not increase his bank's comfort level enough to take a chance with the budding pot industry.

It seems clear a change in federal law will be needed to prompt many banks to tiptoe into the legalized marijuana business. In the meantime, those that do dive in will boost their profits -- and those of their credit card company partners, too.

Bye-bye credit card
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Amanda Alix has no position in any stocks mentioned. The Motley Fool recommends American Express, MasterCard, and Visa. The Motley Fool owns shares of MasterCard and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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