Adult-use cannabis retailers in at least four different states have filed lawsuits against a leading cannabis payment processor, alleging that the company failed to pay them what they’re owed.
Even though the majority of US states allow the sale of either medical or recreational cannabis, the ongoing federal prohibition of weed makes these transactions tricky business. Federal law prevents banks from opening accounts for companies that handle controlled substances, forcing most weed businesses to operate on a cash-only basis. While Congress continues to shoot down cannabis banking reforms, a number of startups have devised unique ways to bring the convenience of debit cards into the retail pot industry.
One of the most successful of these startups is California-based Linx Card, whose weed payment processing system has caught on in a number of states with adult-use legalization. The company allows customers to load up Linx “gift” cards with funds from their bank, either online or via terminals installed at weed shops. Customers can then use these cards to purchase products at participating stores, and the cash amount of each transaction is then transferred from Linx to the retailer.
But according to at least four new lawsuits, the company has allegedly failed to follow through on their end of the bargain. Reef Dispensaries, which operates pot shops in Arizona and Nevada, has made the largest claim, alleging that Linx owes them $1.5 million. Las Vegas-based Planet 13 claims Linx owes them nearly $950,000. Two other retailers in California and Colorado are reporting debts of around $115,000 and $40,000, respectively.
Linx CEO Patrick Hammond told Marijuana Business Daily that his company is well aware of the situation and intends to pay all retailers “in full.” The issues began last February, when First Data Merchant Services, the company that was handling Linx's payment card transactions, suddenly terminated their relationship. Hammond explained that a competitor released a fake dossier claiming that Linx was banking offshore, and “as a result of this dossier, the Linx processing facility (with First Data) was eventually shut down.”
First Data eventually filed a lawsuit in New York federal court claiming that they were holding $619,560 in funds connected with Linx transactions. Hammond said he believes First Data are withholding even more money than they claim, and is now working to convince the company to “agree upon the amount of held funds and get them released to the retailers” who have not yet been paid.
In the meantime, Linx has sparked up a new partnership with another payment processor, and has returned to business.