Whether it is an oil, gummy, lotion, or even suppository, cannabidiol, also known as CBD, has quickly become one of the most popular health and wellness products on the market. This booming industry has prompted many people to launch their own CBD businesses, yet many are running into challenges selling their products online.
In order to be successful in this highly competitive industry, businesses must understand the complex world of CBD payment processing. Developing a strong relationship with a reliable payment processor will give your business a distinct advantage over competitors.
The Agricultural Improvement Act of 2018 removed hemp from the definition of marijuana. Hemp plants naturally contain little to no tetrahydrocannabinol (THC), the psychoactive compound that gets you “high.” As long as the THC level is under 0.30%, merchants can sell hemp-derived products, like CBD. While federally legal, state laws continue to vary and are subject to change. It is crucial that merchants stay up to date on all applicable laws.
The CBD Payment Processing Landscape
When you are ready to begin selling CBD products, it is essential to find a payment processor that works specifically with CBD merchants. Their in-depth knowledge of the complex and evolving regulatory landscape will allow your business to run smoothly.
CBD is Considered High Risk
CBD businesses are viewed as high-risk in the world of payments. The confusion between hemp and marijuana and the immense amount of legalities and compliance require additional due diligence, vetting, and ongoing maintenance by reputable payment processors. CBD merchants must comply with both federal and state laws, in addition to the rules set by credit card associations (Visa, MasterCard, Discover, and Amex) and regulatory bodies including the Federal Trade Commission (FTC) and the Food and Drug Administration (FDA).
Who’s Who in Payments
There are thousands of payment providers in the U.S., but only a handful who are reliable and successful within the CBD industry. As you research processors, it is helpful to understand that there are three types of payment providers. These include:
- Acquiring Bank (Acquirer)—the acquirer, or merchant bank, is at the top of the hierarchy. They ultimately house the merchant account, set the policies for their CBD program, perform transaction settlement, and are licensed members of the credit card associations (Visa and MasterCard).
- ISO (Independent Sales Organization)—ISOs are separate companies that perform payment processing services on behalf of the acquirer. This is the most common way to obtain a merchant account, as these organizations specialize in payment processing.
- Broker—Brokers are outside sales agents for ISOs. Although they do not issue merchant accounts themselves, they are able to resell products and services of various ISOs.
Questions to Ask Your Processor
Honesty and transparency are the two most important pieces of finding a payment provider that is best suited for your business’s needs. As you shop around, it is important to know exactly what you are getting into before signing up. You should not complete any merchant account applications until you understand all the terms and costs associated with that processor. To assist, here are some questions to ask:
- What are your rates and fees?
- Is there a long-term contract? If so, what is the cancellation fee?
- Is there a soft or hard credit check?
- Are there restrictions on certain types of CBD products?
- Is there a reserve?
A reserve is a risk mitigation tool used by processors, where they hold a percentage of your sales to offset any potential losses and other unforeseen risks like chargebacks.
Once you decide on a processor, the next step is to complete a merchant account application. In order to speed up this somewhat lengthy process and improve your chances of approval, I have created a checklist below for CBD e-commerce sellers. If you are using an LLC or Corporation, it is essential to have already formed the entity and opened your business bank account before applying. If you are an existing business and are looking to add CBD products to your website, you must notify your processor immediately. Make sure they can accommodate selling CBD, otherwise you might involuntarily be in the market for a new processor.
Website compliance can become one of the biggest friction points during the merchant account application process. CBD products are tightly regulated by the FDA and FTC. Maintaining a clean and professional web appearance also helps give your brand that extra level of trust.
Here is a list of important points that should be included in your CBD website. Even though some processors do not require each of these points for approval, having a proactive and compliant website prevents underwriting delays and gives an added sense of transparency to both the processor and your customers.
- Age verification pop-up or disclaimer in the footer
- FDA disclaimer in the footer
- Credit card logos displayed in the footer
- Contact information (phone number and email address)
- Secure checkout to protect cardholder data
- No misleading or unsubstantiated health claims
- Lab results for each product confirming the levels of CBD and THC
- List of ingredients in each product
With the above information in mind, take your time in finding a CBD payment processor that is best suited for you and your business needs. This partnership will allow your business to thrive in this growing industry.
Still Need Help?
If you are overwhelmed by the process of finding a CBD processor, frustrated with your current payment provider, or simply interested in saving your business money, I would love to help! As the Chief Revenue Officer of Maverick Payments, a leading payment processor and fintech provider for the CBD industry, I have extensive experience within the CBD space and other high-risk industries. As a full-service ISO, Maverick has a quick onboarding process focused on compliance, customer service, and competitive pricing. I am happy to share my knowledge and insight with you and answer any questions you may have regarding processing and CBD.