Manufacturing or distributing CBD products is a new and exciting opportunity with huge potential. Early adopters can carve out a lucrative business or expand their existing lines.
Consumer demand is well established. Supply has been legalized in most states and there is nothing stopping entrepreneurs from opening storefront outlets. However, there is a “But”.
Growing any business demands that you can accept card payments. Online is where the greatest sales opportunities lie but most card payment processors will not handle CBD business.
Without a CBD merchant account your business is greatly constrained. The good news is that you can get one when you know where to look. We show you how to go about it.
What is CBD and why is it controversial?
Cannabidiol (CBD oil) is a compound taken from hemp plants (cannabis sativa) also known as industrial hemp. These are NOT the cannabis plants grown for marijuana and hashish.
CBD contains a natural analgesic (painkiller) and anti-inflammatory properties. It brings relief to many people who suffer from chronic pain, seizures, anxiety and other neurological conditions.
Tetrahydrocannabinol (THC) is the psychoactive element in cannabis that gave rise to drug abuse. Hemp has only miniscule, harmless levels of THC.
Unfortunately, the very mention of cannabis creates concern.
The problems surrounding CBD are rooted in confusing laws and misinformation about CBD. Individual state laws sometimes conflict with the federal government’s interpretations. It can be a legal minefield.
What does the law say?
Right now, medical marijuana is legal in about 30 states and recreational marijuana is permitted in about 10 states. CBD oil is legal in all of these states but not in others.
The Agricultural Act of 2014 permitted states to pass laws allowing industrial hemp to be grown under certain conditions. It didn’t specify who could sell hemp derivatives and products.
Between 2013 and 2018, federal law (the Cole Memo) allowed state-authorized marijuana businesses to thrive. When that was rescinded, states still supported their own pro-marijuana laws.
That conflicts with the fact that marijuana has been classified as a Schedule One drug since 2016 just like heroin, cocaine and methamphetamines. Any cannabis plant products, including some forms of CBD, are still illegal.
One of the big blockers to easily obtainable CBD merchant accounts is what happens when CBD oil crosses state lines into places where it is illegal. That represents risk for acquiring banks.
Why card issuers make it hard to get a CBD merchant account
All banks hate risk. The fact that CBD oil comes from hemp, and the confusing legal situation surrounding all cannabis-related products, make it a high risk industry.
Producers and suppliers can be shut down if they are found in breach of the law at some future point. That would leave acquiring banks and card payment processors facing large levels of refunds and all the associated costs of chargebacks and so on.
The fact that the possession, use and sale of marijuana are still illegal under federal law is enough justification for some acquiring banks to not offer CBD payment processing solutions.
Until it matures and settles down, and the legal situation is finally sorted out, it will represent unacceptable risk levels to financial services underwriters. They just don’t know enough yet.
What is special about a CBD merchant account?
First, let’s understand the factors that are common to all high risk merchant accounts.
Each bank’s underwriters set their guidelines on which particular merchants may be considered high risk. It means different banks have different views on risk. The potential for fraud and chargebacks are always the two biggest concerns when assessing an industry for merchant accounts.
These are 7 factors banks take into account when assessing the risk level of a business:
- The industry the business operates in
- Where it is located
- Where its customers are located
- Its size, card payments record and credit history
- Number of transactions and average dollar value
- Level of chargeback ratio and likelihood of fraud
- Whether it operates online and to what extent
Some businesses, such as firearms and online gambling are obviously high risk. Others such as airlines and event ticketing may surprise you, but that’s because of chargebacks and other complications.
A CBD merchant account is special because the acquiring bank and processor are familiar with the business type, have assessed all the known risks of handling electronic payments and are able to try and mitigate the potential losses associated with this vertical.
The bank’s operating costs will be higher than for regular “low risk” businesses. Banks and card processors have calculated what they are likely to be and cover them through higher fees and tighter contracts for CBD merchant accounts.
These are at an acceptable level for merchants in the CBD oil business, enabling them to trade profitably. That is a win-win scenario for all parties.
What are the costs of a CBD merchant account?
Every application is treated separately but expect to pay around 2-5% above interchange rates.
You may also be subject to a longer rolling reserve, which is a period in which the card processor retains your funds against any chargebacks or refunds.
How to obtain a CBD merchant account
SecureGlobalPay are The Professionals in this field. We have shown thousands of hard-to-approve businesses get the best high risk merchant account for their particular needs.
You need specialist expertise to be successful and that is exactly what we provide.
SecureGlobalPay offers CBD Oil merchant accounts at the lowest rates in the industry.