A Guide For CBD Businesses Establishing a Merchant Account
Unless a business only intends to accept cash payments, credit card processing (via a merchant account) is critical. A merchant account is necessary for accepting credit and debit cards for all Cannabidiol (CBD) products, including oil and edibles. Despite the consistent growth of the industry, the majority of reputable banks and processors will not conduct business with cannabis or cannabidiol related companies due to the perceived risks. This has led to a loss of customers and sales by these businesses.
Obtaining a CBD Merchant Account
Establishing a merchant account for a CBD business is different than less speculative businesses due to the lack of regulation, which can lead to poor products and potentially higher chargebacks. This is just one of the reasons why an owner of a CBD business is unable to obtain a credit card processing account from a traditional low risk bank. The underwriting guidelines of most banks do not allow CBD businesses to receive approval for a merchant account. The best option is applying to a provider offering solutions for high risk merchants .
Understanding the CBD Laws
Local, state and federal governments scrutinize businesses selling cannabidiol products. Understanding the laws in the company’s jurisdiction is extremely important. In December of 2018, the Farm Bill was signed by President Trump to legalize hemp. This bill removed hemp, defined as cannabis (Cannabis sativa L.) and derivatives of cannabis with low concentrations of psychoactive compound delta-9-tetrahydrocannabinol (THC) (no more than 0.3 percent THC on a dry weight basis), from the definition of marijuana in the Controlled Substances Act. Prior to the Farm Bill, CBD and hemp extract were considered Schedule 1 substances. This category is the most restricted by the Drug Enforcement Administration.
There are variations of laws for each state regarding the legality of CBD and hemp products. If it is legal to sell CBD oil in the state the business is located in, the company must be in compliance with all regulations and obtain any licensing required. A copy of the license may be required when the business applies for credit card processing services.
Additionally, under the Federal Food, Drug and Cosmetic Act, all foods and dietary supplements containing CBD, as well as products with therapeutic claims, are currently illegal in interstate commerce. The changes in regulations have resulted in fear among some traditional banks / processors and excitement among others.
Credit Card Processing, Merchant Accounts for CBD Businesses
There are companies willing to work with certain CBD businesses. Specific documents are required to obtain a credit card processing account. This often includes:
• A valid driver’s license or government-issued ID
• Chargebacks below two percent
• The last three months of bank statements
• A fully operational and secure website
• If applicable, the last three months of processing statements
• Voided check
• An Employer Identification Number or Social Security Number
Providing the above documents does not guarantee the CBD business will be approved for a merchant account.
Steps for Obtaining a Merchant Account
There are steps a CBD company can take to improve the chances of obtaining a merchant account. The company should ensure their finances are under control. Consistently low balances or overdraft fees decrease the chances of approval. Any previous processing history goes a long way. Although previous history is not required, this is often classified as proof the business may be worth the risk for a processor to take on and service the account.
The most important step the business can take is determining how to keep chargebacks as low as possible. Businesses have been forced to declare bankruptcy or go out of business due to the need for credit card companies to reverse charges for disputed or false transactions. Not only can the business lose their merchant accounts, but they must pay large fees for chargebacks. Chargebacks show the business is either selling flawed products or has inadequate procedures, policies or support.
The refund and return policy must be clearly stated as well. All contact information must be clear to enable customers with issues to contact the company. This will help decrease chargebacks. All company policies should be displayed properly on the site. The policies should be included in shipping and confirmation emails. Customers need to be informed their credit card statements will reflect their purchases. This eliminates chargebacks if the customer does not recognize the company name on their statement.
In summary, while the rules and regulations regarding CBD payment processing are still a bit nebulous, there are high risk banks and processors willing to service businesses that operate in this space, on a case by case basis.