Understanding Restrictions On CBD Merchants

CBD products have seen explosive growth in recent years. Many consumers and medical professionals strongly believe in the health benefits that these products promise to provide. However, restrictions on CBD merchants can make it difficult for entrepreneurs to enter this explosive field.

CBD products can help with a myriad of issues such as pain management, sleep improvement, and issues with chronic injuries. This has many entrepreneurs wanting to enter this growing and lucrative cannabis industry.

Many of those entrepreneurs choose to start an eCommerce business to sell CBD products online. This can be in addition to a physical store location. In either case, merchants need a CBD payment processor in order to be successful and keep customers happy.

Unfortunately, regulations around CBD products are very fluid, both at the state level and the federal level. This has made it hard for payment processors and banks to offer concrete answers as to the nature of processing payments for CBD products.

In this article, we’ll go over the key areas and restrictions around CBD products when it comes to payment processing. We’ll also explain how high-risk merchant accounts allow businesses to continue selling CBD products so they can enjoy the benefits of this emerging industry.

Are CBD Products Legal To Sell?

One of the restrictions on CBD Merchants is the question of legality. In most cases, it is legal to sell CBD products. But there are variations between different states and what is legal. Much of this was due to the 2018 farm bill. It changed the regulation standards of hemp and CBD products.

Most states that do allow the legal sale of CBD products have a limit on the THC content. This legal limit is generally no more than 0.3% THC. 

A certain number of states still require a medical license for consumers to buy CBD products, but as long as they have the license, the business can sell to them. With a medical license, consumers can buy products in these states that contain higher concentrations of THC than what is allowed to the general public without a license.

A few states also have restrictions on how the CBD is derived. Some require that only hemp-derived CBD products and not those derived from cannabis. However, most states now allow cannabis-derived CBD as long as it contains less than .3% THC.

Overall, in every state CBD products are either fully legal or conditionally legal. Conditionally legal means either the THC content is restricted or a medical license is needed to buy products with higher concentrations.

As a merchant, it’s important to understand the legality of CBD products in your state before looking into obtaining a merchant account or looking to sell CBD online.

How Much Money Is Needed To Start A CBD Business?

Another restriction on CBD Merchants is the question of start-up costs. One question that is often asked is, how much does it cost to start a CBD business? Upon learning that CBD is now legal, many entrepreneurs want to enter this growing field.

Your least expensive option for starting a CBD business is choosing an ecommerce store. You can avoid costly leases and other expenses that go with a retail location. Generally, you can also get set up much faster by going the ecommerce route.

You will need a high-risk merchant account in order to receive payments from customers. Below, we’ll explain these restrictions as well as how to get your own high-risk merchant account to help you start a CBD business.

Are CBD Products High-Risk?

The next restriction on CBD Merchants is the high-risk status of the industry. When it comes to processing credit cards, some items or services are considered high-risk. This is not a governmental designation but instead is based on criteria from banks and processors who issue the credit cards.

Chargebacks

High-risk products or services are products that have a higher rate of chargebacks compared to other products. A chargeback is when a consumer disputes the charge with their issuing bank. This can be due to several reasons, including dissatisfaction with the product.

Transaction Volumes

Another issue that causes processing to be considered high-risk is large transaction volumes. This can either be per-purchase or even on monthly volumes. CBD products tend to have higher ticket amounts, so this is another reason for them being considered high-risk.

Fraud

Next, there is the rate of fraud. Some products have a high rate of fraud as criminals with stolen credit card information tend to purchase these products so they can easily resell them. Any item that can easily be sold for cash on the black market can be considered a target for fraudsters. Merchants who sell these kinds of items may be considered high-risk.

Mislabeling

Last, a recent study from Penn uncovered that around 70% of CBD products sold online have been over or under-labeled. Which could cause potential negative effects on consumers. 

Because of all these factors, CBD and cannabis credit card processing is considered high-risk. However, merchants shouldn’t be discouraged. Just because CBD is high-risk doesn’t mean you can’t run a very successful online CBD business.

You just need a trusted partner who understands the high-risk marketplace and CBD credit card processing. Payment processors like ECS payments are leaders in the high-risk and CBD processing space. If you need a high-risk merchant account, contact ECS Payments to learn about our CBD payment solutions.

What If I Sell CBD Without A High-Risk Merchant Account?

Some sellers often wonder if they simply conceal the fact that they sell CBD, perhaps they can use a regular merchant account and get around the typical restrictions with CBD merchant processing. They may also do this to try to avoid the higher terminal fees or other fees with a high-risk account.

This is a terrible strategy and one that will often set your business up for failure.

The reason is that such a setup is considered fraudulent by virtually every institution involved in payment processing. Once you have been dropped by a payment processor for fraud, obtaining a new merchant account will become extremely difficult, if not impossible. So this one mistake can cause you to have difficulty starting businesses in the future.

Another reason is that most people who do this can usually get away with it for a short period, but once their business grows, which should be a good thing, they are usually caught as their processing volumes throw up red flags.

What this means is that right as your business is about to really take off, you will lose your merchant account. All your hard work and growth are now wasted.

This can all be avoided by simply securing a high-risk merchant account in the first place. It’s not hard to do when you work with trusted CBD credit card processors like ECS Payments which specializes in high-risk payments. Not only that, you set yourself up for long-term, sustainable growth with no risk of violating processing rules or guidelines.

Which Payment Processors Have Restrictions on CBD Merchants and Their Products?

While certain high-risk merchant account providers in the USA do offer CBD merchant services, many do not. In fact, many of the popular payment platforms that people first think of do not allow CBD products or high-risk processing of any kind.

Most mainstream payment services forbid the sale of CBD products on their platforms. This may seem like a bad thing, but many of those processors also charge higher fees and have rather poor service for merchants. In disputes, they almost side with customers, making them unfriendly towards merchants and businesses.

Stripe

Many people know of Stripe as a payment processor for small businesses. However, Stripe does not allow any CBD products and does not offer high-risk processing at all. 

Amazon Payments

Another common processor people ask about is Amazon Payments. While a big name, Amazon restricts the sale of CBD and THC products through Amazon Payments. 

Paypal

Paypal is another example of a well-known processor that many businesses turn to, but Paypal has many restrictions on what products can be sold via their payment system. This includes CBD products of any kind. These are not allowed by Paypal under any circumstances, regardless of what state you do business in.

High-Risk Processing With ECS

For a high-risk merchant account to sell CBD products, you need to work with CBD processing companies that specialize in this industry. For example, ECS Payments specializes in both CBD and high-risk processing.

A CBD processor like ECS Payments can work with your business to find a payment solution that works perfectly with your business while helping you to stay compliant with all processing regulations.

You’ll also receive a higher level of service and likely lower overall fees than going with one of the other processors mentioned. Don’t risk the future of your business with a processor that restricts what you can sell. Seek out a legitimate high-risk processor that understands the CBD business.

Other Restrictions On CBD Merchants

In addition to payment processing, there may be other restrictions that CBD merchants need to be aware of. These are not directly tied to processing, but do involve either banks or the shopping platform you may use to operate your business.

CBD Friendly Banks

If you sell CBD products as a business, you’ll need a business bank account to accept funds generated through the sale of your products.

It’s important that you find a bank that is CBD-friendly and allows the products you are selling. While most banks will allow this, some have restrictions on certain industries, including CBD sales.

When seeking out a business bank account, confirm with the bank that they allow CBD businesses, including the specific products you sell. This is especially true if any of the products are over the standard threshold of .3% THC.

Part of the reason for banks having restrictions on CDB businesses is simply the inconsistency between state and federal laws regarding CBD or cannabis. Banks are federally regulated, which means many simply default to federal guidelines on virtually all matters, even if states have different rules or regulations.

There are still plenty of banks that will work with CBD businesses, so you should be able to find one that works for you. The key part is confirming they allow the type of business you run before you open the account. Learning about a restriction afterward could cause your account or funds to be frozen, which can threaten your business operations.

E-commerce Platforms

Another area of restriction on CBD products outside of direct payment processing is the shopping platform you plan on using if running an e-commerce business.

If you host and run your own server, this is much less of a problem. In these cases, you only have to verify that your hosting service allows CBD businesses. Most hosts do allow these as long they are legal in your state and you run them in accordance with the law.

But still, it’s important to confirm that they are allowed before investing the time to set up your business on that host.

Next is the shopping platform you plan on using. If you’re not hosting your own website, it means you’ll likely choose to use an existing e-commerce platform such as Shopify, WooCommerce, or Wix.

Some of these platforms allow CBD products, while others do not. Some allow them but with restrictions. Because of this, it’s important to confirm that the sale of your specific product is allowed on the platform.

Shopify

For example, Shopify allows the sale of CBD products but with restrictions. You can use the platform but you can’t use Shopify Payments as your payment processor and will need a third-party processor such as ECS Payments.

Shopify also places restrictions on how you communicate with customers regarding CBD products and SMS contact is prohibited.

WooCommerce

WooCommerce is another common shopping platform and some very large businesses that use it to sell various products. When it comes to CBD, WooCommerce also has restrictions though.

If using a WooCommerce-hosted site, then CBD products are not allowed. Instead, you can still use WooCommerce but you will have to host the software yourself. So this may be a good middle-ground solution for CBD sellers that bridges the gap between your own website and a platform like Shopify.

If you host a WooCommerce site on your own web host, then you’ll also need a high-risk payment processor and merchant account to integrate with the shopping cart within WooCommerce.

Wix

Wix is another popular shopping platform and they have their own restrictions on CBD products but do allow them as long as you follow their guidelines.

You can host your website on their service and use their store builder to create and sell your CBD products. You do need to fill out their required forms before you start selling though. Also, you must be located in the United States and agree to their full list of terms when selling CBD products.

Like the other platforms, you will also need a payment processor like ECS Payments that accepts CBD products since the Wix default gateway does not.

As you can see from these examples, there are restrictions on CBD products but you can work around them and still sell them and have success. The common thread among all of these options is you must have a high-risk merchant account.

When you’re ready to start your CBD business, contact ECS Payments. We are leaders in high-risk processing and CBD processing for merchants all around the country. Let our experts help you find the best payment solutions for your new CBD business.

How To Apply For A High-Risk Merchant Account

If you’re new to merchant accounts and credit card processing, the idea of applying for a high-risk account may seem like a difficult process.

But with a little research and following a few tips, it can be very easy and most businesses can be approved in very little time when they work with a high-quality payment processor that understands their industry. Your payment processor will also offer access to a CBD payment gateway that allows this type of high-risk processing.

Register Your Business

If you haven’t already, you’ll want to have your businesses registered as a legal entity. This can be an LLC, a corporation, or whichever type of legal entity you choose to register as.

The reason for this is the registration will be needed to obtain a business bank account, which you will need to apply for your merchant account.

Obtain Or Prepare A Business Bank Account For CBD Sales

If you don’t have a  business bank account yet, this is the time to go out and secure one. If you have your business entity paperwork, this step should be relatively easy for you to do. As we touched on earlier, make sure the bank you choose allows CBD businesses and specifically the type of CBD products you plan on selling.

If you already have a business bank account, confirm that the bank allows CBD sales.

Choose a High-Risk Payment Processor

At this stage, you should have all you need to apply for your merchant account. Choosing a payment processor for high-risk products is an important decision and will have an impact on the overall success of your business as well as its ability to grow.

Most high-risk payment processors for CBD will allow you to start the application process online. They will generally ask for some basic information about your business to get the process started.

Documentation

You may need to provide various additional documents as well. These may have to be submitted physically either by mail or by fax, but sometimes they can be submitted electronically depending on other aspects of the application.

Credit Score

Your credit score and business history will likely play a factor when applying for a high-risk merchant account. Lower credit scores may still qualify, however, there may be stipulations or restrictions on your account to begin.

These may include certain processing limits or rolling reserves to cover any refunds or chargebacks. Over time, some of these restrictions can be lifted if your account remains in good standing.

Bank Account

Finally, the payment processor will also need to verify your bank account information. This can be done instantly and will generally require you to log in to our bank via a third-party verification service such as Plaid.

Those are the main steps in applying for a high-risk CBD merchant account. It may seem somewhat complicated, but working with an experienced processor makes things much easier. and often can approve an account in only a few days.

To get started, contact ECS Payments. Our staff can analyze your business and situation and offer you the best chance for approval with the lowest rates possible. 

Red Flags When Looking For A CBD Merchant Account

There are a few things to watch out for when looking for a high-risk merchant account, especially for CBD sales. With the fast growth of CBD sales, it has attracted some unscrupulous businesses that are selling merchant services with false promises.

Below are some things to look out for when choosing a high-risk merchant account provider.

Poor Customer Service

One of the most important aspects of a payment processor is customer service. This means they must have in-house staff to answer your questions. If a company is hard to get a hold of or only has email support, it may be a red flag

Instant Approval

Even in low-risk industries, a merchant account will generally take at least one or two days for the application to be fully approved and underwritten. 

High-risk payment processors who promise instant or same-day approval will likely not be able to deliver on that promise. Because of this, it means that the processor is already misleading you before you even start to work with them.

Instant bank verification is possible with many payment processors, but merchant account instant approval is different. Most reputable payment processors will require several days or up to a week to approve a high-risk merchant account assuming all documents and information are in order.

Getting Started With A High-Risk Merchant Account For CBD

Though there are many restrictions on CBD merchants, CBD sales offer strong growth that promises to continue for years to come as more states and even the federal government look to ease restrictions and solidify laws regarding CBD products.

But for now, these are high-risk products which means businesses involved in CBD sales need a trusted payment processor who understands the industry and how to navigate this area of credit card processing.

ECS Payments is at the forefront of CBD payment processing and we’ve been helping online and retail merchants sell CBD products with our innovative payment solutions.

Contact ECS Payments today to learn more about our CBD processing tools and high-risk merchant accounts. Our experts understand the cannabis industry and can help you find the right tools to succeed in this lucrative new space.

Frequently Asked Questions for CBD Merchant Restrictions