Why is Payment Processing For CBD Considered High-Risk?

The CBD market is booming! Many people are excited about the future of the industry. This is why there are hundreds of CBD business launches happening on a monthly basis. And you might be one of them. So you’re probably considering a merchant account for CBD payment processing.

You may be looking to expand your business by introducing CBD products into your lineup. Or you may be interested in accepting credit card transactions but need help understanding how a high-risk merchant account will affect you and why it’s necessary for CBD. This article should provide you with the proper insight to get you started.

What is CBD?

Cannabidiol, alternatively known as CBD, is naturally derived from hemp, a part of the cannabis sativa plant. It has been used for a variety of different purposes for thousands of years.

The cannabis plant is also the parent of marijuana. However, the difference between hemp and marijuana is the amount of THC (tetrahydrocannabinol) present. Which then differentiates the usage for each.

Hemp cannabis has high amounts of CBD and contains no psychoactive substance with under 0.3% THC. As a result, CBD from hemp has been widely sought after for its health benefits with no resulting psychoactive properties.

Whereas marijuana cannabis contains low amounts of CBD and over .3% THC. Therefore, its psychoactive properties create a mind-altering substance.

What Are the Benefits and Uses of CBD?

CBD has been studied and scientifically proven to offer numerous health benefits including but not limited to the following:

  • Antianxiety
  • Antibacterial and antimicrobial
  • Antidepressant
  • Antiemetic
  • Anti-inflammatory
  • Anti ischemic
  • Antioxidant
  • Control appetite
  • Treat asthma
  • Atherosclerosis
  • Control blood sugar
  • Improve bone density
  • Prevent bone disease
  • Treat cancer and reduce its side effects
  • Strengthening of the cardiovascular system
  • Treat epilepsy and seizure
  • Therapy for Glaucoma
  • Reduce inflamed intestines
  • Treat irritable bowel syndrome
  • Improve motor function
  • Neuroprotective
  • Manage pain
  • Treat PTSD
  • Tranquilizer for psychosis
  • Promote restful sleep
  • Reduce spasms/seizure
  • Regulate stress
  • Treat substance abuse
  • Vasorelaxant
 

With all of its health benefits, manufacturers have created many products to disperse CBD on or throughout the body. Such as through edibles, vapes, balms, creams, gels, lotions, oils, tinctures, sprays, capsules, pills, patches, and powders. 

CBD Industry Market Growth

The legalities and regulations for growing hemp and selling its products had significantly varied per state. This was prior to President Donald Trump’s passing of the Hemp Farming Act and the Farm Bill of 2018. Which legalized CBD products in all 50 states, with minor regulations. As a result, CBD is now treated and regulated more like any other consumer-directed health product. Such as essential oils and herbal teas.

With local and federal legislation easing up on CBD product regulations, this industry has significantly expanded. A growing number of merchants are stocking their brick-and-mortar shelves and online store inventories with the legalized CBD products that consumers are demanding.

In fact, the industry has boomed so much that Today, experts estimate the international CBD market to be worth about $5 billion. By 2025, CBD revenue is expected to be near $16 billion. And over the course of the next 5 years, the CBD market is estimated to reach about $50 billion.

This industry expansion would indicate a compounded annual growth rate (CAGR) from 21.3% up to 27.4% between now and 2028. Which makes the CBD industry one of the fastest-growing global markets.

In recent years, medical research on the health benefits offered by CBD and the cannabis plant has supported the federal government’s decision to offer more leniency on CBD regulations. Because of the new policy changes, new opportunities have been created for banks, payment processors, and merchants selling CBD.

Because of this, businesses have been hunting for the right merchant processing for CBD goods to work with.

How Do I Become a CBD Seller?

In today’s modern marketplace, the majority of consumer transactions are made with credit or debit cards. So, CBD merchants will need to find a platform that is willing to support digital payments.

To sell CBD online or in-person with digital transactions (credit and debit cards), you will need a CBD merchant processing account. Not only a merchant account but one with high-risk processing capabilities.

Merchants are unable to simply obtain a high-risk merchant account on their own. They would need to apply to a credit card payment processing company. A payment processor will have special privileges with banks to become an approved CBD merchant processor to facilitate high-risk credit card transactions.

High-risk payment processors have additional privileges to process transactions for merchants in industries that carry a potential risk of frequent chargebacks, fraud, and legal concerns.

CBD Merchant Accounts

As is the case with any new industry, CBD merchants may face their fair share of challenges. Despite the increasing legitimacy of the CBD market and its products as a whole, some merchants have found it challenging to lock down a high-risk payment gateway.

By establishing a high-risk CBD merchant account, your business, in this rapidly growing industry can significantly increase its customer base and improve its revenue streams. Without a high-risk merchant account, your business will have difficulty accepting digital payment methods.

Why is the CBD Industry High-Risk?

The newness of the CBD industry still poses challenges for merchants who need to accept credit card transactions for these products. This is why it will still be necessary to establish a high-risk CBD merchant account for digital payments.

But why do merchants need a high-risk account to process CBD payments? While CBD products in general are not risky, the newness of the CBD industry and the rapidly changing regulations can create issues down the line.

And even though the 2018 Farm Bill legalized hemp products federally, some regulations remain in place, the legal stipulations are still state-by-state specific, and some processors fear the laws surrounding the sale of CBD could eventually be rolled back—creating a potential payment processing nightmare. One they would simply rather avoid.

Other payment processors worry that the CBD industry could be prone to other issues, such as fraud and high ratios of chargebacks. So, because of these reasons, credit card processors will automatically categorize any cannabis, CBD, and hemp merchant as high-risk.

Because of this, dispensaries and CBD merchants will need to apply to a high-risk payment processing company to facilitate their digital eCommerce or in-store transactions.

But, with an influx in consumer demand for CBD products after a broader leniency in the United States, more credit card processing companies have chosen to take the actionable steps to obtain bank privileges for high-risk payment processing and merchant accounts for CBD businesses.

The Main Players For CBD Payment Processing

Before getting into the details of merchant accounts for CBD payment processing, it is important to understand the main players involved in this type of transaction.

The Payment Processor

Before you start accepting payments for your CBD businesses, you will need to understand which payment processors will be best for you. Many processors are reluctant to work with CBD companies. If you find a reputable high-risk payment processing company they can easily set you up with a payment gateway that can facilitate credit card transactions for your CBD sales.

You will need to keep in mind that high-risk payment processing will come at a price. To cover the cost of risky business, high-risk payment processors usually charge more than they would for low-risk or traditional merchants. So, it is best to work with a payment processing company with the right solutions and a pricing structure that will fit within your budget.

The Payment Gateway

A payment gateway is provided by a payment processor and it allows merchants to accept digital payments at the point of sale.

When a cardholder makes a purchase via your point-of-sale terminal or your website, the payment gateway pushes the payment information to the banks and card networks to determine the status of the sale.

You will need to find a payment gateway that can handle high-risk transactions. Most payment processors are equipped to integrate their gateway services directly into your website. These high-risk specific gateways may be more costly than traditional gateways, however, they will decrease the possibility of having your account frozen or dropped from platforms such as Shopify and Woocommerce

Men laying in front of a safe

The Bank

With CBD’s newness and industry legal and risk status still in dispute in certain states, many banks nationally refuse to provide bank accounts to CBD merchants. Make sure you have a merchant bank account with a bank that is CBD friendly so you run into no problem receiving your daily settlements.

What Banks Allow CBD Business?

Not all banks will allow merchant accounts for CBD businesses. But in the United States, a few banks do accept CBD businesses. Silicon Valley Bank was originally the main bank to accept CBD merchant bank accounts.

However, as of today, this bank is in the middle of financial controversy. But, Chase Bank is the largest to offer accounts to CBD businesses. Additional CBD-friendly banks include but are not limited to the following:

  • Abaca
  • Alterna Savings
  • Credit Union 1
  • Customers Bank
  • First Citizens Bank
  • First Federal Bank
  • Florida Capital Bank
  • Fresno First Bank
  • JBT Bank
  • North Bay Credit Union
  • NPS Bank
  • Partner Colorado CU
  • Safe Harbor Financial
  • TFNB
  • The MAPS Credit Union
  • The Numerica Credit Union
  • The Salal Credit Union
  • Timberland Bank
  • Valley
  • West Town Bank & Trust

Accept eCommerce Payments For CBD

With the explosion of the industry and its extensive set of benefits, CBD has become a popular product to add to merchant shelves as consumer demand continues to increase. As a result, you will want to be sure you can make it as easy as possible for your clients to purchase your product.

Online CBD payments can be an optional addition to your physical store, or it is an independent eCommerce business. To do this, you will need to set up a CBD payment gateway through a high-risk payment processor. And most processors are equipped to seamlessly integrate their payment gateway directly onto your POS system, terminal, or website

What Criteria Should You Look For With CBD Credit Card Processing Company?

Over the next 5 years, the CBD industry has been estimated to grow tenfold. This substantial growth projection has enticed merchants to consider selling CBD products in-store and online. And to do this, they will need an appropriate CBD merchant services account that offers high-risk credit card processing.

As a result of the influx in demand for CBD merchant processors, more companies have been offering high-risk payment solutions. However, even with more options, merchants should keep in mind that not all CBD credit card processors are created equal.

Therefore, when applying for a high-risk account at CBD [processing companies, remember to keep the following criteria in mind:

High-Risk Compatibility

First, as a merchant selling CBD, it’s critical that your credit card processing company is compatible with high-risk transaction processing. You do not need to find a processor that is only a high-risk processor, as there are some merchant services providers that are compatible with low and high-risk processing. But, we do recommend finding one that does have expertise in payment processing for CBD and high-risk industries.

Experts in high-risk processing are equipped to handle merchants prone to frequent chargebacks, fraud risk, and who may have legal and regulatory product concerns. Because the CBD industry is relatively new, it can hover in a legal gray area. Only certain providers chose to take on the risks associated with credit card processing for CBD companies.

Easy Integration With Your Current Platform

Next, you want to be sure your CBD payment processor offers easy integration with your current sales and website platforms.

There is nothing more frustrating than being required to reconfigure your entire business setup. From the software you use, to how your sales are initiated and completed. Altering how your business operates to integrate with a new CBD payment processing platform can be incredibly time-consuming and honestly, deflating.

In fact, changing the way you do business could affect your merchant-customer relationships. Which could negatively impact your business. It is best to avoid a CBD merchant processing company that makes it a requirement to switch to its platform.

Instead, it is best to opt for a processor that enables seamless integration services for their CBD payment processing solutions with a broad scope of eCommerce software compatibility.

POS System Options

Point-of-sale systems can be used as the motherboard of an entire business operation. They can help merchants to minimize time-sucking manual tasks during day-to-day operations and reduce budgets for additional staff and administrative business tools.

POS systems can help to streamline business operations, increase profitability, retain customers, and generate business intelligence with card-present and card-not-present transactions, employee and customer management, multi-location inventory, and accurate reporting tools.

It is recommended to find yourself a merchant service company such as ECS, that can be your one-stop shop for full-service solutions with easy integrations including POS systems, payment terminals, and all software for your payment processing needs.

Payment Processing Fees

The number one priority for a business owner is making money. But, as most know, it costs money to make money. So one thing you must be sure you are aware of is your cost of doing business versus your profit margin.

One sizable business expense is your credit card processing fees. Therefore, when you select your CBD payment processor, be sure you understand all the fees that would be associated with your merchant account. And make sure your payment solutions and the account associated with them are worth their cost. Processing fees that you may incur could include:

  • Interchange rates
  • Transaction, Authorization, and return fees
  • Monthly fees
  • Monthly minimums
  • PCI compliance and non-compliance fees
  • Hardware lease and set-up fees
  • Annual fees
  • Chargeback fees
  • Set up fees
  • Subscription fees
  • Software fees
  • Card brand fees
  • Network fees
  • Integration fees
  • Early termination fees
  • Etc…
 

Additionally, certain credit card processors may put high-risk merchant accounts on a rolling reserve. A reserve is intended to reduce the financial risk associated with taking on a high-risk merchant or a merchant that may acquire a high ratio of chargebacks.

The processor will keep a percentage of a merchant’s batch settlement and then release those funds slowly over time as the merchant proves they are reliable or go for a set period of time without incurring a chargeback.

Woman pointing at an interchange plus pricing sheet

Pricing Structures

Not only do you need to consider your potential processing fees, but you need to consider the payment processor’s pricing structure attached to these costs. Credit card processing companies generally charge merchants their fees in 1 of 3 pricing structures:

  • Flat-rate
  • Tiered
  • Interchange plus (interchange pass-through)
 

These pricing structures may not be one size fits all when it comes to the best deal. Meaning, one structure may benefit certain merchants more than another. The best rates would be dependent on ticket averages, monthly sales volumes, and even the common type of cards that your customers are using and how those payments are taken.

It is important to be aware that credit card processors for CBD products and high-risk merchant accounts will generally charge a higher fee compared to the fees that low or medium-risk merchants will pay for their accounts.

Try to contact different payment processing companies about the pricing structures they offer their merchants to determine what that would look like for your businesses. It will better help determine which provider would be best for your CBD business.

Fair and Reasonable Contracts

Now, considering the fees and the pricing structures, you must consider the entirety of the merchant processing agreement (credit card processing contract).

One thing is for sure, life is uncertain. So, if life throws a curveball your way and for some reason, you have to close up shop, you want to be sure you will not be penalized for it. Early termination fees are very popular among payment processors. So one thing you want to be sure of is that there is no early termination fee (ETF) in your contract.

Or, if there is one, be sure you are choosing a merchant service provider with a great industry reputation and economical pricing. This way you can be sure that you will be with them for the entirety of your processing contract.

On the other hand, not all payment processing companies will enforce a lengthy contract upon account approval. Some processors offer month-to-month contracts. But if you do choose a processor with a lengthy contract, be sure to look it over in depth because not all contacts are the same.

Each company’s fees and clauses will differ. So, be sure you allow yourself enough time to consider all your options and make sure you feel confident in the benefits and the stipulations that the processor will implement in your CBD business.

Great Customer Support

Lastly, your merchant processor for CBD or your hemp business should offer easy access to excellent merchant support when you need it. As a high-risk merchant, you should be prepared for tough situations and possible worst-case scenarios when offering online and in-person transactions. Especially for CBD-related products.

If certain issues arise such as down terminals, fraudulent transactions, chargebacks, and missing settlements, you should be able to reach a customer support representative instantly.

ECS’s in-house merchant services & technical support teams are here for you every step of the way including immediate support with any inquiry you may have for your credit card processing account or the equipment you use. We answer every merchant phone call in less than 45 seconds and every email is answered within the hour.

Open Your High-Risk Merchant Account Today!

Why Choose ECS As Your High-Risk Payment Processor For Your CBD Business?

There are plenty of payment options available to high-risk merchants and the process should not deter you from pursuing your CBD business. High-risk does, however, mean that your business will need to take extra steps to accept all types of payments.

Such extra steps include finding the right payment processor for your high-risk merchant account. A high-risk merchant account, such as the ones ECS provides, is for any type of merchant who poses a risk to a payment processor- legally or financially.

At ECS, we are prepared and equipped to handle high-risk payment processing. We also understand that every business has unique needs. That’s why we offer high-risk payment processing solutions, tailored to meet your specific business requirements.

Though these accounts can be costly to merchants, they are necessary to accept a wide variety of payment methods including credit cards, debit cards, gift cards, and ACH. With ECS’s high-risk payment processing, you will be able to accept all the above, plus the highest level of fraud detection and prevention, secure transactions, affordable rates, flexible terms, seamless integrations, POS and terminal options, and world-class merchant support.

To contact sales, click HERE. And to learn more about ECS CBD Payment Processing visit High-Risk.
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Shanna Sottosanto

Shanna Sottosanto

Financial Writer
Magna Cum Lade BA, Communication, California State University Channel Islands.

Omega Alpha, National Communication Honors Society, Lambda Pi Eta

I spend the majority of my free time as a professional portrait photographer, traveling when I can, and focusing on physical fitness, weight lifting, and nutrition.

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