Thinking about shifting your CBD sales to online? Your storefront CBD business has proved to be successful and now you want to expand your reach by introducing online sales.
This is an exciting and lucrative industry to be a part of, and you know the product will help you grow your business. But you call your payment processor only to find out they will not honor processing for CBD.
So, you try to get quotes from other providers only to be met with cold shoulders and unfamiliar terms:
“What’s a Certificate of Analysis?”
You were so excited to start selling CBD online; now it feels like your project is over before it even started. Why are the barriers to entry so high, and what can you do to overcome them?
Luckily, there are answers to all your questions about CBD payment processing online, and Electronic Merchant Systems is here to help set the record straight. We’ve supported innovative businesses since 1988, and we don’t plan to stop anytime soon.
In this article, we’ll go over what CBD is, why it’s sometimes considered high-risk, what payment processors require CBD merchants to provide for a merchant account, and what you should look for in a processor before signing a deal. Let’s get started!
- What is CBD?
- Why is CBD Considered 'High-Risk," and What Does That Mean?
- What Do CBD Processors Look For?
- What Should You Look For?
- What’s Next?
What is CBD?
CBD stands for Cannabidiol, one of over 100 different types of cannabinoids. Cannabinoids are compounds in cannabis and hemp that interact with the human brain’s endocannabinoid receptors. Cannabis and hemp are almost the same plants, but cannabis holds much higher amounts of Delta-9-Tetrahydrocannabinol (THC), the psychoactive compound that creates a high.
Unlike THC, CBD is not psychoactive and won’t get you high. Instead, it offers other benefits such as reducing anxiety, helping manage pain, and much more. Users of CBD can reap its medical benefits by administering it by vaping, applying topical ointments, or ingesting it via edibles and tinctures.
After the 2018 United States Farm Bill was passed, hemp became eligible for legalization. This means that hemp and its cannabinoid derivatives, including CBD, are no longer Schedule I controlled substances. This has opened the market for CBD to be sold as holistic medicine and harvesting hemp to make materials such as clothing, bioplastics, and paper, to name a few uses for this unique plant.
Considering hemp and CBD have such versatile uses, it’s no surprise that the CBD market is expected to grow 15-fold in the next decade. Now is the best time to get into selling CBD, but it doesn’t come without its hazards. In fact, the CBD industry is considered high-risk if you sell your products online.
Why is CBD Considered ‘High Risk’ and What Does it Mean?
If you plan on becoming an online CBD merchant, it’s essential to understand that by doing so, your business will be classified as high-risk. A high-risk merchant is a merchant that has been labeled as having a higher likelihood of chargebacks, fraud, or perceived to have greater odds of financial failure by payment processors.
This means that you’ll have to pay higher fees because of selling certain products or services. Examples of other high-risk industries include casinos, telemarketing sales, adult entertainment, and cryptocurrency, to name a few.
But wait – if CBD from hemp is legal now, why is it still a high-risk product? Well, it is, and it isn’t.
As we mentioned above, since CBD can be derived from either hemp or cannabis, there is an open door for people to sell illegal CBD derived from cannabis, not hemp. Now, if you’re operating a brick-and-mortar storefront and you sell CBD, there’s little to worry about in the way of high-risk designations.
Processors are chiefly concerned with online CBD sales.
When CBD is sold online, it’s much more challenging to ensure that no illegal products are sent in the mail or other delivery services. The high-risk status of CBD holds your store, your processor, and the financial institutions involved accountable.
Selling CBD online offers your business a clientele that stretches across the country, so it’s in your best interest to register your CBD payments as high-risk with your processor, despite the increase in fees.
Higher fees don’t sound that inviting if you’re a merchant. What happens if you sell CBD without letting your processor know?
Neglected to set up a high-risk account
Let’s say you own an online store and recently started selling CBD products. You don’t want to run through all the hoops of signing your business up for high-risk CBD sales with your processor, so you proceed with accepting card payments for CBD online anyway. All is well until you get a notice from your processor that your account with them has been terminated. Not just for CBD sales – every sale.
Now your business is forced to resolve the issue with your current processor or find a new one. It sounds like a headache that could’ve been avoided, and thankfully, it can be.
What Do CBD Processors Look For?
When shopping around for CBD payment processors, it’s essential to know which processors allow high-risk CBD processing in the first place. Processors like PayPal and Stripe don’t allow CBD processing or other high-risk products or services if you partner with them.
On the flip side, processors and merchant service providers such as Square, Payment Cloud, National Processing, and Electronic Merchant Systems (EMS) will provide high-risk payment processing for CBD sales. Generally, these processors will board CBD merchants with standards and criteria that the merchant must abide by to receive services.
One standard criteria item is for the merchant to provide a Certificate of Analysis (COA). This document is a certified lab report of an item’s chemical contents. In the case of CBD, the information should show that the CBD has THC levels lower than 0.3% by weight. There are trace amounts of THC in CBD, but 0.3%THC by total weight is the maximum federal threshold protected under the 2018 Farm Bill.
Payment processors vary in the information and requirements they need from you, but the fundamental items any reputable processor requires for online CBD sales include:
- Valid updated lab reports (Certificate of Analysis) for all edible, vaporable, and topical CBD
- Products need to have back ingredient labels.
- Billing descriptor company name must be included in the Terms and Conditions (Receipts) and must match the business name on the company website
- No flower/loose/seeds/ or pre-rolled products- including Delta 8-10 products above 0.3% (or 0.003 units) of THC
- Visa® and Mastercard® high-risk registration
These are just the standard criteria for the industry. Again, each processor and card network will have its standards. So, getting a detailed account of whichever partnership you plan on starting for your online CBD business is best. Processors want your business. They want to help you succeed, but processors need to protect themselves, considering the high risk and sensitivity of online CBD sales.
Now we have a better understanding of what processors are looking for, but more importantly, what should you be looking for?
What Should You Look For?
We know finding a payment processor for your CBD sales might be challenging. Always keep your business’s needs in mind and look for a partner to support your strengths and resolve your weaknesses. While not an exhaustive list, here are some crucial points you’ll want to look out for when signing up for online CBD payment processing. You’ll want as many benefits as possible when entering a high-risk vertical.
- Accepts All Major Credit Cards – Make sure you can receive payments paid with Visa®, Mastercard®, Discover®, American Express®, and so on. Considering that only 16% of Americans carry cash at all times, you’ll be setting yourself up for more sales by covering most, if not all, of the major card networks.
- Supports Omni-Channel Sales – This is a good rule of thumb for any business. As innovations in the payment industry offer consumers more ways to pay via online payment gateways, QR code scanning, SMS and email payment links, or NFC technology, it’s essential to be sure you can accept these payments for CBD.
- Transparent and Honest – You’ll already be subjected to more fees based on selling high-risk products, so inquire about any hidden fees or auto-renewal clauses. Selling CBD is lucrative, so some processors might take advantage of your desperation to get processing. Always practice due diligence when reaching a deal with a payment processor.
- Knowledgeable of Regulations – As discussed earlier, there is a distinction between legal CBD from Hemp and illegal CBD from cannabis. On top of that, states can still implement their laws to put tighter restrictions back on the market. Your processor must stay on top of any changes in regulations at the state and federal levels.
- Thorough and Patient – Neither the merchant nor the processor should want to rush the process at all. This is where our checklist from earlier comes into play. Make sure every item is accounted for and understood by both parties. You certainly don’t want your account suspended from the start because any item was left unaddressed. Always verify and confirm that you’re all set!
Preparing to set up payment processing for CBD can be daunting. We went over which CBD can be sold, why it’s high-risk, and what you and your processor need to be looking for, and we still didn’t touch on everything.
Don’t be discouraged. Some payment processors still want to take a chance and join you on your journey into this growing industry. Here at Electronic Merchant Systems, we’re proud to be one of those payment processors.
For over 30 years, we've actively supported our merchants by remaining a leading processor they can count on. EMS has stood by its merchant partners, and we plan to continue doing so by processing your CBD products!
To learn more, click below to visit our CBD payment processing page and get your online CBD business off the ground today!