Merchant Accounts in the CBD Industry

A Merchant Account in the CBD Industry
Kolby Nielson
July 10, 2023

Ongoing research on cannabidiol (CBD), one of the main components of cannabis, suggests that it has various health-related uses. The growing CBD industry related industry makes the CBD market attractive for new businesses. On the other hand, inconsistencies, and lack of clarity in laws and regulations create some obstacles for hopeful entrants into the industry. Due to the problematic legal standing of CBD and other factors, banks view the CBD industry as high risk, so the biggest obstacle to starting your business could be figuring out how to secure a merchant account for your CBD-related industry business.

Special Requirements for CBD Merchants

As with many other plant-based/plant-derived substances, CBD has to fulfill certain requirements before it can be sold or shipped legally. One of the most important is a certificate of analysis. A certificate of analysis (COA) is a detailed report on the chemical analysis of a substance. It must be obtained from an accredited third-party laboratory, not the producer or seller itself. In most situations, the laboratory tests individual runs of CBD product, and a COA is issued for each run.

Many states require cannabis and CBD product labels to include a custom QR code that is linked to the COA. Be sure to check state and municipal laws/regulations for the state where your business is located as well as states that are the destination of your products, and make sure that your labels are compliant.

Shipping CBD Products

Because of restrictions on cannabis and hemp products, another challenge you will likely face is shipping your CBD products. The 2018 Farm Bill reclassified hemp and removed it from the Controlled Substance Schedules used by the Department of Justice and the Drug Enforcement Agency. Basically, the law separated hemp and marijuana, with hemp becoming legal and marijuana remaining illegal.

However, despite no longer being an illegal substance, hemp and hemp-derived CBD are still regulated to a certain degree, so there are requirements that you need to fulfill when selling or shipping it.

Generally speaking, the main requirements are as follows.

  • All required licenses (e.g., licenses to grow, process, or sell CBD products)
  • CBD products containing 0.3% THC or less
  • All growers/suppliers operate properly licensed businesses
  • Documented results (a COA, etc.) of testing by an accredited third-party laboratory

CBD Industry Shipping Requirements Differ by Shipper

As of this writing, U.S. federal law allows CBD extracts to be shipped anywhere in the U.S. The main restrictions on it are that the tetrahydrocannabinol (THC) concentration cannot be more than 0.3% and that the CBD must be derived from hemp. In addition, the specific carrier you use to delivery your products may have specific rules that must be followed.

For example, the U.S. Postal Service can carry CBD products, but the merchant must submit certain documents and certifications. For example, sellers must have a COA as mentioned above. Other carriers, such as UPS and FedEx, also have their own requirements. As is the case with CBD-related laws, carriers change their requirements from time to time, so be sure to check with the specific carrier for the latest information.

Choosing the Right Payment Processor

As has been mentioned, traditional banks and other financial institutions usually consider the CBD industry to be high risk. They are at least very hesitant about opening a merchant account for CBD businesses and may even refuse to consider it at all. If you do find a traditional bank that is willing to take you on as a client, the process of being approved will almost certainly be longer, more complex, and stricter in its requirements.

To complicate the matter even more, the process and requirements to open a CBD merchant account differ depending on the types of products being sold. There are many types of CBD product on the market, including oil, tinctures, lotions, and edible products. Approval for a seller of edible CBD products, for example, is likely to take longer than for a seller of CBD lotions.

You Need a High-risk Payment Processor

In most cases, you will need to use a high-risk payment processor. There are two main reasons for this. First is simply that it’s unlikely that a traditional or conventional bank or other financial institution will agree to opening a merchant account for your business, at least not at an affordable price. Second is that your high-risk business will benefit from having a high-risk payment processor. Because payment processors such as Zen Payments specialize in payment processing for high-risk industries, their expert knowledge and experience can be a great resource for your business, especially if you are just getting started and want to do it right.

That expert knowledge and experience will also go a long way toward protecting your business from the risk of fraud and high chargeback rates. You can avoid worrying that any little up-tick in chargebacks, etc., will result in your merchant account suddenly being closed, essentially shutting down your business because customers can’t pay you.

What You Need in a CBD Business Payment Processor

Most of what you need in a payment processor for your CBD business is the same as most other high-risk businesses. There are, however, a few things in particular that you should keep in mind when choosing a payment processor for your CBD business.

  • Integration with your system

There needs to be a good match between your system and the payment processor’s system. Some platforms for selling online may require you to use certain payment processors, for example. If you realize after the fact that the systems are a bad fit, you could be looking at a lot of wasted time and money putting together a new website, etc., that conforms to the processor’s system, rather than the processor making adjustments to be compatible with your system.

Be sure to ask potential payment processors about how easily they can integrate with your platform and system. You can even ask for details on how they would go about it.

  • Processing fees

Sadly, there are some payment processors that will attempt to leverage your business’ status as a high-risk CBD business to charge fees that are much higher than the actual market level. Be sure to do the necessary research so that you know what the going rate is for the services you want. In addition, don’t hesitate to ask for specific details of what the fees cover. That can prevent you from being surprised when startup fees, terminal fees, non-compliance fees, etc., start showing up on your bill. A clear mutual understanding of requirements and expectations will benefit both you and the payment processor.

  • Customer support

Even the best company experiences problems, whether it’s a mistake made by an employee or unreasonable demands made by a customer. A vital way to keep any loss to a minimum in such cases is to provide excellent customer support from your own company and to make use of excellent customer support from your payment processor. Situations may arise that require the kind of expert knowledge and experience you can only get from a good high-risk payment processor. Make sure that help will be there when you need it.

So, be sure to ask as many questions as necessary until you’re satisfied with the responses and clear on what you can expect and what will be expected of you. Our team at Zen Payments is happy to speak with you and find ways to help your business prosper, so please don’t hesitate to contact us.

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Kolby Nielson is a dedicated sales representative at Zen Payments, specializing in approving merchants and assisting businesses in their payment processing needs. His expertise and commitment have made him a trusted partner for countless businesses, ensuring smooth and efficient payment solutions.

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