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The CBD business is supposed to explode, but selling it online is still a mess

The banking industry is still holding everyone back. But why?

By Dan Frommer on Wednesday, April 10, 2019 at 7:00 am

In this era of conspicuous consumption — one where the widespread legalization of cannabis in the US seems increasingly within reach — you might imagine one easy path to riches that involves CBD, the non-hallucinogenic substance that is meant to serve as a calming foil to marijuana’s better-known component, THC.

All you have to do is procure some CBD oil, design the perfect label gradient, toss it up on a Shopify storefront, and buy a few Instagram ads. Right?

In reality, it’s not that simple.

While consumer products containing CBD derived from hemp — which won’t get you high, but has supposed therapeutic claims — are increasingly popular, and theoretically legal, it’s still tricky to sell them. Especially online. Especially if you’re a startup or small merchant.

That’s because most industry leaders in e-commerce and small-business payment processing, including PayPal, Stripe, and Square, still don’t allow merchants to use their platforms to sell CBD, cannabis, or any related products.

That has forced entrepreneurs to use less savory payment processors, known as “high-risk” processors, which often come with onerous terms and demand a bigger cut of transactions. (“Vultures,” as one client describes them.)

The situation is a manifestation of one of the nascent US cannabis industry’s greatest fears: That giant companies, such as drugstore chains Walgreens and CVS — which recently announced they’d start selling CBD products in some stores — will quickly take over the market, leaving startups, including those founded by minorities, who were disproportionately punished when cannabis was illegal, and women, with crumbs.

“Like almost everything else, and especially often in cannabis, wealthy people who can afford to pay for big-money things, they get to skate,” says David Weiner, co-founder of New York-based Gossamer, which recently launched its first CBD product, a $65 tincture called Dusk, “engineered to help you rest,” and, like many cannabis startups, is on the hunt for a new payment processor.

“And smaller businesses, independent businesses — which are often run by women and people of color — get screwed over,” he says.

This feels backwards.

Shopify, Stripe, and Square have taken off because they make it easier for small businesses to thrive, offering commerce tools that often provide a much better experience — for both customers and merchants — than what giant corporations can make themselves. And the founders of these companies — mostly good-seeming people! — have gone out of their way to stand up to various forms of social and corporate inequality. So why aren’t they leveling the field — feeding the CBD ecosystem instead of throttling it?

The payment companies generally wouldn’t comment, pointing me instead to various terms of service and acceptable use policies.

But based on conversations with people familiar with the companies’ thinking, and reading between the lines, the problem seems to be the banking industry. While the 2018 US Farm Bill may have legalized the production and existence of CBD, it is still in a hazy legal and regulatory position. And until the big banks — which all of these mainstream payment providers heavily rely on — are legally comfortable dealing in CBD, the major processors’ only real choice is to ban it.

Each company has a slightly different way of putting it.

PayPal, for example, points me to its acceptable use policy, noting “PayPal currently does not permit the use of our payments platform for the sales of products containing Cannabidiol (CBD).”

Stripe bans “Cannabis dispensaries and related businesses,” “products and services with varying legal status on a state-by-state basis,” and “products that make health claims that have not been approved or verified by the applicable local and/or national regulatory body.” That doesn’t specifically say CBD, but it’s implied.

Square, which provides point-of-sale systems and credit card processing for many small retailers and coffee shops, also currently bans CBD products, according to a January 2019 post by an administrator on its message board: “CBD and Hemp products are still not supported on Square’s platform due to the obligations we have with card networks, and other financial institutions.”

As for Shopify, in the US, it seems you can generally get away with selling CBD products on a Shopify e-commerce storefront. But you have to use an acceptable payment processor — not Shopify’s or many other big ones. (Shopify, which is Canadian, will let you sell actual weed in Canada, where it is legal, provided you have the right license. The company didn’t respond to my request for information.)

Instead, to play by the rules, you often have to find and sign up for a high-risk processor, such as T1 Payments or others.

These processors often have stricter or more opaque terms, take a larger cut from transactions — say, 5% instead of 3% — and might hold a bunch of a merchant’s money in reserve to cover potential chargebacks or fraud.

Some entrepreneurs who’ve worked with high-risk processors tell me that they are not the easiest to find, or sometimes to do business with. When they work, they mostly work. But there is a cottage industry of independent brokers that isn’t always helpful or well-connected. Sometimes you have to set up an overseas entity and then funnel the money back to the US. Sometimes you’re just too small.

To work with Shopify — which many merchants prefer to use to host their stores — high-risk processors sometimes require special configuration, which can change. The whole process can feel like a game of Whac-A-Mole.

Things seemed to be looking up when Elavon, a large payment processor owned by US Bank, started accepting CBD merchants last year. But Elavon recently made an about-face, announcing in March that it was banning CBD sellers from its platform and giving existing clients 45 days to find a new processor.

“After several months supporting this merchant segment, it has become clear that the pace of an evolving Federal and State regulatory framework makes it extremely difficult to validate the qualifications required to operate within this industry,” the company reportedly emailed its CBD clients. Many are now scrambling with an extended May 15 deadline looming.

“For all of our efforts to be good actors in all of this, you just never know — it’s so volatile,” says Ashley Lewis, co-founder and CEO of Fleur Marché, an online “cannabis apothecary” that sells CBD starter kits “for life’s great challenges,” including Le PMS and Le Sleep.

“You can get the rug pulled out from you at any moment,” Lewis says.

Fleur Marché founders Ashley Lewis and Meredith Schroeder / Courtesy

And that is really today’s CBD industry in a nutshell.

It is still, to be sure, a legal gray area. While the 2018 US Farm Bill legalized hemp-derived CBD on a federal basis, it is still regulated differently in many states and cities. Topical CBD products may be regulated differently than edible products. The US Food and Drug Administration announced this month that it is holding a hearing on May 31 as it considers how to regulate cannabis products.

For now, the big banks are still in a crouching position on CBD.

While there are potentially billions of dollars to be made — one recent forecast projects a $16 billion US consumer CBD market by 2025 — it’s no surprise that the risk-averse payments industry is still waiting for more legal clarity.

A new bill, the SAFE Banking Act — which would “provide federal protection for financial institutions that serve state-authorized marijuana and ancillary businesses” and specifically “improve access of financial services to minority- and women-owned cannabis businesses,” according to Marijuana Business Daily — is working its way through Congress. If it becomes law, it could help open the floodgates.

In the meantime, we’re stuck in this early-adopter dichotomy where entrepreneurs have to keep changing their providers, but big businesses seem to be able to skate on by.

It is very difficult to imagine that Walgreens, or other big retailers like Barneys New York or Sephora, will be establishing foreign subsidiaries or setting up separate, high-risk processor relationships to sell CBD products in stores or on their websites. Or that these businesses would have launched CBD in the first place without doing legal and financial due diligence.

I reached out to Walgreens and CVS to help understand their position and preparation. Neither responded.

The new cannabis industry is an area I’ll be watching and covering regularly at The New Consumer .

Fad or not, effective or not, CBD has become surprisingly popular: Some 7% of US consumers polled in January by Cowen, the investment bank, reported using CBD as a supplement.

Update: In May, Square began an invite-only pilot to start working with a small number of CBD merchants. More here for The New Consumer members.

Hi, I’m Dan Frommer and this is The New Consumer , a publication about how and why people spend their time and money.

I’m a longtime tech and business journalist, and I’m excited to focus my attention on how technology continues to profoundly change how things are created, experienced, bought, and sold. The New Consumer is a newsletter and website supported entirely by your membership. Thanks in advance.

The banking industry is still holding everyone back. But why?

Compliant CBD Credit Card Processing

In store and online without the risk of shutdown.

Does this sound familiar?

A customer walks into your store, chooses the product they want to purchase and brings it up to the counter to buy it. You tell them the price, but then they hand you a credit card.

You regret to inform them that your business does not accept credit cards . The customer, without any cash on them, then has to put the product back and walks out of the store, not likely to return. They’ll find somewhere else, like a gas station, that accepts credit cards to fulfill their CBD needs. They prefer to pay with card, rather than going to an ATM to get a cash advance.

Or, maybe this is more relatable to your business: Sales are going great, and you accept payment from both credit cards and cash. The business is growing and more customers are coming in each day.

One day, you get an alert that your merchant account provider has dropped your business , no longer letting you accept credit card payments. For what reason? You’re considered high risk to your payment processor for selling CBD products, even though the products are completely legal and offer promising health claims, all while you require age verification for purchases. It wasn’t even your fault that you lost your account, but it’s the few bad apples that ruin it for everyone. You scramble around to find a new processor, one that will accept high risk business types.

Every processor you’re finding, though, has high fees that will take advantage of you for years. They know you’re desperate and think they can make a ton of money off of that desperation.

Your business needs a merchant account that won’t charge crazy high fees or cancel your account out of nowhere because you’re considered “high risk”. You need a processor that has experience with similar businesses and knows the struggles that you have already been through for trying to simply accept credit card payments.

Many CBD business owners think that it’s too hard to get a merchant account, or that if they find one, the fees will be far too high. For the most part, they’re right. But with Shift, your interests are put first. We want to be the merchant account provider that changes your mind.

What should you look for in a processor?

Many merchants will give their clients a price up front, but hide fees or stipulations in the contract that allow them to raise the price after about a year. As a merchant processor for CBD and other high risk businesses, here at Shift Processing, we are very transparent about our fees and offer no termination fees should you choose to end your contract with us.

Easy

When you accept credit cards at the point of site, it should be the last time you think about that transaction. You shouldn’t have any payment processing responsibilities beyond providing your customer with a credit card terminal and having them swipe the card.

Accept all Card Brands

If a certain card brand can’t be accepted by your processor, then you’re more or less right back to where you started. You could easily run into the same issues that you had before if a certain type can’t be accepted. Keep that in mind and get a payment system and processor capable of accepting all major credit cards.

Low Fees

Most processors will charge ridiculous rates to high risk merchants because they know that you are probably desperate for a processor. Get a merchant account that is cheaper than the rest, without hiding fees that will grow over time.

Can I get an online CBD Merchant Account?

If you’ve ever tried to sell CBD products online, you understand the depth of the struggle in trying to secure an online account. Shift Processing specializes in both brick and mortar and online cbd accounts with a 99% approval rate for our cbd merchants.

We understand that every business is different, and listen to each business owner to fully understand the best solution for your needs. This isn’t a cookie cutter business, and getting the right merchant account services for CBD can set you up for success for years to come.

If you’re looking for an online CBD merchant account, you’ve come to the right place. Our staff is trained to get to the bottom of what will work best for you while keeping the fees low so you can grow your business.

Does PayPal Accept CBD sales?

PayPal will technically approve CBD sales. But does PayPal allow CBD sales? A quick Google search will show that PayPal is notorious for shutting down the accounts of CBD businesses without warning and even holding their funds. PayPal stops accepting purchases of CBD businesses very frequently. Because of this, PayPal is widely regarded as poor to work with for CBD businesses.

An actual payment processor that has experience in high risk and CBD merchant processing and CBD payment processing in particular will be more beneficial to a CBD business looking to accept credit card payments.

Processing CBD sales through PayPal is a huge risk. If they decide that you are too high risk for them, they have the right to, without warning, shut down your merchant account. The lack of warning provided to you means that you won’t have time to find another processor before they decide to shut you down. You’ll have to rely only on cash purchases until you’re able to find a processor that is willing to partner with high risk businesses.

why not just accept cash?

You could just accept cash, like plenty of other CBD businesses, but that would severely limit your customer base. You could stick out amongst other CBD stores, or do exactly what they are doing.

Think about the necessity of accepting credit cards this way: Each customer that you have to turn away because of your inability to accept credit card payments is a purchase lost. But, how many sales are you actually turning down in the long run?

CBD Merchants who accept credit cards typically see a 20% higher ticket than their cash-only counterparts.

Each customer that you turn down will probably not come back again, because they’ll always assume that you can’t accept credit cards, even if you begin to accept them after they came in. Each customer that was initially turned down, then, could turn into tens of hundreds of dollars lost in future purchases by their assumption that you don’t accept credit cards.

So, being able to accept credit cards really will turn into countless purchases down the road as customers know they are able to use a credit card and come back to your business because of that convenience.

Why Shift is Good for CBD Businesses

Experience with High Risk Businesses

Shift has plenty of experience with “high risk” businesses just like yours. You’ll have a team of dedicated professionals to help you through the application and approval process. With a quick terminal set up, you can be accepting credit card payments in no time.

Experience with CBD Businesses

We’ve worked with both online and brick and mortar CBD businesses, and continue to do so because they trust us to process their payments at low rates and not cancel the merchant account.

Earning the trust of your business and satisfying your need for a credit card payment processor, just like the other CBD businesses, is our number one priority.

Low Monthly Minimums

It’s common for processors to require that you, as a business, continue to process a certain amount a month in order to stay a client, or else you’ll face an additional fee to cover for the amount of the minimum that was not hit. With Shift, the monthly minimum for our CBD Merchants is only $25.

Low Monthly fees

Unlike other high risk processors, Shift does not charge massive monthly fees in addition to the per transaction fees. Minimal monthly fees means more money in your pocket.

No rate increases

How does a rate decrease sound? The longer you process with Shift and demonstrate that your CBD business is not such a high risk, you may actually find that your rate will decrease over time from where it began.

Accept all card brands

From American Express and Visa, to Mastercard and Discover, our credit card terminals and POS systems can accept all major types of credit cards. This will keep your business from falling back into the original problem of only being able to accept cash.

What other processors offer

  • Stripe
  • PayKings
  • Square

Does Stripe accept CBD payments? Does Stripe allow CDB sales?

Stripe restricts CBD based businesses from accepting payments on their services. In fact, Stripe restricts any highrisk business in any industry, from the hemp oil and CBD oil industry to the gambling industry, from using their services. So while the product might be completely legal in your region, Stripe prefers to not take on that risk and will deny any CBD based businesses from using their services.

Since we a lot of questions regarding Stripe CBD sales and Stripe CBD payments, we’ll explain their policy. For trying to obtain a CBD merchant account, Stripe really isn’t an option for your business.

They have a policy against acquiring high risk clients. Since selling CBD is considered a high risk business, the Stripe for CBD policy is that your CBD business will not be allowed to process payments with them. Stripe CBD sales is a “no” for CBD payment processing.

Does Stripe accept CBD sales? No. But Shift does

Shift has plenty of experience with high risk businesses and knows what business owners need out of a processor. We put you, the customer, first and want to do whatever it takes to help your business succeed.

Paykings is almost exclusively a high risk merchant provider. This means that almost all of the businesses that they work with contain some element of risk. With that, they have a lot of experience processing for high risk businesses.

However, their standard fees start off at a fairly expensive rate, and with CBD payment processors having higher rates across the board than other high risk industries, will almost definitely grow even more costly.

Shift also has plenty of experience, both with high risk and low risk businesses. However, Shift has lower fees across the board than the rest of the competition, not just as payment processors for CBD.

Square is currently working on a credit card processing solution to allow them to be able to accept the payments on CBD products. However, this solution is currently just being tested with a few different CBD businesses on an invitation only basis. So, there could still be a while until Square has CBD ready payment processing solutions. Square overall, however, tends to have pretty high fees and usually only works well with small businesses because of those processing fees.

Up until the trial testing of a CBD processing option, Square has refused to process the payment of the majority of high risk businesses that try to process with them. For the few that have gotten Square to process their purchases, they found that Square would many times hold their funds and take a while before finally clearing the purchase and allowing the funds to go through.

Shift already has a processing history with CBD products and businesses at a fraction of the cost of other processors. With Shift, there is no waiting for the test version of a system of payment processing for CBD to be approved for the public. Instead, you can jump right in and begin processing CBD credit card payments in just a couple of days.

Get a CBD Merchant Account that allows you to process credit cards in store and online without the risk of shut down. CBD Credit Card Processing that works.