CBD Merchant Accounts – Your Green Light To Payment Processing

To say the CBD industry is blazing would be an understatement. U.S. consumer sales of cannabidiol (CBD) will surpass 1.8 billion by 2022according to Statista. If you are the owner of a CBD business, you must be working with a payment service provider who specializes in CBD payment processing/merchant accounts.

The CBD industry is considered high-risk as it is currently not regulated by the FDA as a dietary supplement. Payment processors and banks understand this, making it hard for CBD merchants to acquire a merchant account for CBD.

At Corepay, we understand how frustrating it can be when applying for a CBD payment processing solution. Not only do we boast two decades of high-risk credit card experience, but we also specialize in the CBD industry. Corepay’s top priority is to get your business approved and make sure you stay approved.

Whether your CBD business is relatively new or you are well-established, you’ve come to the right place for CBD merchant processing.

Corepay works with CBD merchants selling all CBD products and hemp products provided the THC percentage is under .3 percent.

We provide CBD merchant solutions for the following:

CBD merchant solutions

As the CBD industry expands and encompasses new products, Corepay works diligently to maintain proper service and provide exceptional service to our clients.

Corepay offers the following for CBD merchants:

  • Fast CBD account approvals with 24-72 hours
  • No application, annual, or set up fees
  • Risk mitigation through Order Insight by Verifi
  • Chargeback alerts
  • Rates as low as a blended 2.95%

Why Are CBD Merchant Accounts Considered High-Risk?

Since CBD is used for medical reasons and has not been approved by the FDA, this automatically implies banks and payment processing providers are taking on additional risk.

CBD is often used as an alternative to treating epilepsy, cancer, sleep deprivation, and anxiety. With this being said, there has been insufficient medical evidence to back up these claims.

According to Healthline, there is some evidence that cannabinoids can decrease the size of tumors. However, Healthline also states that it is far too soon to say that CBD is a safe and effective treatment for cancer in humans.

On July 282020, it was announced that a company, Summit Labs, voluntarily recalled a product as it contained lead.

As the FDA does not approve CBD products, banks and payment processors are taking a risk processing transactions, especially in cases like the above.

CBD merchant accounts are deemed high-risk by banks and payment processors for the following reasons:

  • Not approved by the FDA
  • State legislation
  • Reputational concerns
  • Chargebacks – Customer satisfaction can at times be questionable and CBD merchants can have a lot of card-not present transactions (CNP)

Lack Of FDA Approval

This is a major concern for CBD merchants when processing credit card transactions for CBD purchases. The only FDA-approved drug that includes CBD is Epidiolex. Epidiolex does not contain any THC.

Epidiolex contains a highly purified form of the drug substance CBD for the treatment of seizures.

The FDA has gone after several CBD companies for making statements regarding the medical benefits of CBD. 

As THC levels in CBD can vary, this leads to a risky position for payment processing providers.

If a CBD company is caught selling CBD with higher levels of .3 percent THC, the payment service provider risks taking a significant financial hit and reputational hit as well.

Since the FDA has not approved the use of ingesting CBD products, certain processing companies will only work with CBD merchants who are selling external CBD products such as oils or salves.

 Legislation Issues

Contrary to popular belief, CBD is not yet legal in all 50 states, and this is a primary concern for banks/processing companies. Currently, CBD that contains any levels of THC is banned from Idaho completely.

CBD product possession in the following states requires patient registration:

CBD requires patent registration in these states
  • Arizona
  • Arkansas
  • Deleware
  • Hawaii
  • Iowa
  • Louisiana
  • Mississippi
  • Utah
  • Montana
  • New Hampshire
  • North Carolina
  • Pennsylvania
  • Wisconsin
  • Rhode Island

Reputational Concerns With CBD Merchant Accounts

The fact that the FDA does not approve CBD makes it a significant risk for payment providers. A bank or payment processor’s reputation can be on the line when working with CBD companies, as there are still many unknowns.

Stories like Summit Labs, in which they sold a product that contained lead, cause a lot of uncertainty for payment service providers.

CBD is similar to the adult industry when it comes to reputational risks; however, CBD also introduces an element in which there are unknowns regarding health.

A CBD merchant that sells mostly CBD vapes or ingestible products may be viewed differently from a CBD merchant that deals mainly with external CBD oils, as vapes can introduce another dangerous element.

CBD Chargebacks

Chargebacks in the CBD industry differ from other high-risk industries such as online dating or adult content. Generally speaking, there aren’t as many chargebacks in the CBD industry, but they still exist, especially with online CBD stores.

To grab a quick understanding of chargebacks, a chargeback is a charge returned to a credit card after a customer successfully has disputed a transaction from their statement.

In the CBD industry, this is most prevalent with CBD subscription boxes. Chargebacks are commonly seen when subscription services are presented.

For example, someone signs up for a CBD subscription box. They decide they no longer wish to receive CBD packages, yet they forget to cancel their subscription.

The transaction may now be disputed with the cardholder’s bank, leading to a chargeback against the merchant. 

Another reason CBD merchants can see chargebacks is if the customer claims merchant error. Merchant error can be as simple as the customer claims the products aren’t as advertised, or the products have arrived in unsatisfactory conditions.

Working with a payment service provider specializing in high-risk credit card processing can significantly help reduce chargebacks, saving CBD merchants money.

Lastly, unproven claims of CBD’s beneficial health effects make it highly likely that a consumer will file a chargeback should they feel like CBD didn’t help with their anxiety, depression, or ailment they are experiencing. 

Furthermore, a lack of substantial medical evidence results in more chargebacks and plays into the reputational risk department. CBD has often been compared to the nutraceutical industry because both industries lack scientific evidence regarding medical claims.

CBD Industry Fraud

Fraud is rampant in all of the high-risk industries. CBD merchants can reduce fraud by selecting a reputable payment service provider that knows how to mitigate fraud.

To fight against fraud, Corepay offers chargeback mitigation and dispute management services to reduce the impact of chargebacks on your CBD business with our product, CB-ALERT.

How To Find The Best CBD Credit Card Processing Solution

Finding the best CBD credit card processing solution is challenging; we get it. The fact that you are reading this article now tells us that you are doing your research.

We recommend that CBD merchants fill out a few applications, compare rates, and have conversations with payment service providers.

Corepay would love to have the opportunity to work with your business, and we can guarantee highly competitive rates and outstanding service to our CBD clients.

Building relationships and speaking with others in the CBD industry is also strongly encouraged as they may be able to give you pointers and tips that you hadn’t thought about.

Here are some essential points to note with your merchant service provider:

  • Pricing: Keep in mind that with any high-risk merchant account, you are going to pay more in fees. At Corepay, we can offer a more affordable interchange-plus model as well as a the traditional merchant discount rate. With this being said, you can expect higher monthly and annual costs, as well as a rolling reserve for your CBD merchant account. The rolling reserve is meant to protect acquirers from instances of fraud, friendly fraud, and unscrupulous customers. This is where your processor withholds a certain percentage of your funds each month until the reserve is met. Keeping funds in your reserve account will help your business fight against chargebacks and disputes. 
  • Account Approval: Account approval time can vary depending on the industry. Be wary of merchant services that approve you instantly. This means the account was approved without an underwriting process. During an underwriting process, underwriters will determine the state of your business For example, if you signed up for a PayPal account, you will be able to start processing sales until they review your account and could ultimately terminate it.
  • Credit card processing hardware: Should your business be conducted online and at a brick and mortar store, you will need a credit card terminal or mobile processing system for payments. The terminal should be capable of accepting EMV payments and contactless payments as well. You can get hit with non-compliance fees for not having an EMV compliant processing machine with some payment service providers.
  • Contractual Agreements: CBD merchant account contracts can vary from one provider to the next. Some payment service providers will require that you pay a steep early termination fee (ETF); however, this can also be a negotiation point. The length of your contract can also be a negotiation point, depending on your provider. A typical CBD merchant account contract length is three years.
  • Support: eCommerce support can be crucial for CBD processing. At Corepay, we can set you up with our reliable payment gateway, SolidgateNOTE (CAN SOLIDGATE FILTER OUT CUSTOMER ADDRESSES WHERE CBD PRODUCTS ARE RESTRICTED)? – YES, MERCHANTS CAN BLACKLIST CERTAIN ZIPCODES WHERE CBD IS NOT PERMITTED BY LAW
  • Customer Support: It is of utmost importance that merchants work with a payment service provider with outstanding customer support. 

How To Apply For A High-Risk CBD Merchant Account

When looking for CBD credit card processing, you must ensure compliance with all regulations. CBD merchants who are selling CBD/hemp-derived products with THC levels of .3 percent can apply for their CBD merchant account.

It is important to note that Corepay cannot provide a merchant account for any cannabis products containing cannabidiol, cannabinoid, THC over .3 percent.

By filling out an application with Corepay, we can quickly get you approved and processing CBD transactions in no time.

You will need the following information when applying:

  • A voided check
  • A valid government I.D. (driver’s license)
  • Six months of processing statements, proving chargeback performance.
  • Articles of Incorporation
  • SSN
  • Fulfillment Agreement
  • Secure and fully compliant website

*While we cannot guarantee your approval at Corepay, we can promise that we will do our best to get you approved and processing transactions swiftly.

Are CBD Credit Card Processing Solutions Expensive?

Generally speaking, merchants will pay more for CBD payment processing as they fall into a high-risk category.

At Corepay, we offer our CBD merchants highly competitive rates, and we also waive annual fees, setup fees, and application fees. We believe a good payment processor will earn your loyalty rather than extort it with hidden fees.

CBD Processing fees can drastically vary from one provider to the next; however, it is worth noting that CBD merchant accounts are significantly more expensive than low-risk merchant accounts.

The main thing that CBD merchants can do to save costs is to reduce chargebacks. Should merchants get hit with a high number of chargebacks in a short period, they will see an increase in fees and risk having their account terminated.

Many banks will refuse to work with CBD companies as they are high-risk. It is important to note that an offshore merchant account might be required for your CBD processing, based on where your company is domiciled.

Discounted CBD Processing Rates

At Corepay, we offer a flat rate/blended merchant discount rate (MDR) and a pass-through mechanism referred to as Interchange Plus (ICC+) pricing.

MDR is our easiest pricing method to forecast expected processing costs as a simple percentage of turnover. It is essential to understand interchange fees as some “less honest” processors can pad interchange fees, ultimately taking advantage of merchants.

However, the Interchange plus model is the most transparent form of pricing for a merchant. Under this model, they are able to see what the true profitability of their account is to the acquirer. Conversely, without substantial processing history, forecasting a true effective rate under this model can be challenging. This is simply because the interchange fees can vary so much between credit cards, in addition to how they are presented to the merchant.

Corepay is happy to present your CBD business with a savings analysis before proceeding with the application process.

Why Is It Difficult To Find A Merchant Account For CBD?

CBD merchant accounts are difficult to find as banks and payment processors are worried about reputational risks.

While high-risk businesses typically deal with chargebacks, the CBD industry also brings legislative issues and health concerns into play, arguably making it even riskier than other traditional high-risk verticals.

In 2019, Elavon began accepting applications for CBD merchant accounts, and companies flocked to them. A few months later, all merchant accounts were swiftly closed after questions arose about the onboarding processing and ongoing compliance with state/federal regulations. Elavon stopped accepting CBD merchants and that they would be shutting down all CBD merchant accounts in 45 days.

Lack Of Quality Control In The CBD Industry

Quality control in CBD

The primary reason that Elavon terminated all of their CBD merchant accounts was that they were caught processing CBD that contained greater than .3 percent THC.

It is the CBD merchant’s job to assure that their products contain a legal amount of THC. Consumers cannot verify this information for themselves; therefore, they could receive products that contain zero THC or products that contain too much THC. 

This gets tricky for CBD merchants because it can become illegal in certain states should the THC levels be higher than .3 percent. 

Legal issues can swiftly arise when THC levels are higher than .3 percent. If an individual performs a drug test and tests positive for marijuana, this could be from their CBD products.

For this reason, the U.S. military has banned the use of all CBD products even if it’s legal under federal law. If a service member tests positive for marijuana, it could result in immediate removal from the service, regardless of whether it was from a CBD product.

In the result that the product contains zero THC, the consumer has now just paid a substantial amount of money for a product falsely advertised.

Hemp Merchant Account Solutions

Hemp merchants should follow the same guidelines as CBD merchants when applying for a merchant account.

Low-risk merchant service providers will not typically process hemp sales, and if they do, they can still terminate your account.

Corepay can quickly get you started with a hemp merchant account. Hemp is considered part of the high-risk industry, just like CBD, for the same reasons.

Are CBD Storefronts Still Considered High-Risk? 

CBD storefronts that perform mostly card-present (C.P.) transactions still fall into the high-risk category. While you typically won’t see many chargebacks at storefronts, CBD storefronts are still selling goods/products that are not yet FDA approved.

It doesn’t matter if you are processing CBD transactions at a brick and mortar location or processing online; you will still be considered high-risk.

What To Do If Your CBD Merchant Account Was Terminated

The first thing CBD merchants should do upon finding out that their account has been terminated is to find a high-risk payment processing solution quickly.

When your account is terminated, there isn’t anything you can do to speed up the process of reclaiming your withheld funds. Corepay will work with your business to get your account processing transactions swiftly if your account was terminated.

Be sure that you seek out a processing company specializing in CBD merchant accounts to avoid any further surprises.

Importance Of Keeping Your CBD Merchant Account In Good Standing

Like any business, keeping your merchant account in good standing is crucial to running a successful business.

Having an honest and trustworthy relationship with your payment processing provider is key to moving your business forward. Avoiding chargebacks and adhering to THC levels’ laws are the two principles that CBD merchants can follow to keep their accounts in good standing.

Here’s a thorough list of what CBD merchants can do to keep their accounts in good standing.

CBD Merchant accounts in good standing
  • Process a high, but steady sales volume, in accordance with your MPA.
  • Maintain a solid transparent history with banks and credit card processors.
  • Keep settlement accounts in good standing.
  • Limit chargebacks with strong customer support. Our partner CB-Alert will greatly reduce friendly fraud.
  • Stay current on all Federal and State Regulation changes. Notify processing partners of any potential issues.
  • Maintain THC levels under .3 percent.

Do Paypal, Stripe, Or Square Accept CBD Sales?

As of 2021Paypal does not accept CBD salesWhile Paypal is undoubtedly not a bad option for specific industries, they do not work with high-risk industries. Paypal is a quick option in which merchants can quickly start processing payments; however, merchants can run into severe consequences once Paypal reviews their account.

What happens is that CBD merchants will initially start making sales and processing transactions, in some cases up to several months, and then Paypal’s underwriters audit their account.

They deem the account to be high-risk, and they terminate the merchant’s account, withholding funds in the account for up to 180 days after termination.

Depending on how profitable the CBD company is, this can be highly troubling to the merchant. 

Unfortunately, at Corepay, we see many CBD merchants who come to us after having their Paypal account terminated. Once this happens, we do everything we can to get their CBD merchant accounts up and running again.

Stripe is similar to Paypal as it does not support anything CBD related. CBD is currently on Stripe’s restricted business list. Products containing THC and CBD are not allowed with Stripe.

If your company sells other products that comply with Stripe’s rules and sells as little to one CBD product, your account will be terminated until that product is removed.

When applying for a CBD payment processor service, always review their terms and services. 

Square recently started accepting CBD sales as of May of 2019. Square typically works with low-risk merchants, so this is new from Square.

Should merchants be processing CBD with Square, as always, be sure that you are doing everything in your power to keep your accounts in good standing. This can include limiting chargebacks and adhering to THC levels lower than .3 percent in your CBD products.

Why Choose Corepay For Your CBD/Hemp Oil Merchant Account?

At Corepay, we specialize not only in CBD merchant accounts but in high-risk merchant accounts. We understand what it takes to get CBD merchant accounts up and running and how to keep them growing.

Corepay offers completely customizable CBD credit card processing options, and we can also get you approved in as little as 24 hours upon submitting your application.

Your success is our success, and we can assure you that we can be your greenlight to CBD payment processing solutions.