Understanding CBD Payment Processing: What you need to know

Navigating the complexities of CBD payment processing is one of the major challenges facing the industry. Merchants looking to participate in the CBD market must understand its issues.

Understanding CBD Payment Processing: What You Need to Know

The CBD industry has been accelerating in recent years, driven by the growing popularity of CBD products and the changing legal landscape surrounding the sale and use of these products. As with any burgeoning industry, businesses looking to participate in the CBD market face a number of challenges, and one of the most significant is navigating the complexities of CBD payment processing

This blog post aims to provide a comprehensive overview of CBD payment processing and equip businesses with the information they need to make informed decisions when choosing a payment processor.

The Growing Popularity of CBD Products

The cannabidiol (CBD) industry has exploded in popularity over the past few years, with a wide range of products hitting the market. CBD is a non-psychoactive compound found in the cannabis plant, and it has been touted for its potential to provide relief for a variety of ailments, such as anxiety, chronic pain, and inflammation, without the “high” associated with the consumption of THC.

The CBD Market Boom

According to market research, the global CBD market is expected to continue expanding at a rapid pace in the coming years. Increased consumer interest and awareness of the potential therapeutic benefits of CBD has driven sales of diverse products, including tinctures, capsules, edibles, and topicals. This rapid growth has led to the proliferation of many new businesses entering the industry, eager to capitalize on the demand for these products.

One of the reasons behind the boom in the CBD market is the increasing number of people who are turning to natural remedies to address their health concerns. With the rising popularity of holistic wellness and alternative medicine, people are seeking out natural, plant-based solutions to alleviate their symptoms. CBD, with its potential to provide relief without the use of pharmaceuticals, has become an attractive option for many.

Additionally, the growing acceptance of cannabis and its derivatives has helped to destigmatize the use of CBD products. As more people become aware of the potential benefits of CBD, the negative associations with cannabis use are slowly fading away.

Legalization and Regulation Changes Across the Globe

One of the main reasons behind the growth of the CBD market is the changing legal landscape surrounding cannabis and its derivatives. In recent years, many countries around the world have moved towards legalizing or decriminalizing cannabis, either for medicinal or recreational use.

In the United States, the passage of the 2018 Farm Bill federally legalized industrial hemp, which is the primary source of CBD, further paving the way for the expansion of the CBD market. This legislation removed hemp from the list of controlled substances, making it legal to grow, process, and sell hemp-derived products, including CBD.

In the European Union (EU) and other countries, additional strides are being made:

  • The European Court of Justice ruled in November 2020 that CBD should not be considered a narcotic under the 1961 UN Convention
  • The UK and European Court of Justice note that CBD is not to be classified as a controlled substance under the International Convention
  • CBD is no longer considered a narcotic substance under French, EU, or UK law

However, despite the legalization of hemp-derived CBD, the regulatory landscape surrounding CBD products remains complex and varies from state to state, country to country. While some areas have fully embraced the CBD industry and have established clear regulations for its production and sale, others have taken a more cautious approach, with some even banning the sale of CBD altogether.

As the CBD market continues to grow, it is likely that there will be further changes to the legal and regulatory landscape. For now, the industry remains a rapidly expanding and exciting space, with new products and innovations emerging all the time.

What is CBD Payment Processing?

Just like any other business, CBD companies require an efficient and secure way to process payments from their customers. Yet, CBD businesses often face unique obstacles when it comes to payment processing, primarily due to the industry’s classification as high-risk. The following represents some key considerations online CBD merchants need to make.

Role of Payment Processors

Payment processors are the intermediaries between the customer, the merchant, and the banks or financial institutions involved in the transaction. They facilitate the transfer of funds from the customer’s account to the merchant’s account, ensuring that payments are securely and accurately processed.

Payment processors play a crucial role in the CBD industry, as they provide a safe and reliable way for businesses to accept payments from customers. Without payment processors, CBD businesses would be forced to rely on cash transactions or other less secure methods of payment.

Challenges in CBD Payment Processing

The “high-risk” designation of the CBD industry is primarily due to the varying legality of cannabis products, as well as the lack of clear, consistent regulations governing the sale and use of these products. As a result, many traditional payment processors are unwilling to work with CBD businesses, fearing potential legal repercussions and increased incidence of chargebacks and fraud.

One of the biggest challenges facing CBD payment processing is the lack of access to traditional banking services. Many banks and financial institutions are hesitant to work with CBD businesses due to the industry’s high-risk designation, leaving many businesses with limited options when it comes to payment processing.

However, there are a growing number of payment processors that specialize in working with high-risk industries like CBD. These processors have developed specialized tools and processes to help CBD businesses manage the unique challenges of payment processing in this industry.

Another challenge facing CBD payment processing is the constantly evolving legal landscape surrounding cannabis products. As laws and regulations change, payment processors must adapt to ensure that they are operating within the bounds of the law and providing their clients with the most up-to-date information and resources.

Despite these challenges, the CBD industry continues to grow, and payment processors are working hard to keep pace with the evolving needs of businesses in this space. With the right payment processing partner, CBD businesses can ensure that they are able to accept payments securely and efficiently, allowing them to focus on growing their business and serving their customers.

Choosing the Right CBD Payment Processor

Finding a reliable payment processor that understands the unique challenges of the CBD industry is crucial for businesses looking to succeed in this highly competitive market. While there are a limited number of processors that specialize in serving high-risk industries like CBD, businesses should exercise due diligence in selecting the right partner for their needs.

When evaluating potential CBD payment processors, businesses should focus on several key factors, including the processor’s experience in the CBD industry, their understanding of the legal landscape, the fees and rates charged, and the quality of their customer support. Additionally, businesses should ensure that the processor is capable of handling the different types of payments they will be accepting, including credit and debit card transactions as well as emerging payment methods like mobile wallets and cryptocurrencies.

Top CBD Payment Processors

Several reputable payment processors already cater to the needs of CBD businesses, including companies like Square, PayKings, Vendo Services, and T1 Payments. These companies understand the unique needs of the CBD industry and have developed their systems and infrastructure to accommodate these requirements. When comparing these processors, businesses should thoroughly research the features, fees, compatibility with their existing systems, and the level of support they will receive.

Navigating the Complexities of CBD Payment Processing

Operating in a high-risk industry like CBD entails managing various challenges associated with payment processing. These challenges include securing a high-risk merchant account and staying compliant with laws and regulations governing the sale of CBD products.

High-Risk Merchant Accounts

Due to their classification as high-risk, CBD businesses often require special high-risk merchant accounts to process payments. These accounts are provided by banks and other financial institutions that recognize and accept the inherent risks associated with these types of businesses. High-risk merchant accounts often come with higher fees and stricter terms and conditions than those offered to low-risk businesses, so it’s important to compare different providers and negotiate the best possible deal for your CBD business.

Compliance and Regulations

One of the key challenges facing CBD businesses and their payment processors is understanding and adhering to the often complex web of laws and regulations governing the U.S. and European CBD industry. This includes staying abreast of changes in federal, state, and local laws, as well as ensuring compliance with any industry-specific guidelines or best practices pertaining to the sale, marketing, and packaging of CBD products. It’s advisable to work closely with experienced consultants or legal advisors to ensure your business remains compliant at all times.

Tips for Streamlining Your CBD Payment Processing

Successfully navigating the world of CBD payment processing requires diligence and proactive planning. Implementing best practices, reducing chargebacks and fraud, and securing a trustworthy payment processor can help ensure smooth transactions and the long-term success of your business.

Implementing Best Practices

When it comes to payment processing, adhering to industry best practices can significantly reduce the likelihood of encountering issues or complications. For CBD businesses, this means remaining transparent about their products and practices, maintaining accurate and up-to-date recordkeeping, clearly displaying the terms and conditions of their transactions to customers, and regularly monitoring changes in regulations to maintain compliance.

Reducing Chargebacks and Fraud

Chargebacks and fraud can be costly for businesses, particularly in high-risk industries like CBD, where payment processors may charge higher fees for each chargeback. To minimize potential chargebacks, businesses should implement strict fraud prevention measures, provide exceptional customer service, and ensure that their return and refund policies are clearly communicated to customers.

The Bottom Line

By understanding the complexities of CBD payment processing and following the strategies outlined in this blog post, businesses operating in the CBD industry can increase their chances of finding a reliable payment processor that will allow them to flourish in this rapidly growing market.

Contact us if you’re curious about how Vendo helps maximize CBD merchant profits. Learn more about our payment processing services for CBD merchants in the high-risk category.

About Vendo: Vendo offers comprehensive payment processing services to e-commerce merchants. Our innovative, AI-powered tools offer merchants simple, secure, and seamless payment solutions, along with expert customer support from integration to end-user concerns. Our expert team works 24/7 to shape your vision into reality.