CBD Businesses: The Challenges of Setting Up a Merchant Account

Ezra Cabrera

Updated: February 20, 2019
CBD merchant account

As a business owner who sells CBD products – oils, creams, edibles, moisturizes, etc. – you are fully aware that these products are different from marijuana or marijuana edibles. However, knowing this does not mean you won’t face challenges when setting up a CBD merchant account. For instance, CBD products with ‘unsubstantiated’ health claims will find it very challenging to find a credit card processor.

CBD vs. Marijuana – What’s the Difference?

Unlike marijuana, cannabidiol (CBD) does not get the user high. This is an important distinction for people who want to use CBD-derived products for medical purposes, and not as a recreational drug.

When it comes to credit card processing, banks and merchant processors don’t recognize the difference between marijuana and CBD, and unfortunately, there’s nothing that can be done presently to convince them otherwise. If a bank or a processing company turns you down, it’s better you continue your search elsewhere.

Limitations for CBD Sellers

The ‘unsubstantiated’ health claims on CBD products cause a major hurdle in securing a merchant account. If your business makes a health claim that’s not verified by the FDA, your product will be categorized as ‘pseudo-pharmaceuticals’. Pseudo-pharmaceuticals are drugs that claim to have the benefits of a prescription drug but are not approved as one.

Many business owners think that if their CBD product does not make health claims, they can easily get a regular merchant account. Unfortunately, this is not turning out to be the case.

Businesses selling cannabis products, whether they make the user high or not, are considered high-risk businesses. The uncertainty of legality makes it difficult for banks and processors to ensure a business is adhering to state and federal regulations because they are continuously changing. This makes credit card processors more reluctant to qualify these types of companies.

Online processors like Square, PayPal, or Stripe, prohibit CBD businesses from availing of their services. Your account may initially go through, but there’s a huge possibility it will be shut down once they find out you are selling CBD products. To avoid the hassles of a shutdown, sign up with a merchant service provider that allows CBD sales.

Working with a high-risk processor does not automatically guarantee the approval of your merchant account. It’s the processor’s discretion whether they approve your business or not. Merchant providers outside the US may be more willing to offer you a merchant account, but it’s going to cost you more.

CBD Merchant Service Providers

Even though it’s challenging to find a high-risk merchant service provider, some are willing to take on CBD businesses.

PaymentCloud

PaymentCloud is a company that focuses on placing high-risk businesses. They rely on a network of third-party processors and partnering with banks in the United States and offshore to get you an account. While the company can’t approve every merchant, PaymentCloud has a relatively high success rate compared to its competitors. Additionally, they don’t charge application or account setup fees.

Easy Pay Direct

Easy Pay Direct caters to both low-risk and high-risk businesses. They’re one of the very few merchant account providers to advertise services for CBD companies. Unlike PaymentCloud, you need to pay for processing rates and account fees. Once qualified, Easy Pay Direct will set you up with a credit card processor or a domestic bank.

Durango Merchant Services

Durango Merchant Services partners with several banks and backend processors to offer full-service merchant accounts to high-risk companies like CBD businesses. They focus on working with eCommerce businesses and they have a great reputation for honesty and ethical sales practices, as well as fair pricing. However, just like any high-risk merchant account, there are some restrictions when setting up a CBD merchant account with Durango. Make sure to ask about these limitations it before signing up.

Square

Durango Merchant Services, Easy Pay Direct, and PaymentCloud are all full-service merchant account providers. This means that they are more suitable for established companies with a minimum monthly process volume of $5,000.

If you’re low-volume business or a startup company in a high-risk industry, Square is the go-to merchant service provider. When Square started its operations, they didn’t accept high-risk industries at all. Fortunately, in 2019 Square opened its doors to CBD businesses. This is a great upgrade for low-volume CBD companies that had to operate on a cash-only basis.

Finding a CBD Merchant Account Provider

When searching for a credit card processor for your CBD business, be sure to start with high-risk companies. SMB Compass works with CBD businesses looking to obtain a CBD merchant account. Our experts can board you with a Top 5 US Bank/Merchant Processor and have your account set up in three to five days.

To qualify, your CBD company should only sell hemp-derived products with a THC of 0.3% or less. Your business must also adhere to state, local, and federal rules.

Ezra Cabrera
Ezra Neiel Cabrera has a bachelor’s degree in Business Administration with a major in Entrepreneurial Marketing. Over the last 3 years, she has been writing business-centric articles to help small business owners grow and expand. Ezra mainly writes for SMB Compass, but you can find some of her work in All Business, Small Biz Daily, LaunchHouse, Marketing2Business, and Clutch, among others. When she’s not writing, you’ll find her in bed eating cookies and binge-watching Netflix.

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