CBD Merchant Accounts: Everything You Need to Know

Posted on August 20, 2020

So you’re starting a CBD business? This can be a fun and fruitful endeavor. However, before you get started, there are a few things you should know about the logistics of CBD business banking. Particularly, those surrounding merchant accounts. 

Establishing a merchant account is a necessary step in any business, and a simple one, in most cases. However, due to the risks and regulations associated with the CBD industry, entrepreneurs will find that doing so for this particular business presents a new set of challenges. 

In this blog, we’ll break down everything you need to know about CBD merchant accounts to help you avoid any financially catastrophic complications down the road.

Why Is It Important to Find a CBD Merchant Account?

Unless you plan on selling your products exclusively from a brick-and-mortar shop that only accepts cash payments, you’ll need to set up a merchant account and payment processor (but more on the latter, later). 

So first things first: What exactly is a merchant account?

A type of business bank account, merchant accounts let your brand accept and process multiple forms of electronic payment such as debit, credit, and even ACH payments.

While technically inaccessible, these accounts serve to act as a gateway between your customers’ bank account and that of your business, ensuring that all transactions are executed correctly.

Naturally, merchant accounts are a vital part of any e-commerce business. 

CBD Merchant Accounts: Everything You Need to Know

Traditional Merchant Account Providers 

There are many favored, high-profile merchant account providers available to business owners. These traditional account providers are any entrepreneurs’ first choice on account of their reliability, great rates with low fees, and a user-friendly interface. 

Notable and preferred providers such as Square and PayPal are first on most retailers’ list. However, please note that there are many reasons why they will not work out. 

As mentioned above, due to the risks and regulations associated with CBD businesses, these key players may be difficult to secure. What’s worse, some retailers may find themselves approved by traditional merchant account providers, only to have their accounts revoked unexpectedly down the line. 

This will leave businesses unable to process payments, which will result in a loss of revenue, brand credibility, and even customer loyalty. These factors can be devastating to smaller or startup companies. 

So how is a startup CBD brand to proceed? Simply put, through the use of a high-risk merchant account. 

What Is A High-Risk Merchant Account (And Do I Need One)?

A high-risk merchant account is one that specifically caters to businesses and industries that do not qualify for traditional merchant accounts. Just like a traditional account, it allows you to accept credit and debit card payments, and temporarily holds funds in this “account” before depositing them into your actual business account once cleared. 

The difference, however, is that due to the high-risk nature of the businesses they cater to, these specialty accounts do not offer the same level of user-experience as their traditional counterparts.

For example, businesses working with a high-risk merchant account can expect to see higher rates/fees, stricter terms and conditions, and more restrictions in the form of payment types accepted.

How Do I Know If I Need a High-Risk Merchant Account For My CBD Business?

When dealing with high-risk businesses, banks have to take on higher risks by processing their electronic payments. To determine which businesses will qualify as “high-risk,” banks look at a number of factors, including the following:

Chargebacks

Because banks stand to lose money every time they are forced to return funds due to a credit card dispute, industries with higher chargeback rates are considered unfavorable.

Automated Billing

Customers are notorious for forgetting about recurring charges or subscriptions. Therefore, these types of transactions tend to have a higher rate of disputes.

Complicated Industry Reputation

And this is where CBD comes into play. Due to the complicated legal nature of cannabis and CBD, many traditional merchant accounts are very cautious when proceeding with CBD businesses.

Industries Associated With High-Risk

Some of the most common high-risk industries are adult products and services, online dating, online gaming, Bitcoin trading, pharmaceuticals, telemarketing, travel services, vaporizer and e-cigarette companies, cannabis products, and bail bonds.

CBD Merchant Accounts: Everything You Need to Know

Why Does the CBD Industry Require High-Risk Merchant Accounts?

CBD Legality & Regulations 

Thanks to the Hemp Farm Bill of 2018, from a federal perspective, selling CBD is legal. However, from a state or municipal perspective, things can fall into a bit of a gray area at the moment. And since many budding entrepreneurs may be unfamiliar with all of the changing laws, this lands it in the category of a true high-risk industry.

Credit Card Processing Risks

While some businesses may want to attempt the traditional route with their credit card processing, there are many reasons why this is a bad idea. You see, when using a traditional processor, many CBD businesses can and will get flagged due to the nature of the industry. This can leave them scrambling to set up an alternative account, which may take weeks — or months — to complete. Meanwhile, sales will come to a halt. This can be catastrophic to any business.

What Should I Look For In A High-Risk Merchant Account and Payment Processing Gateway?

If a merchant account acts as the intermediary between your business account and that of your customers, your payment processor acts as the credit card terminal, processing all electronic payments including debit and credit card transactions.

CBD Merchant Accounts: Everything You Need To Know

Just because you’re industry removes traditional banking accounts from your options doesn’t mean you don’t have any. As with many aspects of the banking world, there are predatory merchant accounts and payment processors out there, so it’s important to do your research and protect your business investment. Below are a few things to pay close attention to when considering your options.

  • High-Risk Availability

  • Easy Integration

  • Low Fees

  • Reasonable Contract Terms

  • Fast Payout Schedule

  • Payment Method Availability

  • Minimum Monthly Volume Requirements

  • Clear Terms of Service

When Can I Switch To A “Regular” Merchant Account Provider?

The good news is that not all CBD businesses need to use a high-risk merchant account for the long term. Once a brand reaches a volume of $250k per month or more, and sees a reduction of chargebacks, they’ll no longer be considered high-risk, and can then look toward more traditional merchant accounts, as mentioned above.

How Can I Make the Transition Smoothly?

So you’re ready to switch over to a traditional merchant account? Congrats! There are a few things to keep in mind, in order to make your transition as smooth as possible. 

Review Your Existing Merchant Account Contract. 

This is where you’ll learn things like 

  • Do I own my terminals or are they leased?

  • Does the contract include a termination fee? If so, how much is it?

  • How can my contract require me to cancel?

  • Can I wait for my contract to expire naturally? 

Do Your Research

While this may seem counterintuitive, just because you’re switching from a high-risk merchant to a traditional one does not mean you are making an improvement. Or at the least, not making as big of an improvement as you can be. Do your research. Get recommendations. Read reviews. 

Check Their Terms

Make sure your new merchant account provider accepts the same, or more, of the payment types you’re customers are used to. Suddenly removing one credit card type, for example, can lead to irate, and fleeting, customers. You’ll also want to review their rates, naturally, and the fine print of their contract

Don’t Lose Hope

Running a high-risk business may seem like a daunting task when it comes to banking and merchant accounts, but it doesn’t have to be. With a bit of research and slightly elevated fees, discerning entrepreneurs will find that business can still run smoothly and reliably. Be sure to shop around for your best fit, and whatever you do, don’t sign up with the first processor to accept your business. Remember: you still have options.

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