CBD Payment Processing – How Is It Different from Standard Payment?

CBD Payment Processing – How Is It Different from Standard Payment?

Written by Moli Mishra, In CBD, Published On
January 8, 2024
, 177 Views

The CBD payment processing is much different from your standard one, as is the cannabidiol industry. Due to the numerous regulations differing among regions, fewer advertising opportunities, and higher fraud risk, one cannot simply use a regular merchant account to sell CBD products. This article delves into these differences and explains them in detail. We encourage you to read on.

What is CBD Payment Processing?

CBD Payment Processing

CBD payment processing refers to the financial transactions associated with selling cannabidiol (CBD) products. This payment type is often highly regulated – not only by the laws in a particular area but also by the online platforms and payment processors themselves. Therefore, it’s impossible to conduct CBD payment processing in the same way as for any other type of goods.

A CBD merchant account is a high-risk one. It includes additional anti-fraud and reserve methods to prevent risks like high chargebacks. Moreover, the CBD payment processing method is often imposed by e-commerce platforms, meaning that you frequently may have a narrow or no choice of who your provider will be.

Why Are CBD Businesses Deemed High Risk?

Despite the legalization of hemp-derived CBD in many regions, including the U.S., under the 2018 Farm Bill, the industry remains under a legal gray area. The law for many products is often unclear and changes rapidly. This, however, puts the CBD industry under high financial scrutiny.

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Take, for instance, a situation where a particular substance is banned overnight. In such cases, your business may not complete the orders and has to return the money to its clients. This is when high-risk payment processing kicks in – it includes higher reserves, from which your processor can draw the money and send it back to the clients.

Is CBD Payment Processing More Difficult?

Businesses in CBD often face hurdles such as higher fees, stringent contract terms, and the risk of account termination without notice. The volatility of CBD product regulations adds to the complexity, requiring processors and merchants alike to stay abreast of evolving laws and compliance requirements. Add to that the fact that a platform or a marketplace may enforce a particular payment processing method, and you can see that this becomes problematic.

However, CBD payment processing does come with some advantages. You work with companies with industry experience, so they can help you avoid possible legal pitfalls and guide you on compliance, especially if you enter a new market. This way, your whole business is much more secure, and you can sell your cannabidiol products without worrying about what the next day will bring.

How CBD Payment Processing  Works

CBD Payment Processing

1. Legal and Regulatory Landscape:

CBD, derived from hemp and legalized by the 2018 Farm Bill in the United States, operates within a complex legal and regulatory landscape. However, regulations can vary across states and internationally. Payment processors involved in CBD payment processing must comprehensively understand the specific laws governing CBD sales in the regions where the business operates.

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2. CBD-Friendly Payment Processors:

Not all payment processors will work with CBD businesses due to perceived risks and regulatory uncertainties. CBD merchants must actively seek out payment processors that are aware of the unique challenges within the CBD industry and willing to handle CBD transactions. This partnership is crucial for the smooth processing of payments.

3. Business Information Disclosure:

CBD merchants must provide detailed information about their business when engaging with payment processors. This information typically includes the types of CBD products being sold, the source of the CBD, and a clear demonstration of compliance with relevant regulations. Payment processors use this information to assess the risk associated with the business.

4. High-Risk Merchant Accounts:

Given the perceived risk associated with CBD sales, many CBD businesses fall into the category of high-risk merchants. High-risk merchant accounts are designed to accommodate businesses with a higher potential for chargebacks or legal issues. While these accounts can facilitate transactions, they often come with higher fees and stricter terms than standard merchant accounts.

5. Payment Gateway Integration:

CBD businesses integrate a payment gateway into their online stores to facilitate seamless transactions. The payment gateway serves as the technology that authorizes and processes payments. Integration involves connecting the website to the payment processor’s platform, allowing for the secure and efficient processing of customer transactions.

6. Secure Payment Processing:

Security is paramount in CBD payment processing to protect sensitive customer information and financial data. Merchants must ensure that their chosen payment processor complies with the Payment Card Industry Data Security Standard (PCI DSS) requirements. Adhering to these standards helps create a secure environment for online transactions, safeguarding both the merchant and the customer.

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7. Transaction Approval and Settlement:

Once a customer purchases, the transaction is sent to the payment processor for approval. If approved, the funds are transferred from the customer’s account to the merchant’s. The time it takes for settlement can vary based on the payment processor and other factors.

8. Stay Informed About Regulations:

CBD merchants must stay vigilant and informed about any regulation changes that may impact their business. This includes staying updated on industry standards and compliance requirements. Being proactive in monitoring and adapting to regulatory changes is essential to avoid disruptions in payment processing and ensure ongoing compliance with the relevant legal frameworks.

The Takeaway

CBD payment processing is unlike any standard payment method, as it is stricter, more expensive, and more limited. However, it comes with some benefits and involves measures that protect your business. So, is it a win or a loss? It all depends on the processor that you decide to work with.

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