The CBD Payment Processing Challenge in the US Intensifies

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Thousands of hemp and CBD eCommerce businesses continue to scramble after being dropped by major merchant payment processors over the last few weeks. These companies with primarily online sales are left at a stand-still. While these companies do not have a merchant payment processor, they cannot complete debit or credit card purchases on their websites. Obviously, this stops sales and poses a real problem to the businesses.

For most online stores merchant payment processors are a routine step in the online shopping experience. But for hemp companies, this is not business as usual, it has become a constant challenge to keep online transactions flowing.

Merchant payment processors are responsible for taking a customer’s purchasing information, encrypting it and sending it to the credit card company for authorization. After the transaction is authorized the payment processor completes the transaction, deducts their fee, and deposits the customer’s money into the business’s bank account.

Many in the hemp/CBD industry assumed the passage of the 2018 Farm Bill would pave a smoother path for sales. But, so far that has not been the case. In December of 2018, hemp CBD products were fully recognized as legal products in the United States. However, many merchant payment processors are still struggling with lack of direction from governmental regulatory agencies.

This decision from payment processors comes at a peculiar time. The same day a major US merchant servicer stopped processing CBD transactions by credit card companies (VISA, MasterCard and others), the FDA held its first-ever public hearing on how to regulate CBD products.

In the meantime, hemp and CBD companies struggle to find domestic payment processors. Many are turning to solutions that rely on international payment processors with high transaction fees. These payment processors may be less averse to the changing regulations – but they can also charge up to three times higher fees than standard domestic payment processors.

So, how are these small CBD companies making it work while many merchant payment processors turn their back? According to Sean Cope of Daddy Burt Hemp Co., a hemp company based in Kentucky, “This problem doesn’t just affect our business, it causes a problem for our customers, who use our CBD products to live more healthy and active lives. We were able to partner with a new credit card processor after a week without being able to complete orders. There are many other small companies that still haven’t found a new credit card processing solution. Our company will continue to persevere despite this obstacle and we are actively searching for multiple solutions to avoid a similar situation.”

The industry is changing rapidly, and there is a sense of optimism that these challenges will be corrected soon. Leaders in Washington recognize the delays by regulatory agencies and are taking active roles to help provide guidance. As CBD products become more common in large retailers, like DSW, Neiman Marcus, Walgreens, CVS and others, more steps will be taken to ensure commerce is not interrupted.

Similarly, Square, a payment processor is now offering an invite-only beta program for some CBD online retailers. This program is quite exclusive, and keeps the door blocked to small businesses, but at least there is a new door that can be opened in the future. While hemp and CBD companies face challenges, there are still viable opportunities for the market. Plus, other domestic processors will likely join the marketplace to fill the void and offer these companies new options.