Why is the CBD Industry Deemed High Risk for Merchant Accounts?

Cannabidiol, or CBD, is a newly rising market in the field of natural wellness products. It is a non-intoxicating substance derived from certain varieties of the cannabis plant. As you probably know, varieties of cannabis also produce marijuana, the infamous recreational drug. While THC is the psychoactive chemical in cannabis that produces an intoxicating high, CBD has much milder effects, and is often used to treat pain, anxiety, epilepsy, and other common ailments.

In recent years, CBD products are becoming legal to cultivate and sell around the world as their medicinal benefits are discovered. The legality differs in each country, but many European countries have legalized CBD that contains an extremely small percentage of THC, usually 0.3% or less. A few other countries outside of Europe are also beginning to legalize CBD with certain regulations, including Canada, Russia, Mexico, Japan, Costa Rica, India, and South Africa. In the United States, the 2018 Farm Bill made all hemp-derived CBD legal, granted that it contains no more than 0.3% THC.

Challenges in the CBD Industry

With CBD being a newly legalized industry, CBD companies are sprouting up left and right. However, these businesses face a lot of challenges that other startups don’t normally deal with.

Negative perception from the public: The legalization of marijuana as a medical and recreational substance is a hot political topic to which many American citizens are strongly opposed. The lack of understanding around hemp, CBD, and how they differ from marijuana leads to a lot of criticism of CBD companies.

Licensing is slow and expensive: The legalization of CBD products has come with seemingly endless regulations and legal processes for famers and distributers. They have to pay application costs and other related fees to obtain licensing, and then wait an undisclosed period of time, which can be up to months, before receiving a license. Additionally, it is exceedingly difficult to obtain a loan for any cannabis related business.

Strong competition: Even with so many challenges, CBD is a rapidly growing industry and therefore many companies are beginning their CBD journey at the same time, especially in locations where cannabis laws are less strict.

Transaction and merchant account issues: Of course, CBD companies deal with increased costs and other complications when it comes to payment transactions and merchant accounts. This is because the CBD industry is considered high risk regardless of the type of products being sold.

Why CBD is Considered High Risk

Banks and payment processing companies deem all CBD related business to be high risk mostly due to the legal status surrounding the substance. In order to regulate the growth of cannabis, the species is classified into two different varieties, hemp and marijuana. The 2018 Farm Bill legalized only CBD that is derived from hemp, meaning CBD derived from marijuana is still an illegal product, although they have the exact same chemical makeup. The only difference between the hemp and marijuana is that hemp contains less than 0.3% of THC, the psychoactive chemical in marijuana. Otherwise, the two can look, feel, and smell exactly the same, even though they have completely different uses. This makes regulating the growth of hemp and the sale of CBD particularly challenging, which is something most banks don’t want to deal with.

In addition to the similarities between legal and illegal CBD, there are other complex laws and regulations surrounding the types of products that can be sold. CBD was FDA approved as a treatment for epilepsy, Epidiolex, in 2018. Therefore, it is considered an FDA approved drug and cannot be added to food or drink products. Although CBD edibles and supplements are a popular way to consume CBD, they are not legal in the US, and sales must be limited to products like oils or topical treatments.

Although Epidiolex is an FDA approved drug containing CBD, the countless other uses for the substance are relatively new medicinal claims that lack scientific evidence. CBD is often used to treat pain, anxiety, insomnia, and is even safe for pets, but it is not guaranteed to cure any of these ailments, and it has a different effect on everyone. Therefore, CBD products have a high risk of chargebacks for the product not having the desired effect.

How Double Helix Can Help

As a company with a high-risk merchant account, a CBD business can face many obstacles when it comes to payment processing, including:

• Denial of service
• Delayed transactions or approval process
• Extra fees or higher transaction rates
• Spontaneous shut-down by payment processor

In order to avoid those setbacks and keep your business running smoothly, it’s important to choose a payment processing company that is prepared to handle a high-risk account. At Double Helix, we specialize in high-risk merchant accounts. We are equipped to deliver hassle-free payment processing because we understand the complex legal status of CBD products. We take on the added liability to offer you reliable transaction success and services tailored to your company needs at an affordable price. You can open a merchant account for CBD immediately, have access to a variety of payment methods and account features, and face no risk of account closure, delayed payments, or additional fees just for being high-risk.