Due Diligence in Selecting a Merchant Account for CBD Businesses

Looking for CBD merchant services to accept credit cards?

Trying to find safe and reputable CBD payment processing options is one of the toughest hurdles CBD merchants have to jump. Banks and payment processors see CBD businesses as high-risk clients.

And that leads to some major problems.

If you don’t have access to payment processing your CBD business will never grow. Today’s customers expect to pay with plastic. 57% of all transactions are made with a credit card or debit card.

You cannot afford to not accept card payments.

In This Guide:

Why CBD Businesses Are Considered High-Risk
Things To Consider Before Picking A Payment Processor
How To Avoid CBD Payment Processing Scams
Due Diligence Checklist For CBD Merchant Accounts

Why CBD Businesses Are Considered High-Risk

Before we jump into selecting a merchant account for CBD, it’s important to understand why banks see CBD as high-risk in the first place. There are three reasons banks don’t like working with CBD businesses.

Regulatory uncertainty. The 2018 Farm Bill legalized hemp-derived CBD at the federal level but states can still regulate how CBD is sold. This uncertainty creates confusion for payment processors that work in multiple states.
Chargeback potential. CBD products have higher-than-average chargeback rates. Typically due to customers not getting the results they were promised and asking for refunds. Chargebacks are dangerous for banks to manage.
Reputational risk. Finally, some banks simply do not want their brand associated with CBD products. This isnt always fair, but it’s the reality of working with CBD businesses.

Luckily for you, there are payment processors out there that specialize in finding you a merchant account for CBD businesses. 2Accept is one of those companies.

Things To Consider Before Picking A Payment Processor

CBD payment processing is not one-size-fits-all. Just because a payment processor works with “high-risk” business they might not be the right fit for CBD.

Here are key features to look for when evaluating CBD merchant accounts.

Experienced in CBD. Ideally, work specifically with hemp CBD businesses (not just high-risk businesses in general).
Straightforward pricing. No hidden fees.
Chargeback protection. Look for CBD processors that offer robust fraud and chargeback prevention tools.
Compliance assistance. Processors that offer guidance for CBD regulations.
Integration with your ecommerce platform. Some processors make it easier to integrate than others.

Here is what most CBD merchants overlook though…

Pay close attention to their contract agreement. Some CBD processors lock you into two-year contracts with ridiculous termination fees. Others may place your entire account balance into a rolling reserve.

These are things you will only learn when reading the fine print in the contract. Ask about their contract agreement before getting too far down the road.

Due Diligence Checklist For CBD Merchant Accounts

Running your own CBD business is stressful enough. Don’t compound the problem by signing up with the wrong payment processor.

Before you choose a payment processor run them through this due diligence checklist.

Step 1: Confirm Their Experience With CBD

How many hemp CBD merchants do they currently service? Can they provide references? You want to make sure they work specifically with CBD businesses and not just “high risk” businesses in general.

Step 2: Review All Fees

Ask for a detailed breakdown of fees. Make sure you understand every single fee they are charging you. Transaction fees, monthly fees, statement fees, PCI compliance fees, setup fees. You name it.

Call your other providers and see if they can beat those fees. Many CBD merchants get quotes from 5-10 different processors before deciding.

Step 3: Understand Reserve Requirements

Many CBD merchant accounts require a rolling reserve. This means your payment processor holds a percentage of your sales. Be sure you know how much they will withhold, and when they will release those funds.

Step 4: Inquire About Their Banking Partners

Reputable CBD payment processors have relationships with multiple acquiring banks. This not only helps them find the best banking partner for your business, but it also protects your merchant account from sudden closures.

Step 5: Read The Contract

I can’t stress this step enough. Take the time to read the ENTIRE contract. Look for hidden early termination fees, auto renewal clauses, and anything else that could get your account closed.

If you have any questions, clarify them before you sign the dotted line.

How To Protect Your Business From Account Closures

Running a CBD business is hard enough. The last thing you need is to have your merchant account suddenly closed.

Here are some tips to help you avoid account closures…

Keep your chargebacks under 1%. This is probably the number one reason CBD merchant accounts get closed. Provide clear product descriptions and customer service to ensure your customers are happy. Satisfied customers won’t file chargebacks.

Stay compliant with all CBD laws. Your products must contain less than .3% THC and you should be following your state’s hemp CBD regulations. Stay up-to-date on any CBD compliance documents and display any necessary disclaimers on your website.

Notify your processor of sales spikes. If you run a seasonal CBD business that sees unexpected spikes in sales volume, notify your payment processor in advance. Payment processors are trained to look for patterns of fraud. A sudden increase in sales can appear suspicious.

Keep records of everything. Keep detailed records of sales, customer communication, and shipping documentation. This will be extremely helpful if you ever need to contest a chargeback.

The CBD industry is booming. US CBD revenue is projected to reach $3.04 BILLION by 2025. Businesses that lock down payment processing now will be ready to capitalize on this growth.

Common Mistakes When Choosing A CBD Merchant Account

Alright…let me give it to you straight.

There are common mistakes that CBD business owners make when choosing a payment processor. Avoid these at all costs.

Falling for low processor fees. Every CBD merchant wants low fees. But if a processor is promising super low fees there is usually a catch. Many fly-by-night payment processors quote low fees then hide fees elsewhere.

Not having a chargeback prevention strategy. Chargebacks can get your CBD merchant account shut down over night. Have a plan for preventing chargebacks from the beginning.

Not having a backup payment processor. What happens if your processor closes your account? Do you have a backup plan? Its not a bad idea to establish relationships with more than one payment processor.

Skipping the research. Reach out to other CBD merchants and see what they think about their payment processors. Online reviews and industry forums can be a great place to learn more about a processor before signing up.