CBD Merchant Account: Comprehensive Guide
A CBD merchant account is a specialized high-risk credit card processing solution for businesses that sell CBD products. With this type of account, CBD merchants can accept payments via credit cards, debit cards, ACH transfers, digital wallets, and many other payment methods. Traditional sponsor banks and payment processors consider the CBD industry high-risk because of many reasons, including the complex legal landscape surrounding the products.
The CBD industry is expected to grow to a very large global market size, and we can see significant demand for CBD products in the health, wellness, and skincare industries. All these businesses require reliable CBD merchant accounts to help them process local and international transactions. Sometimes, CBD merchants get their accounts approved through shady or inexperienced processors; however, this may lead to payment disruptions, account termination, and even listing on the TMF or MATCH database. Fortunately, there are many high-risk acquiring institutions that are open to supporting CBD merchants with stable credit card processing accounts.
Why Sponsor Banks and PSPs Consider CBD as High Risk?
There are many reasons why traditional credit card processors and aggregators generally stay away from CBD merchants. One of the most prominent reasons is the categorization of this industry as high-risk because of its association with cannabis. CBD is derived from hemp, which is legal in many jurisdictions. However, it is important to note that CBD contains THC, and if the product being sold contains THC percentage over the prescribed limit, it can create problems for the merchant as well as the payment service provider. Because of this reputational reason, CBD is not an industry of choice for various acquiring institutions.
Many merchants use misleading marketing tactics, which lead to customer dissatisfaction and can result in high chargeback rates. This is also a reason why payment processors shy away from the CBD industry.
The regulations surrounding the product are volatile and vary based on various factors, including jurisdiction, which makes it complex for the underwriters to approve such accounts. Credit card processors are required to ensure that the merchants they are approving comply with the industry-required regulations and protocols. If the underwriters miss any red flag and onboard the merchant, then it can attract heavy penalties.
For the approval of a CBD credit card processing account, underwriters are required to spend more time on verification and risk analysis than any regular low-risk merchant account. Underwriters carefully look at additional documents, including the certificate of analysis, proof of compliance with local and federal regulations, and a full analysis of the business model.
CBD Oil Industry Overview and Compliance
The Farm Bill of 2018 federally legalized the cultivation and sale of hemp-derived CBD products containing less than 0.3% THC. CBD businesses can apply for a merchant account; however, it is important for them to comply with mandatory provisions. Equally important to remember is that, despite federal legalization, state-specific laws and international regulations can severely complicate payment processing for CBD merchants.
Any merchant looking to sell CBD or related products online or through a retail store must have the required Certificate of Analysis (COA). Payment processors will not approve your account without reviewing this certificate. The COA is a laboratory document that verifies the product’s cannabinoid profile, including the percentage of THC, and confirms it meets required safety and quality standards. Sponsor banks and payment processors require mandatory submission of the COA to ensure your products comply fully with federal and state laws and do not exceed the prescribed THC percentage limit.
By submitting a valid COA, you establish credibility with the payment processor, which considers the COA a critical factor for account approval. The COA is not only important for the payment processor but also for the end customer, which is why most CBD oil companies list their COA prominently on their websites.
The entire CBD and hemp industry welcomed the Farm Bill; however, while it provides federal guidance, individual states have their own regulations and laws. These may include bans on certain types of CBD products or additional licensing requirements. It is a challenging task for credit card processing companies to confirm if the merchant adheres to the laws of the state in which it operates and the states in which it sells. Non-compliance with federal and state regulations can result in immediate application rejection or further legal issues. It is advisable for merchants to educate themselves about restrictions related to the shipping of CBD items to certain states and countries, as well as advertising regulations that apply to the industry.
Processing credit card payments for CBD can sometimes be complex; however, with expert guidance, this process becomes significantly easier. The QuadraPay team is here to provide step-by-step guidance for faster and easier approval of CBD credit card processing accounts. Our payment processing partners ensure they collect all the required documentation and fully understand your operational practices to align your application with legal requirements. This includes utilizing various tools to verify the legality of your CBD products, including automated checks for COAs and THC thresholds.
If you are selling your products in multiple nations, this is also not a problem. We work with offshore credit card processing partners who assist CBD merchants registered in various jurisdictions. With QuadraPay, navigating the compliance and regulatory landscape becomes straightforward and efficient.
Benefits of Better CBD Merchant Processing Accounts
With truly understanding the complex series involved in processing payments from merchants from various high-risk industries, including those operating in CBD, hemp, waves, cigars, tobacco, and even nicotine pouches, these products are highly regulated, and the payment processor must have the capabilities to first understand the processing requirements and then implement them correctly.
CBD merchants can process credit card transactions for a wide range of CBD-related products, including CBD oil, edibles, topicals, gummies, beverages, cookies, brownies, balms, pet oils, face creams and serums, pet products, tinctures, and many more. A globally located partner provider can support CBD oil merchants in North America, the European Union, and the UK.
CBD oil merchants are innovative, and they use different kinds of e-commerce platforms and shopping carts. Our solutions are easy to integrate as they come with built-in plugins for various e-commerce platforms and also a detailed guide for custom integration.
QuadraPay is connected with over 50 payment processing partners throughout the globe. A majority of these partners are dedicated to working with mid and high-risk merchants. You can be confident that when you apply with QuadraPay to find a solution, you will get a good one that is economical and comes with the most advanced features. We can also fulfill your cross-border payment processing requirements for your international CBD oil business.
Easy Application Process to Get Approval from CBD Merchant Processor
For any business applying for a CBD merchant account, it is extremely important to fully understand the onboarding process. Being familiar with the onboarding process helps the business owner stay prepared throughout, ultimately increasing the chances of getting a quick “yes” from the CBD merchant processor.
The process of applying for a CBD merchant account with QuadraPay starts with the initial consultation. In this step, you contact QuadraPay, and we discuss your unique requirements. Based on this analysis, we recommend payment processing partners with a proven track record of onboarding merchants like you. Once you are satisfied with the overview of the partners, we move to the next step: application submission.
In the application process, you submit a completed application form along with the required KYC documents. You must ensure that the application and KYC documents include all mandatory elements, as missing information can delay the process. Pay special attention to attaching the Certificate of Analysis (COA) for your products.
The underwriting team will then review your application and evaluate all the documentation for compliance and requirements. After a successful evaluation, you will be presented with a merchant account contract. Both parties are required to sign the contract. Upon successful signing of the agreement, you will receive login credentials for the payment gateway along with integration information.
Please note that our solutions come with ready-to-use plugins for select e-commerce platforms. If we cannot provide you with a plugin, we will supply API documentation that allows you to create custom codes for seamless integration.
Once the integration is complete, you can perform some test transactions. After receiving a confirmation email from the processor about successful test transactions, your account will be switched to live mode, enabling you to accept real-time transactions.
The application approval process typically takes up to 7 business days. The initial review generally takes 1 to 3 days, the underwriting process takes about 3 to 5 days, and integration takes 1 to 2 days. In total, the entire process is expected to take 7 to 10 working days at most. However, certain merchants can get approvals in as fast as 2 to 3 business days, depending on how well-prepared they are with KYC documents and how clean their profile is.
CBD Credit Card Processing: Pricing, Fees, and Financial Considerations
In the CBD payment processing industry, the pricing varies depending on various factors. If a merchant is well aware of these factors, then it can significantly help the merchant in finding solutions at lower rates; basically, it will help the merchant to negotiate well with the payment processor. Merchants should also ensure that they carefully read the terms and conditions mentioned in the contract, which also outlines various other fees and charges. This will help avoid any surprises and hidden costs.
CBD oil is considered a high-risk industry because of regulatory complexities, higher potential for chargebacks, and the association with cannabis products. One of the key reasons CBD merchant services are a little bit more expensive than other industry processing is this risk factor. It is important for merchants to know that higher transaction volumes can help merchants get lower transaction fees approved by the processor. This is because the risk is spread over a larger number of transactions, which reduces the credit risk.
The product that is being sold on the merchant’s website can also have a significant impact on the pricing. For example, processors may have different perceptions of CBD products like tinctures, skincare, or edibles. When they offer you the pricing, they calculate the overall risk of your entire product range, and based on that, they give you the pricing.
An impressive certificate of analysis and the availability of all the required licenses can also help merchants get better pricing. A merchant with a clean merchant processing history for at least six months, with minimum chargebacks and disputes, can also secure better rates. Now that you understand the factors that influence the rates and fees for CBD merchant accounts, let us look at some of the fees that you will be paying for CBD processing.
The Merchant Discount Rate is a fixed transaction percentage that you pay on each transaction. For a CBD merchant, this can reach anywhere between 1.5% to 4%. In some cases, especially with offshore CBD merchant accounts, these rates can even go up to 6%.
There is a cost associated with the CBD payment gateway as well, and that is the per-transaction fee, which is usually 10 cents to 50 cents. You can consider it as a fee that you pay to the CBD payment gateway as they allow you to process transactions on their system. The currency for the transaction fee may vary based on where the merchant is located.
For most merchants, a monthly account maintenance fee ranges between $10 to $50, depending upon the risk profile of the merchant and the features coming with the gateway.
In case of chargebacks and returns, the fees can range between $10 to $20 USD or Euros. Merchants must ensure that the chargeback ratio is under the prescribed limit of the payment processor. Higher chargebacks and returns can risk the stability of the account.
In rare cases, the payment processor may ask the merchant for a fixed reserve. Alternatively, they generally offer the option of a 5% to 10% rolling reserve for a period of six months. After six months, the merchant starts getting the rolling reserve in the same way as it was deducted on a weekly or monthly basis.
KYC Documents That Your Payment Processor for CBD Will Need.
When applying for a merchant account, it is mandatory to submit business and personal documents to the CBD merchant service provider. Here are some of the most important Know Your Customer (KYC) documents:
Merchant Account Application Form: This form provides a detailed overview of the merchant’s business, covering information such as company details, ownership, partnership information, sales forecasts, and traffic data.
Business License: This includes the certificate of incorporation, articles of association, and any other related documents as per the company structure.
Certificate of Analysis (COA): This lab certificate provides detailed information about the THC percentage in the product. The COA also covers heavy metals, pesticides, and other contaminants that may be present. The COA for any CBD oil product generally includes these details:
- Product Name: Full-Spectrum CBD Oil
- Batch Number
- Date of Analysis
- Manufacturer
- Testing Laboratory Name
- Laboratory Accreditation
Domain Ownership Proof: This can be a copy of the domain purchase receipts. It should display the domain administrator’s name. The domain can be in the name of the company or the ultimate beneficiary.
The payment processor will also need the following:
- Photo ID
- Address Proof
- Bank Details
FAQ: CBD Merchant Accounts
What are the best practices to keep a CBD Merchant account active for a long time?
Getting a CBD merchant account is challenging; making sure it stays active for a long time is a task. Merchants must ensure that the account does not get a lot of chargebacks. Along with that, it is also important to ensure that the gateway does not get high fraud transactions. Fraud and chargebacks are both detrimental for CBD merchant accounts. Here are various steps which merchants can take to reduce these risks:
- It starts with clearly labeling the product. Merchants should ensure that all product labels are accurate and are in full compliance with the regulations.
- CBD oil is a regulated product and should only be offered to people who are above a certain age. For this, it is mandatory for merchants to implement age verification on their website.
- The CBD oil industry is known for constantly changing regulations. Merchants must adjust their business practices accordingly. Being in regular communication with the merchant account provider helps in identifying the changes and implementing them easily.
What is the MCC for CBD products?
There is no specific Merchant Category Code (MCC) for CBD products; however, depending on the type of product, the MCC can vary. For example, CBD oil and food products may use MCC 5499, which is classified as Miscellaneous Food Stores. If you sell CBD cosmetics, the merchant processor may recommend MCC 5977. Another popular MCC used for merchants selling CBD e-liquids for vape pens is MCC 5993.
Future of CBD Products.
The CBD industry is going to consistently grow and mature. Government and industry regulations are expected to be clearer in coming years. As an advocate of the CBD industry, the team at QuadraPay has high hopes for the SAFE Banking Act. If passed, this could significantly improve banking access for cannabis-related businesses, including those in the CBD business.
Final Words
Getting approved for a CBD merchant account is not the easiest thing. However, now that you know the details about the onboarding process and KYC requirements, you should have an edge. If you still need any assistance, you can certainly contact the QuadraPay CBD merchant account specialists by filling out the short form on our website or by sending us an email at [email protected].
Excellent Resources for every CBD oil Merchant.
EUROPEAN COMMISSION statement on Statement on cannabidiol as novel food https://food.ec.europa.eu/system/files/2023-04/reg-com_toxic_20230227_sum.pdf
Court of Justice of the European Union (A Member State may not prohibit the marketing of cannabidiol (CBD) lawfully
produced in another Member State when it is extracted from the Cannabis sativa
plant in its entirety and not solely from its fibre and seeds ) https://curia.europa.eu/jcms/upload/docs/application/pdf/2020-11/cp200141en.pdf
CBD In USA https://www.cdc.gov/cannabis/about/about-cbd.html#:~:text=This%20law%20removed%20hemp%20from,Foods
FDA Regulation of Cannabis and Cannabis-Derived Products, Including Cannabidiol (CBD) https://www.fda.gov/news-events/public-health-focus/fda-regulation-cannabis-and-cannabis-derived-products-including-cannabidiol-cbd
Cannabis Act Canada https://www.canadianveterinarians.net/media/wb1inx5d/all-about-cannabidiol-cbd.pdf
Canada CBD Regulations https://www.canada.ca/en/health-canada/services/drugs-medication/cannabis/about/cannabidiol.html
