CBD merchant accounts involve one of the strictest KYC requirements. This is primarily because of the regulatory complexity, high-risk classification, and ongoing scrutiny from sponsor banks. If you are a CBD merchant and want to accept credit card payments online or at a retail store, you cannot afford to submit incomplete or sloppy documents.
In this guide, the team of CBD payment processing experts at QuadraPay explains how you can prepare for a flawless application package that will most likely be loved by the underwriters and significantly improve the chances of account approval.
Why KYC Is Extra Strict for CBD Merchants
The CBD industry is evolving, and the banking industry is also adjusting as per the new regulations. The requirements for KYC documents in the CBD industry are strict because of multiple reasons.
The most important factor is the legality across products as well as jurisdictions. In some locations, CBD credit card processing is relatively easy, while in many other jurisdictions there’s a blanket ban.
Anything edible which a person consumes can attract liability concerns. While getting approved for CBD shampoo can be easy, whenever selling something that can get inside the human body, it becomes a complex story.
Many sponsor banks and payment processors simply do not wish to work with CBD, hemp or any similar industries just because of reputational reasons. They want to maintain their profile as payment processors for general industries only.
And the final nail in the coffin is the risk of chargebacks. The effect of CBD oil from a health and medical standpoint has not been proven. However, if the merchant claims that these products can bring in health benefits and the customer does not get the results, then it can result in disputes and chargebacks.
For all the above reasons, sponsor banks and payment processors demand iron-clad transparency before they can approve any CBD business.
The Ultimate KYC Document Checklist for CBD Payment Processing
Now you are going to present to you the most comprehensive KYC document checklist for CBD payment processing. You’ll have to send these documents to the payment processor for a risk review.
1. Business Registration Documents
To get the approval of a CBD merchant account, you must have a registered business. You cannot get a merchant account if you don’t have it. To prove that you are legally registered and authorized to operate a business, you must provide the business registration documents. These can be the Articles of Incorporation for the LLC, S-Corp, and sole proprietor DBA.
You may also be required to submit the state business license if applicable. In most cases, you should provide the federal EIN or other tax ID number. If you are applying in the United Kingdom, you have to share the VAT number.
2. Ownership Documentation
The next set of documents that you will have to submit are the ownership documents, which basically include the photo ID and residential address proof. For this, you can provide the latest passports of the ultimate beneficial owners or the directors, any latest utility bill, and if you have a large organization with multiple directors, you can share the shareholding information in a structured format. This can be an organogram.
3. Financial Documentation
CBD payment processors prefer to work with companies that are financially sound, and for this, you must present the required documents. We encourage you to submit the last 3 to 6 months of business and personal bank statements to the payment processor so that they can gauge your real financial strength. If you are already accepting credit card payments, then you also have to provide the last 3 to 6 months of card processing statements. Sometimes it’s even better to share the current balance sheet and the financial summary of your company.
4. Product Compliance Documents
For the product compliance documents, you can share the updated Certificate of Analysis that you have received from any ISO Certified lab for each product SKU that you wish to sell. You also have to submit the product labels of all the items that are sold on your website. The labels must include the ingredients list with THC levels clearly indicated.
5. Website Compliance Documentation
Your website should be fully functional, and it must have a privacy policy, shipping policy, FDA disclaimer, and terms and conditions. Make sure that on your website there are no medical or health claims. Since these products are age-restricted in most countries, your website must have a tool that confirms the legal age of the user before they can access your website and make the purchase. All traffic on your website should go through Hypertext Transfer Protocol Secure (HTTPS), and for this, you must have an SSL certificate.
6. Domain Ownership Proof
You will have to share the WHOIS domain ownership screenshot that will confirm that you or your company owns the domain. Along with that, you can also share the domain registrar receipt.
7. Marketing Compliance
Sometimes underwriters may ask CBD merchants to provide copies of their marketing material. For this, you should be ready with your ad copy as well as promotional materials. Remember, the underwriters may also review the social media, so make sure you play by the rules.
8. Operational Details
Payment processors want you to ensure that the delivery of the CBD products is done on time. For that, they will ask for fulfillment partner agreements if you are using a third-party logistics company. They may also ask you for customer service protocols such as the contact method and the response time. If you are using a CRM or a subscription management platform where you wish to integrate the payment solution, then make sure you disclose it at the time of application.
Common Mistakes That Cause CBD Application Delays
Simple mistakes that many CBD merchants make can result in the decline of the application or delay in the approval. The most common reason is sending outdated COAs which are older than 12 months. CBD payment processors require recent COAs.
Another reason is vague or misleading product descriptions on the merchant website. You should spend time on your website and make sure that the product information is accurate and impressive.
Sometimes, when the merchant’s business has multiple directors, they ignore sharing the information of the minority stakeholders. While the minority stakeholders may not be taking decisions in the company, it is important for the merchant to ensure that the details of the minority stakeholders are also shared with the payment processor.
Many CBD merchants only focus on the product pages and ignore other website compliance requirements such as important disclosures. This should not be the case with you. You should have the disclosures on your website before you make an application.
When you apply with the CBD payment processor, make sure that you provide consistent information. This can be done by seriously getting involved in the application process. When you provide conflicting information or your documents display weak connections, then there is a high chance that your application will be held or declined.
How QuadraPay Simplifies KYC for CBD Merchants
We offer a consultative approach while helping CBD merchants get the right payment solution. For this, we provide checklists to the merchants that help them to prepare beforehand and improve the chances of approval.
Our direct connection with some of the finest payment processing companies in the high-risk space gives our merchants the edge to get good solutions at affordable pricing.
Start With a Flawless File: Submit Your CBD KYC Package for Pre-Screening and let our experts fast-track your approval.
Frequently Asked Questions (FAQ)
Q1: Why are COAs mandatory for CBD merchant accounts?
These documents are extremely important because they prove that your product is safe. They also declare what is the THC percentage in the product. The COA is critical for the bank’s underwriting team.
Q2: How recent must my lab reports be?
When you present the lab reports to the merchant account provider, make sure the reports are not older than 6 to 12 months.
Q3: Do I need a state CBD license?
Depending upon your state’s local regulations and rules, this requirement may be in place for you. However, when you apply with our partner processors, they will ask you if it is required.
Q4: Can I apply without a fully built website?
There is absolutely no benefit in making an application when your website is not fully built. This is because high-risk payment processors are always under extreme pressure, and they are not going to focus on your application. This will also discourage them from reviewing your application later when you re-apply.
Q5: Will personal credit scores affect approval?
Your personal credit score, as well as business financial standing, definitely play a role in the account approval or rejection. However, this is more critical for startups with limited business history.