How To Find A CBD Merchant Account & The 4 Best CBD Merchant Processors
Products derived from CBD oils have been available for several years now, but the legalization of hemp by the 2018 Farm Bill really kicked the market for CBD products into overdrive. Unfortunately, the payment processing industry hasn’t been very welcoming of this new class of products, leading to significant challenges for CBD merchants in finding a merchant account that will allow them to process credit and debit card sales.
Cannabidiol (or CBD) is a substance (or phytocannabinoid, to be more precise) that’s derived from hemp (Cannabis sativa) plants. Now, you’re probably already aware that marijuana also derives from Cannabis plants. The major difference between CBD products and marijuana is that the former contain little or no THC (tetrahydrocannabinol) or any of the other psychoactive ingredients that marijuana contains. In other words, CBD products won’t get you “high.” Despite this rather obvious distinction, CBD-based products had been illegal under federal law until just a few years ago. While that’s no longer the case, CBD laws today vary widely from one state to the next. Almost all states currently allow you to purchase or distribute hemp-derived CBD products that contain less than 0.3% THC, but each state imposes specific legal requirements for doing so.
Although medical marijuana and, by extension, CBD products are now legal in the majority of US states, most banks and credit card processors have been extremely reluctant to approve CBD businesses for merchant accounts, and many such companies have had their accounts suddenly closed without notice. In this article, we’ll update you on the current (as of March 2021) legal status of CBD products and recommend several merchant account providers that accept businesses selling them.
Read more below to learn why we chose these options.
Table of Contents
- The 4 Best CBD Merchant Services Providers
- Looking For One Of These CBD Merchant Processors?
- Why Is CBD Payment Processing Considered High-Risk?
- How To Choose Credit Card Processing For CBD Products
- Common Questions About CBD Merchant Accounts
- Which CBD Payment Processor Is Best For My Business?
- In Summary: The 4 Best CBD Merchant Services Providers
The 4 Best CBD Merchant Services Providers
A CBD merchant account is simply a merchant account that allows you to accept credit card payments, but has been approved by your provider for selling CBD-derived products. Due to the inherently higher risk associated with CBD products, CBD merchant accounts almost always come with higher prices and more restrictive policies than low-risk accounts.
Here’s a brief overview of four of the best merchant account providers in the industry that accept CBD merchants:
California-based PaymentCloud (see our review) has been providing high-risk merchant accounts since 2010 and now accepts CBD businesses as well. The company has a very high success rate at getting merchants approved for an account, and – unlike most high-risk providers – doesn’t charge an application or account setup fee.
Like most high-risk specialists, the company utilizes a quote-based pricing system and doesn’t disclose any standardized processing rates or account fees. Retail merchants are eligible for a “free” EMV-compliant terminal with each account. In this case, “free” means you’re free to use it for as long as you maintain your account, not that you can keep it even if you later close your account or switch providers.
PaymentCloud also offers Authorize.Net (see our review) as its payment gateway, although its system is compatible with other third-party gateways as well. Additionally, it provides a free virtual terminal with each account. Note that PaymentCloud is currently only approving accounts for CBD merchants that sell products that are applied externally, such as oils and lotions. Ingestible CBD products, such as gummies, dog treats, etc., are currently prohibited.
- No application or account setup fees
- “Free” credit card terminal with each retail account
- Dedicated account manager for customer support
- May require an offshore account for CBD merchants
- No online knowledgebase
Square (see our review) has been offering CBD processing services since 2019. Transaction processing rates are notably higher than the company’s low-risk rates, but the lack of account fees makes it a great alternative to getting a traditional high-risk merchant account. Although it’s still listed as an “early access” program on the Square website, you no longer need an invitation to sign up.
As with Square’s extremely popular services for low-risk businesses, the company fully discloses all prices on its website. This transparency allows you to make a reasonably accurate estimate of what it will cost you on a monthly basis to use its services. Processing rates are quite reasonable, although they’re naturally higher than what low-risk merchants are charged:
- 3.9% + $0.10 per transaction for in-person (i.e., card-present) transactions
- 4.2% + $0.30 per transaction for online and in-app transactions
- 4.8% + $0.15 per transaction for keyed-in and card-on-file transactions
Believe it or not, these are actually very good rates for any high-risk business, but especially for an industry like CBD. One word of caution: Square charges the same rate for credit and debit cards, which means that you’ll be paying a much higher rate for PIN debit transactions than you would under an interchange-plus rate plan. At low volumes, this is a reasonable tradeoff to avoid all of the numerous monthly and annual fees that come with a traditional merchant account.
Now that Square is an option for low-volume CBD merchants, we feel that this is a great opportunity for businesses that up until now have had to operate on a cash-only basis. You’ll have access to all of the same great products, services, and contract terms that low-risk merchants have been enjoying for years. Square operates on a pay-as-you-go basis, eliminating virtually all of the onerous “hidden” fees that most other providers add to your bill. At the same time, you need to be aware that Square does have its limitations. As a payment service provider (PSP), Square aggregates your payment account with those of other merchants, rather than providing you with a true full-service merchant account. Because of this limitation, the risk that your account will suddenly suffer a freeze, hold, or termination is higher than it is with a traditional merchant account. Also, Square’s reputation for customer service and support isn’t that great, although it has improved significantly in this area within the past few years.
- Predictable flat-rate pricing
- No monthly fees
- Very affordable processing hardware
- Suitable for low-volume CBD businesses
- Account stability issues
- Below-average customer support
3. Easy Pay Direct
Easy Pay Direct
Based in Austin, Texas, Easy Pay Direct (see our review) has been providing high-risk merchant accounts for over twenty years. It now accepts CBD merchants, although it doesn’t take startups unless they’re either very well-funded or have previous operating experience. The company’s primary product is its proprietary EPD Gateway. While you’ll have to pay a premium in terms of processing rates and account fees, you’ll be set up with a domestic bank or credit card processor. It’s also one of the very few CBD providers to offer some pricing disclosures on its website. US and Canadian merchants who qualify can get approved for an account in about 7-14 days.
The company’s processing rates start at 2.50% + $0.25 per transaction, although these are volume-based rates, meaning that only the largest businesses will qualify. There’s also an account fee of $29.99 per month. You can also expect a standard contract with a three-year initial term that automatically renews for one-year periods after that. One very positive feature of Easy Pay Direct’s contracts is that they do not have an early termination fee, even for high-risk businesses. While this isn’t quite the same thing as true month-to-month billing, it does make it much easier to close your account without penalty if you have to. Also, there’s no monthly minimum.
One helpful feature offered by Easy Pay Direct is called load balancing, where a business can divide its incoming funds among multiple merchant accounts. It’s particularly beneficial for high-risk businesses that often exceed the monthly processing volume limits imposed by the processor underwriting their accounts. Just be aware that you’ll usually have to pay separate monthly fees for each account, so it might not be cost-effective for some merchants. Also, be aware that you might not need this feature if you opt for an offshore account. Underwriting guidelines in some (but by no means all) foreign countries are more relaxed than they are in the United States, and you might not have a monthly processing limit imposed on your account at all.
- Accepts CBD merchants selling ingestible and topical products
- No monthly minimum
- No early termination fee
- Possible $250 application fee
- Three-year contract with automatic renewal clause
4. SMB Global
SMB Global (see our review) is a high-risk specialist that spun off from one of our favorite providers, Payline Data, in 2016. Headquartered in South Jordan, Utah, the company specializes in providing merchant accounts to high-risk and offshore businesses. Using a variety of back-end processors, it’s able to approve a merchant account for almost any high-risk business, including those selling CBD oils. The company primarily serves eCommerce merchants, offering a choice between the NMI and Authorize.Net payment gateways, as well as integrating with over 175 popular online shopping carts.
Because it works with so many banks and processors to get you approved for an account, the company doesn’t offer any specific pricing information. Processing rates, account fees, and contract terms will vary widely depending on which back-end processor is handling your account. While we highly recommend that you request an interchange-plus pricing plan, be prepared to have to accept a tiered plan instead, particularly if you haven’t been in business for very long. Likewise, you can also expect to have a standard three-year contract with an automatic renewal clause and an early termination fee. As a CBD merchant, you should be prepared to have a rolling reserve included in your account agreement.
SMB Global requires a minimum processing volume of $50,000 per month for an offshore merchant account, which can present a formidable barrier to a newly established CBD business. The company will occasionally waive this requirement if your business has a very strong financial history. Offshore accounts support multi-currency processing, allowing you to avoid cross-border fees. It also features dynamic currency conversion, letting your customers pay in either their local currency or the currency in which you bill them. SMB Global appears to accept CBD merchants only through offshore accounts at this time.
- Accepts CBD businesses through offshore merchant accounts
- Reasonable pricing and contract terms
- Excellent customer service
- Requires a minimum $50,000 monthly processing volume for offshore accounts
- No mobile processing system at this time
- No information available about credit card terminals or POS systems
Looking For One Of These CBD Merchant Processors?
As CBD products become more mainstream, the number of merchant services providers offering CBD processing is steadily increasing. Unfortunately, many of these providers either don’t have much of a public track record, or we simply haven’t yet subjected them to a full review. In either case, while they might be a great choice for your business, we can’t include them in a “best of” list at this time. The following providers are worth looking into if you’re struggling to get approved for an account:
BestMerchantRates (formerly PayWize) is a very small provider that has only been in business since 2017. However, it’s affiliated with Payment Depot, one of our top choices for low-risk businesses. The company’s one-page website doesn’t disclose any pricing information, but it does claim that you won’t be subject to a rolling reserve. While the company appears promising, the lack of online feedback from users makes it impossible for us to confirm that merchants are happy with their service. BestMerchantRates is still worth checking out, particularly if none of our top four recommendations have worked out for you.
Florida-based PayKings specifically advertises to CBD merchants, particularly those who’ve had their accounts with more traditional providers shut down. The company advertises rates as low as interchange + 1.0%, which isn’t exactly cheap. At the same time, it provides a more complete lineup of products and services than many other CBD providers can offer you. While PayKings enjoys a mostly positive reputation among merchants, we haven’t reviewed the company in-depth as of this writing. Nonetheless, it’s a viable alternative if you’re looking for a merchant account for your CBD business.
Shift Processing is a high-risk specialist that markets its services to both retail and eCommerce CBD merchants. The company provides much more information about its services on its website than many other providers we’ve seen, but doesn’t include specific pricing information. Shift Processing uses surcharging programs to help you pass some of your processing costs onto your customers and make it more affordable for you to accept credit cards. Online feedback for the company is generally positive, but we haven’t completed a full review of Shift Processing at this time.
Why Is CBD Payment Processing Considered High-Risk?
As you might expect, the processing industry has placed CBD products firmly in the high-risk category, making it much more difficult and expensive to get a merchant account. Businesses can find themselves labeled as high-risk for any number of reasons, but for CBD products, the main reasons are (1) unsubstantiated claims regarding the efficacy of the products, (2) high chargeback rates, and (3) legal issues affecting distribution of the product.
Like many products in the nutraceutical category, the purported beneficial effects of CBD oils have not been approved or validated by the Food & Drug Administration (FDA). With little or no peer-reviewed research currently available to evaluate the benefits of CBD use, the flood gates have been opened for businesses to tout CBD as a potential cure for… well, just about anything. Initially offered as a way to help you relax and alleviate stress, CBD is now claimed (by some people, at least) to cure depression, anxiety, and even autism.
Chargebacks are a known risk for just about any type of business, but the chance of experiencing one is much higher with CBD products. Unfortunately, the unproven claims of CBD’s beneficial health effects that we’ve discussed above make it much more likely that a consumer will file a chargeback if they feel that the CBD-based product they purchased didn’t help them or make them feel better at all.
The banks that underwrite merchant accounts also don’t like to deal with businesses that sell a product that is on shaky or unclear legal ground. Currently, CBD laws vary widely from state to state, creating a number of legal conundrums for merchants who sell them. Here’s a summary of the current legal status of CBD products:
Legal Issues In The CBD Oil Industry
Until late 2018, CBD-based products were still listed as Schedule I drugs by the Drug Enforcement Agency (DEA), effectively prohibiting their sale, transportation, or use under Federal law. However, many states (36 as of this writing) have passed medical marijuana laws that legalized the use of marijuana and CBD-based products for medicinal purposes. Fifteen states have gone even further, legalizing marijuana for recreational purposes and removing most prohibitions against CBD-based products.
The 2018 Farm Bill was supposed to change all of that. Under this legislation, which was signed into law on December 20, 2018, hemp-based products (defined as containing less than 0.3% THC) are now removed from the Schedule I list of controlled substances. However, you must be a licensed grower and comply with all applicable federal and state laws to legally produce and sell your product. With so many variations in state laws, it’s well beyond the scope of this article to attempt to cover them all. We recommend that you look into your state’s laws and consult with an attorney or qualified consultant to determine the specific requirements that apply to your business.
Passage of the 2018 Farm Bill was supposed to open the floodgates for the CBD industry, making it much easier for CBD merchants to obtain merchant accounts and accept credit cards just like any other business. For a time, it seemed that this would actually happen. Elavon, one of the largest direct processors in the US, began accepting applications for CBD merchant accounts and approving them at a rapid clip. However, after a few months, problems arose. In March of 2019, it announced that it was no longer accepting CBD merchants, and all existing accounts would be closed within 45 days.
What happened? For one thing, an Elavon merchant got caught selling products labeled as CBD that contained more than 0.3% THC. This incident points out one of the main problems in the fledgling CBD industry: quality control. Merchants need to go to great lengths to ensure that the products they sell contain an amount of CBD that’s within the legal limit. Consumers have no way of verifying this information for themselves. They might receive a product that contains too much THC (and is therefore illegal in some jurisdictions), or they might receive something that contains no CBD at all (in which case they’ve paid a considerable sum of money for nothing). It’s for this reason that the US military has banned service members from using any CBD product, even though it’s now legal under federal law. A service member who inadvertently uses a CBD product that contains too much THC could test positive for marijuana, which in many cases quickly leads to being separated from military service.
Several other factors led to Elavon’s decision to pull out of the CBD business (at least, for now). Probably the main reason is that the regulatory framework simply isn’t in place yet to properly handle these types of businesses without taking on unacceptable risk. For example, the Food and Drug Administration (FDA) still considers ingestible CBD products (e.g., gummies, dog treats, etc.) to be illegal because it has already approved the drug Epidiolex, which derives from CBD, for use in treating certain forms of epilepsy. The FDA has not approved the use of CBD-based products for any other purpose at this time. Research that might confirm the touted health benefits of CBD (and, presumably, lead to FDA approval) is still in its infancy, so don’t expect this situation to change anytime soon. It’s for this reason that some of the merchant account providers we’ve profiled above are only willing to take on merchants who limit themselves to selling CBD products that are applied externally (e.g., oils, salves, etc.).
Today, only a few high-risk specialists accept CBD businesses, and in many cases, they’ll require you to obtain an offshore merchant account. Of the few providers that do take CBD merchants, there are an even smaller number that we feel comfortable recommending. Our recommended processors are ones that we know already accept CBD merchants and that have a strong reputation for providing fair prices and honest service. You can, however, still expect to be assigned a high-risk merchant account – one that will, unfortunately, come with some very high processing rates. Until the day arrives when CBD products are fully legalized in all 50 states and approved by the FDA, we don’t anticipate that low-risk merchant accounts will become available. Also, be aware that some providers accepting CBD merchants impose additional restrictions beyond those typically required for a vanilla high-risk account. Some providers will only accept established businesses, while others impose a very high minimum monthly processing volume. Be sure to discuss these restrictions when you obtain a quote from any provider.
How To Choose Credit Card Processing For CBD Products
Finding a good high-risk merchant account provider for your CBD business involves the same criteria as a low-risk provider. It’s just harder to find a provider that offers the right combination of reasonable prices, fair contract terms, and high-quality customer service. Here are the most important considerations:
- Account Approval: The underwriting process required to get approved for a merchant account can be tedious for any merchant, but it’s particularly difficult if you sell CBD products. Nonetheless, completing this process before you start processing credit card sales can save you from having your account suddenly shut down once you’ve started using it. You should be skeptical of providers offering “instant” approval of your merchant account, as they often defer this critical step until after you’ve already signed a long-term contract.
- Pricing: The bottom line here is that any high-risk merchant account is going to cost significantly more than a comparable low-risk one. Be prepared to have to accept a tiered pricing model (although some established businesses might be able to negotiate a more affordable interchange-plus model). You can also expect to be charged higher monthly and annual fees as well, although the difference in these costs isn’t as much as it is with processing rates. Another additional “expense” that most high-risk merchants have to contend with is a rolling reserve. That’s where your processor withholds a certain percentage of your funds every month until the reserve is met. While you’ll eventually receive all your money, rolling reserves can create serious cash flow problems for a small or newly established business.
- Contracts: While we prefer month-to-month billing arrangements that don’t lock you into a long-term contract or force you to pay an early termination fee (ETF) if you close your account early, CBD merchants will usually have to accept both a long-term contract (typically for three years) and an ETF. Be aware that almost all long-term contracts include an automatic renewal clause that extends your contract, typically for one-year periods at a time.
- Processing Hardware: If you plan to sell CBD products out of a retail location, you’ll need either a dedicated countertop credit card terminal or a mobile processing system that uses your smartphone or tablet in conjunction with a mobile card reader. Your terminal should be able to accept EMV payments at a minimum, and preferably NFC-based (“contactless”) methods as well. For some specific recommendations, check out our article, The Best Credit Card Machines & Terminals. We also highly recommend that you purchase your terminals outright rather than leasing your equipment. Leasing arrangements lock you into noncancelable long-term contracts, and you’ll wind up paying several times more in leasing fees than what your machine is worth.
- eCommerce Support: Naturally, you’ll want to be able to sell your CBD products to as many customers as possible, and selling via a website allows you to do that. As we’ve noted above, there are still plenty of legal grey areas regarding CBD sales across state lines that you’ll want to be aware of before you launch your website. At the same time, the recent legalization of hemp-based products is creating eCommerce opportunities that weren’t there as recently as three years ago. All of our recommended providers can set you up with a high-quality payment gateway that will allow you to process transactions over the internet and significantly expand the reach of your business. As not all states have relaxed their marijuana laws, you’ll want to find a gateway that will automatically filter out customer addresses where CBD products are still restricted.
- Customer Support: In researching dozens of merchant account providers, we’ve found that high-quality customer service is the real secret ingredient that separates the merely average providers from the truly outstanding ones. Customer support issues occur more frequently with CBD and other high-risk merchants, so you’ll want to pay particular attention to a provider’s reputation in this area.
Common Questions About CBD Merchant Accounts
Which CBD Payment Processor Is Best For My Business?
Despite the passage of the 2018 Farm Bill and the deregulation of hemp and hemp-based products, the CBD industry continues to struggle with a mass of conflicting state laws that make it challenging to find a merchant account. Elavon’s abrupt decision in 2019 to pull out of the industry altogether left many CBD merchants struggling to find a substitute provider. As of early 2021, the availability of CBD payment processing continues to expand as reputable providers such as Square now openly offer CBD payment processing.
At the same time, the industry continues to suffer from a combination of conflicting regulations, a high chargeback rate, and an often-erroneous association with the marijuana industry. For these reasons, CBD merchant accounts can be unusually expensive – even compared to other high-risk industries – and consumers ultimately bear that cost. We firmly believe that the regulatory issues affecting the CBD industry will get sorted out – eventually. The process of updating the law is never swift, and with 50 different legislative bodies working independently on these issues, it will probably be quite some time before most major banks and direct processors will feel comfortable working with the CBD industry. Further action by the Food and Drug Administration (FDA) is also critical to the future of the CBD industry. If the FDA finds that CBD products are medically effective, there is the risk that they’ll be restricted to prescription-only status. At the same time, FDA studies that fail to back up the numerous health claims made by CBD proponents could doom the industry altogether.
As long as you meet their acceptance criteria, any of the four providers we’ve highlighted above should be able to provide you with high-quality service at a reasonable price. For smaller CBD merchants or those just starting out, Square is probably the best and most reliable option available. PaymentCloud, Easy Pay Direct, and SMB Global are better choices for larger businesses that need the stability of a full-service merchant account.
If you’re in the process of launching your CBD business, you may need a business loan in addition to a payment processor. Our article, How To Get A Loan For Your CBD Business (Without Getting Scammed In The Process), offers some great tips and recommendations, so check it out!
In Summary: The 4 Best CBD Merchant Services Providers
- PaymentCloud: Best choice for merchants selling topical CBD products and seeking personalized customer support.
- Square: Most affordable choice for low-volume CBD merchants and start-ups.
- Easy Pay Direct: Best choice for merchants looking for transparent pricing and a domestic merchant account.
- SMB Global: Best choice for high-volume CBD merchants.