Everything You Need To Know About Finding A CBD Merchant Account & The 4 Best CBD Payment Processors
What are CBD oils? Perhaps you’ve heard of this new class of products, and you’re curious about what they are and what benefits they can offer you. Maybe you’re also interested in opening a business that sells CBD-derived products, and you’d like to know more about the particular requirements you’ll need to meet to be successful. Well, we’re here to help!
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 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 have been illegal under federal law until very recently. 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 April 2020) 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.
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Why Is CBD Merchant 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 three 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 (33 as of this writing) have passed medical marijuana laws that legalized the use of marijuana and CBD-based products for medicinal purposes. Eleven 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 produce and sell your product legally. 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 the laws of your state 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 many of the merchant account providers we profile below who are still working with the CBD industry are only willing to take on merchants who limit themselves to selling CBD products that are applied externally (e.g., oils, salves, etc.).
As of 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, and we’ll profile them below. In the past, desperate CBD merchants have tried using PayPal or Square. This strategy inevitably involved being dishonest about the nature of their businesses. Both companies were quick to shut down the accounts of any merchant they caught trying this method. While PayPal’s Acceptable Use Policy still appears to prohibit selling CBD products, Square (see our review) instituted a trial program in 2019 to accept CBD merchants. This program was a success, and today Square is one of the more viable options for CBD merchants looking to accept credit and debit card payments.
Our recommended processors below 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.
What Makes A Good High-Risk Merchant Account Provider?
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.
- 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. Note that Square now offers CBD merchants the same flat-rate pricing and pay-as-you-go billing (with no monthly fees or long-term contracts) that they offer to low-risk merchants. The processing rates themselves, however, are higher.
- Contracts: We like 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. Unfortunately, CBD merchants (like any other high-risk merchants) will usually have to accept both a long-term contract (typically for three years) and an ETF. Also, be aware that if you have a long-term contract, it will probably also include an automatic renewal clause that extends your contract, typically for one-year periods at a time. If you don’t keep careful track of when your contract is scheduled to auto-renew, you might find yourself locked in for another year or longer.
- 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 both magstripe and EMV payments at a minimum. We also recommend that you consider getting a terminal with NFC-based capabilities so that you can take payment methods such as Apple Pay and Android Pay. For some specific recommendations, check out our article, The Best Credit Card Machines And 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 two 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 illegal.
- 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.
The Four Best CBD Merchant Services Providers
With the above factors in mind, here’s a brief overview of four of the best merchant account providers in the industry that accept CBD merchants:
1. PaymentCloud Review
PaymentCloud is headquartered in Sherman Oaks, California, and has been in business since 2010. The company specializes in placing high-risk businesses (including CBD oil merchants), relying on a network of third-party processors and acquiring banks both in the United States and offshore to get you approved for an account. While it can’t place every merchant for one reason or another, it has a higher success rate than many of its competitors in getting merchants approved for an account. Best of all, the company does the extra work required to accept a high-risk account without charging you any application or account setup fees.
Like almost all high-risk specialists, the company doesn’t disclose its processing rates or account fees. You’ll have to get a quote from its sales team and do a little negotiating to see how its offer stacks up against other providers. For retail merchants, PaymentCloud has de-emphasized expensive credit card terminal leases and now offers a “free” EMV-compliant terminal with each account. Note that 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. Nonetheless, it’s a pretty good deal if you’re a small CBD business owner who only needs one terminal.
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. While its line-up of products and services isn’t as robust as some other providers, it offers all the essentials you’ll need for a small or medium-sized CBD oil business. 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.
The company doesn’t have a BBB profile, and we’ve found almost no complaints against it on the internet. Feedback from our readers has been overwhelmingly positive – something that’s quite rare in the processing world.
Lastly, one of our favorite low-risk providers, Dharma Merchant Services (see our review), now recommends PaymentCloud. Dharma recently decided to stop accepting high-risk merchants themselves, and now refers inquiries from businesses in the high-risk category to PaymentCloud. To us, a recommendation from a company as highly respected as Dharma carries a lot of weight, and we give PaymentCloud a strong endorsement as well.
- 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
Be sure to read our full review of PaymentCloud for more details.
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2. Easy Pay Direct
Easy Pay Direct
Easy Pay Direct is headquartered in Austin, Texas, and has been in business since 2000. The company provides merchant accounts for both low-risk and high-risk businesses and is one of the few providers to advertise services for CBD merchants. 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 disclose its rates and fees on its website.
To get started with Easy Pay Direct, you’ll first need to be a US or Canadian merchant and have an established processing history. Startups are only accepted if the business owner can show a valid processing history from a previous business. The company has recently dropped its requirement that the business process at least $10,000 per month, so it should be much easier for smaller businesses to get approved for an account. Approval typically requires 7-14 days.
The company previously also required a hefty $250 application fee to get started, but no longer mentions it on their website. While we usually don’t approve of this kind of fee, it’s appropriate in this case, given the more extensive effort required to underwrite a CBD account. Processing rates start at a flat 3.95% + $0.35 per transaction, although lower rates are available if your business meets certain monthly processing volume limits. There’s also a $29.99 monthly account fee, but this appears to include the use of the EPD Gateway. 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.
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.
Although Easy Pay Direct doesn’t get as much attention as other, better-known processors, it’s a solid choice for merchants selling both topical and ingestible hemp-based CBD products. We particularly recommend the company for eCommerce merchants due to the robust feature set of its EPD Gateway.
- No early termination fee
- Load balancing feature allows higher monthly processing limits
- High-quality proprietary payment gateway
- $250 application fee
- Three-year contract with automatic renewal clause
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3. SMB Global
SMB Global is a new high-risk provider that spun off from one of our favorite providers, Payline Data (see our review), 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. It has an excellent reputation for fair prices and top-notch customer service.
As a newly established business, SMB Global is still a little rough around the edges, lacking a mobile processing system and credit card terminals for retail merchants. At the same time, it offers a full range of services for eCommerce merchants, including a choice between the NMI Gateway and Authorize.Net (see our review).
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 all 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
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One thing all of the companies we’ve profiled above have in common is that they’re full-service merchant account providers, and thus they’re primarily suitable for established businesses that have a minimum monthly processing volume of around $5,000 per month or more. What about startups and smaller businesses? In low-risk industries, Square has been the go-to provider for newly-established and low-volume businesses for over ten years now. However, they didn’t accept high-risk industries at all when they started, putting CBD merchants in a quandary. Many CBD merchants resorted to misrepresenting the nature of their business (for example, claiming to sell flowers rather than CBD products) in order to get an account. Naturally, this would only work for a while before they would get caught and have their accounts terminated.
Fortunately, in 2019 Square decided that the laws had changed enough that it was safe to dip their toe into the CBD business. An invitation-only trial program was started to allow CBD merchants to use all of Square’s many products and features, although at a higher cost than what low-risk merchants were paying. This program proved to be highly successful, and today Square advertises it on their website. While it’s still listed as an “early access” program, you shouldn’t need an invitation to sign up.
As with Square’s extremely popular services for low-risk businesses, the company fully discloses all prices on their website. This transparency allows you to make a reasonably accurate estimate of what it will cost you on a monthly basis to use their services. Processing rates are quite reasonable, although they’re naturally higher than what low-risk merchants are charged. All pricing is on a flat-rate plan, with the following rates disclosed on their website:
- 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 the company 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
Be sure to check out our complete review of Square for more details.
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How Do I Find The Best CBD Merchant Account 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. So far, 2020 looks to be a tremendous improvement, with reputable providers such as Square now openly advertising the availability of merchant services tailored to the need of the CBD industry.
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 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.
In the meantime, the recent deregulation of hemp products should at least make it easier to obtain a domestic merchant account rather than having to take on the additional risk and expense of an offshore account. Unless you specifically need to get around monthly processing limits imposed by your provider for a domestic account, we don’t recommend offshore accounts. The added expense and the risk that you might never receive your funds make them a poor choice for most merchants. However, if you do need an offshore account, check out our article, The Best Offshore Merchant Account Providers, for some recommendations.
Of the five providers and PaymentCloud has the best overall reputations among traditional merchant account providers. For smaller businesses that don’t need (or can’t afford) a full-service merchant account, Square is now the best option available. We recommend that you obtain quotes from several providers and compare them carefully before deciding which one to sign up with. Also, remember that the CBD oil industry is changing very rapidly now, so there should be more providers offering merchant accounts to CBD merchants in the coming years than just the ones we’ve profiled here. Finally, if you’re a CBD oil merchant and have had any experience working with the companies listed in this article – or other providers – be sure to tell us about your experience in the Comments section below. Thanks!
In Summary: The Four Best CBD Merchant Services Providers
- PaymentCloud: Best choice for merchants selling topical CBD products and looking for personalized customer support.
- 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.
- Square: Most affordable choice for low-volume CBD merchants and start-ups.