Credit Card Companies’ Complicated Relationship with CBD

Friday, October 11th, 2019

CBD products have exploded into the market thanks to the passage of the U.S. Farm Bill in 2018. In fact, in 2018, CBD products brought in $2 billion worth of sales and that is only expected to grow, with projections putting revenue at $16 billion by 2025.

Unfortunately, though, the legal waters around CBD and hemp products are murky. This creates confusion and limitations for businesses in the market which translates to reduce options for their customers.

The Medical Need for CBD

While research is still mounting, cannabidiol (CBD) has been shown to have a variety of medical benefits. Users claim that it helps them with anxiety, insomnia, stress, seizures and epilepsy. It has also been prescribed to help manage chronic pain associated with fibromyalgia, Ehlers-Danlos syndrome (EDS) and cancer.

Some people opt for CBD because traditionally prescribed drugs may not effectively treat their issues and opioids used for pain management have many severe side effects, including a high risk of addiction.

These patients turn to CBD products, such as creams, tinctures, vapes, raw oils and concentrate sold by local dispensaries or through online stores. This is where they begin to run across the common issue of paying for their goods.

Why Credit Card Companies Won’t Work with CBD Businesses

CBD is one of 113 found in cannabis plants and accounts for 40% of the plant’s extract. CBD is separate from THC, the part of the plant that induces a “high”, but may be mixed in varying degrees with THC for medical purposes. Any product made with more than 0.3% THC is completely illegal at the federal level.

What’s more, the distinction between medical and recreational usages varies between states.

While CBD is a lucrative market, this creates a gray space for both companies producing CBD products and payment processors, such as Visa, MasterCard, Discover, Shopify and PayPal.

There are also a slew of CBD payment processing issues laid out in the Controlled Substance Act, Bank Secrecy Act, an internal memorandum from the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and a trio of memos called the Cole Memorandum. The FDA also prohibits adding cannabis to food or making health and wellness claims.

Depending on the state, legality, and regulations also vary, including the requirement to register businesses and have products tested through approved labs.

The extensive and differing amounts of regulations create a minefield of issues for credit card processors, which makes them prone to denying accounts with any CBD business in order to protect themselves.

This leaves small CBD and online businesses with only two options: accept cash only or go with a high-risk merchant account. Being a cash-only business makes payments inconvenient for customers and is obviously not an option for online retailers. High-risk merchant accounts usually end up being the only option for online businesses, but these accounts come with high associated costs to help the provider mitigate various risks.

Established brick-and-mortar businesses such as Walgreens, CVS, Rite Aid, Urban Outfitters, DSW and Neiman Marcus are able to CBD products through credit card processing because they have a lower risk and extensive reputation that makes processors more likely to work with them. These restrictions can suffocate small businesses, however.

The Future of CBD Transactions

CBD treatments are not covered by health insurance, even when they are prescribed for medical conditions. This ends up being a costly burden for patients who are already financially strapped because of the inability to work due to their ailments.

The inability to use credit cards for online ordering reduces their ability to find competitive rates for the products that they need.

At the beginning of 2019, PayPal started lobbying for the passage of the Secure And Fair Enforcement (SAFE) Banking Act, which would help create options for banks and merchant services to deal with cannabis-related businesses. As of June 2019, the bill was placed on the calendar for a full vote in the U.S. House of Representatives but has not been scheduled as of now.

While the FDA and government are hammering out the details of potential regulations on CBD products, businesses and customers alike are suffering.

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