Celebrate Square’s CBD Expansion — And Then Get Prepared to Board with a Stable Account
As someone on the front lines of the CBD merchant processing space (or should I say fiasco) for the better part of this past year Square’s announcement that they are expanding their CBD program is (sort of) welcome news.
Merchants have figured out there have been five to seven compliant solutions that are packaged and sold by a hundred different agents. Many of those agents partner with each other. When merchants are putting in multiple applications that move from one agent and processor to another, and around and around it goes. Sometimes merchants make it through underwriting, other times they don’t. Even when they get up and processing, solutions flat line or have frustrating customer service when purchase errors occur.
A Solution For Many, Not For All
So yes, the industry can sort of collectively breathe a sigh of relief with Square’s expanded industry coverage. Conversely, the recent press announcement that Shopify was taking on CBD merchants seemed to be a non-event. First, because it’s well known in the industry, but secondly because it didn’t solve the incredibly frustrating merchant processing dilemma. Moreover, we are still seeing merchants needing to pay an additional 2% integration fee above the traditional high-risk rates charged for high-risk processing options. But with Square’s announcement, this is something that could be a game-changer for the industry.
As an industry, please let’s all collectively take a moment to celebrate. For merchants who can get accepted, I welcome the solution. If you aren’t already on Square or haven’t yet applied you can do so here: https://squareup.com/us/en/solutions/cbd
For my first warning of many — this will not work with Shopify. Rest assured we have other solutions for Shopify and MRB Compliance Group can help you get other compliant processing solutions. But for those on WooCommerce, this is a simple integration.
Three Standards for Compliance
There are three standards for compliance you want to consider when you are looking at merchant processing. One is if they want your business or if you have to hide your business. This one is pretty basic — don’t do it. And if you do the consequences can be steep. They will shut down your account, ban you, put you on a merchant processing bad players list, and likely seize the money you have in the account.
Then there are low-risk processors who invite your business. Elavon, who is only chartered as a low-risk processor started onboarding merchants after the Farm Bill was signed and by June they were asked to release the accounts. As we understand it they were shut down by the Department of Justice (DOJ) and asked to release the 40,000 CBD accounts they were processing at the time. Square? High-risk or low-risk. I would say low-risk, so buyer beware that it might not be the most secure solution — but a won’t say not a welcome one given the many challenges in the space.
We endorse the high-risk CBD compliant solutions even though it has been bumpy. Fortress, Esquire, T1, and Greenbox have all been in this space awhile and have all had problems and complaints. More recently more domestic banks have come on to the scene as acquiring banks for processing. This means that the bank knows that the processor is doing CBD transactions. Most banks don’t like CBD or hemp because regardless of the Farm Bill they see it as a derivative of marijuana, and in their view, that is still a Schedule 1 Drug and outside of their risk matrix. Therefore only a few banks are willing to process it.
If and when they learn that merchants are no longer selling what they were approved to sell, they throw a fit. This is what’s recently led to some solutions no longer working for customers. Other solutions are now coming online. They are prioritizing by volume and it is taking some time to get through underwriting. Nevertheless, every CBD merchant should have one of these accounts. Some have monthly processing minimums, but as soon as you qualify you should be getting an application in. Definitely have your agent on speed dial once you have those 3 months of merchant processing statements with proven volume. It is advisable to not hesitate to have another credit card processing option. Don’t blink at the price!
Alternatives to Credit Cards
In addition to credit card solutions, there are bank withdrawal solutions that are also CBD compliant. These include e-check, bank sync (like Paypal), and bank-to-bank transfer (like Zelle). We always endorse having one of these. If something goes upside-down with your credit card you will still have a way for your customers to pay you. We recommend putting a copy on your website explaining how to use them and why you choose to use compliant processing as part of your commitment to quality and transparency. You might need to educate the end-user that the industry is challenging and this is one of the ways you are electing to meet these difficulties. You can also educate them through email and social media that these are safe and viable options for them to use to buy products on your website.
As a short aside there is that we have recently heard of some e-check fraud. It was by no-do-gooders in the world but they targeted a company with bad checks. These were missed by the processor. So a note is that when accepting an e-check or any alternative method is to make sure the payment not only posts but fully clears before shipping any product. This does add a delay for the customer, and most of them are on the up and up, but this does safeguard you from the bad players. And unfortunately, the processors will avoid taking responsibility for the money they put into your bank account and then promptly whip out when the check doesn’t clear.
Please Don’t Get Complacent
As a financial services company, we see the struggles. We work hard every day to help CBD business owners through those challenges. However, one distinct difference between our THC customers and those are CBD is that THC owners know that it is hard. CBD owns reference the Farm Bill and the ease of on-boarding with Elavon as evidence that this “should” be easy. But the reality is that it is not. It is not going to get easier for some time. The biggest enemy for any CBD business is going to be complacency. Just because you are up on running on Square does not mean you can be complacent.
We recommend starting your other merchant processing applications now — don’t wait. The applications are quite robust and it can take a couple of weeks to complete the application and get through underwriting. Once you are boarded these solutions have proven to be stable so as long as you remain compliant you won’t get any unwelcome surprises about getting your account shut down.