While a buzzword for many years, cannabidiol (CBD) has now become a more mainstream topic in conversations. The market has seen exponential growth, particularly because people are now understanding its numerous health benefits. In fact, the global market for cannabis is forecasted to hit $97.35 billion come 2026, which is a CAGR of 32.92% from 2019.
Despite its growing acceptance and profitability, CBD still faces quite a number of hurdles because of its classification as “high risk.” This has resulted in constraints in transactions, among many other things. A lot of mainstream financial institutions and establishments are reluctant to allow CBD-related transactions because of the risks involved.
For this reason, high-risk payment processors are a solution for CBD companies who wish to operate like any other business. But first, it may prove beneficial to understand what exactly it means to belong to a high-risk industry.
What Makes a CBD Business “High Risk?”
CBD businesses are first and foremost classified as high risk because of the very nature of the industry. Although there are a number of proven health, wellness, and therapeutic properties of CBD, there is still some confusion in understanding the nuances.
CBD is derived from cannabis plants, of which there are two main types: hemp and marijuana. While marijuana has both THC and CBD, the former is the psychoactive element that causes a high when consumed. On the other hand, hemp has very little THC (usually less than 0.3%), and primarily contains CBD.
In 2018, the Farm Bill distinguished hemp from its association with marijuana, making it no longer an illegal substance. However, the US Food and Drug Administration continues to iron out regulations in relation to the industry, which is why certain aspects of it remain nebulous to the general public.
Strict regulations, both by actual laws and government agencies, make CBD products high risk. Also, there is some confusion regarding its legality per state. From the perspective of financial institutions, CBD businesses also pose the risk of high chargeback rates.
Chargebacks occur when customers ask for their transaction to be reversed forcibly, through the help of the bank or payment processor.
In some cases, CBD businesses are considered high risk because of their poor credit history. High-risk merchant accounts for CBD businesses are solutions to this and can allow you to have a secure place to hold your funds received from credit card transactions. Upon approval of the transaction, the money will be transferred to the merchant account before your bank account.
You may be able to open a merchant account through your chosen payment processor. These payment processors, particularly those that can help high-risk industries or CBD companies, understand the potential risks involved in these types of transactions.
What Are the Benefits of High-Risk Payment Processors for CBD Companies?
One important thing to note is that high-risk payment processors have higher fees compared to regular or low-risk businesses. These higher fees are required as they factor in the possibility of potential chargebacks. Payment processors may also have specific chargeback protection services that can safeguard you against fraudulent activity before it occurs.
High-risk payment processors allow you to accept debit and credit cards, which is especially important now that contactless, digital, and online payments are gaining popularity. Increasing your number of payment options will leave your customers satisfied. This also brings you one step further in terms of scaling your business and enhancing legitimacy or trust.
For those who are still on the fence, many of these high-risk payment processors can be integrated into your existing tools and systems. This means that your accounting and billing software and even your customer relationship management tools will be synced with your payment processor, minimizing error and boosting your efficiency.
In the event that there are any issues, these payment processors can handle customer service requests for you. Some processors have 24/7 services and are on call should there be any need for troubleshooting or assistance. They may also be able to help with the implementation of anti-fraud measures or data security.
What to Look for In a High-Risk Payment Processor for Your CBD Company
Fortunately, CBD companies have many options for high-risk payment processors these days, so you will definitely have more than enough choices. Now, it is just a matter of deciding which one works best for you. Here are some factors to look into when considering a high-risk payment processor:
Since payment processors for high-risk merchants tend to have higher fees, it is vital that they are also transparent about their services and pricing. As a potential client, you should have access to the breakdown of fees or hidden costs. It’s best if these are displayed on their website so that you can shop around and compare options from the get-go.
Some processors will attempt to make the most out of the high-risk characteristic of your CBD business. You should be wary of excessively high fees, which is why transparency is imperative in being able to weigh out your options early on.
Other fees may include terminal fees, monthly or annual fees, statement fees, compliance and non-compliance fees, and the like. Be sure to thoroughly assess your contract when you select a payment processor, as this should clearly detail the terms and conditions.
Solid Reputation in the Industry
When choosing a high-risk payment processor, it makes a huge difference when they have a solid reputation in the industry. Evaluating processors that already have sufficient expertise and reviews will help you narrow down your choices to only the best, most legitimate, and reliable ones available today.
Look into the payment processor’s history with servicing CBD businesses like yours. You can also look into the background of the company and its owners or leaders. They need to be qualified enough to deal with niche, high-risk industries, and CBD companies. If they have been around long enough, then they will know how to handle all sorts of scenarios that can occur.
As mentioned, customer service is one of the highlights of seeking out payment processors for your CBD business. This is a crucial point to consider when selecting a payment processor. Failure to have exceptional customer support can be a major red flag for CBD businesses.
Fraud and chargebacks are two of the main concerns that make a business high risk, so this is why you are going to want to have a processor that takes care of this for you. Responsiveness to these issues can prevent grave financial losses, together with distrust from customers from occurring. It will be particularly helpful if their customer service team offers live support.
You will also want to look into how the processor typically goes about settling disputes so that you can gauge if this is the kind of support your company needs.
Compatibility or Integration With Business
For those who have existing e-commerce shops, the payment processor’s compatibility or ability to integrate with your website is necessary. Make sure that the processor works well with your original set of tools, so as not to hinder your operations in any way. You will find that deploying payment processors will even make your life easier.
Useful integrations include shopping carts and secure payment pages, to name a few. Consider payment processors with API integration as these can be instrumental in monitoring the business operations. This also gives you the opportunity to see how user-friendly the buying experience is from the customers’ point of view.
Although there are still some barriers to entry for businesses in the CBD industry, there are several fixes and solutions to this. As evidenced by research, the market is still set to grow like never before.
CBD businesses that make strides towards improving their operations, particularly with high-risk payment processors, will be able to make it past the inherent difficulties the industry faces. Now that everything is going digital, these high-risk payment processors will also urge you to get one step ahead.
You will soon realize that these can also improve customers’ trust and loyalty, make your business more efficient, keep everything secure, and ultimately, increase your sales. Most high-risk payment processors will help mitigate fraud occurrences, handle chargebacks, and aid you throughout the changes of the industry and its regulations.
It’s all a matter of finding which high-risk processor works for your CBD business best. Once you are able to form this partnership, you will be on your way towards experiencing success in all aspects of your business. And as CBD picks up momentum in mainstream consciousness, you’ll know that you are headed in the right direction.
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