You’ve heard the news. Hemp has been federally legalized and removed from being a schedule 1 substance. Services like payment processing should now be accessible to grow your business. However, the 2018 Farm Bill brought more confusion, as we had explored in article 1. Elavon pulled out and many services hesitate to deal with the hemp CBD space.
How can a hemp CBD business survive? Could things get any worse? Or is this the darkness before the dawn?
In a four-part article series, we at Solvent are exploring the current hemp & CBD problem with the financial industry, taking an in-depth look into the confusion caused by the passing of the 2018 Farm Bill, and explain how Solvent plans to provide affordable merchant processing for the hemp & CBD industry.
Robert Matheny of Kentucky CBD Farmacy observed the following to WKYT after Elavon stopped handling their credit card processing, “This really only affects the businesses that sell mainly hemp products. CBD products and such. Pharmacies that sell CBD, gas stations that sell CBD, all these other little stores that sell CBD can still take cards. They can still process. They can still grow as a business. CBD companies cannot right now.”
In article 2 of this series, we explored why Elavon left the hemp CBD space. As of 15th May, many businesses had to operate without merchant services unless found alternatives.
However, Elavon isn’t the only one to pull out.
Shaw of Shaw BK told The Outline she used Stripe when she started her current business. However, as soon as she introduced CBD products, they informed her they couldn’t continue offering her merchant services since her business was cannabis affiliated. She was given 15 days to find an alternative.
On their restricted business page, Stripe does clearly indicate that it doesn’t provide services to “cannabis dispensaries and related businesses”.
Similarly, Square closed its account with Fincann in February earlier this year.
Around the time the 2018 Farm Bill was being passed, Square tweeted, “Unfortunately, Square is currently unable to support the sale of these products. If Square becomes able to support businesses selling CBD, we will announce it — Square Support (@SqSupport) December 13, 2018 “
On their website, they do state, “Though marijuana and marijuana-derived products are legal in some states, they’re not currently legal at the federal level. As a result, we do not allow sellers to sell marijuana or related items on our platform.”
Payment processors, therefore, aren’t willing to provide their services to businesses selling CBD.
Yet, are all businesses that sell CBD in the same boat?
On 20th March, CVS Pharmacy announced it would be selling CBD products in over 800 stores in eight states (Alabama, California, Colorado, Illinois, Indiana, Kentucky, Maryland, and Tennessee). Around the same time, Walgreens announced it will be stocking CBD creams, patches and sprays in 1,500 stores throughout Oregon, Colorado, New Mexico, Kentucky, Tennessee, Vermont, South Carolina, Illinois, and Indiana.
Furthermore, Bloomberg reported on 9th April this year that Michael Cammarata, the CEO OF Schmidt’s Naturals said, “The hemp versions of Schmidt’s Naturals deodorant will be available across the U.S. at Target Corp. stores in September, while the CBD version will be available soon in several U.S. states that have legalized marijuana.”
The Outline reports that Stripe didn’t respond to multiple requests to clarify its stand on its policy on hemp and CBD products in light of Target’s move.
All of these companies can still process payments through the same payment processors who don’t support cannabis affiliated businesses.
Recall the statement made by Robert Matheny, “This really only affects the businesses that sell mainly hemp products.” It seems that businesses niched in CBD are the ones suffering from the lack of merchant services. Meanwhile, businesses that sell CBD products among other goods are supported.
No payment processing company has answered that question. Attorneys with CBD and financial regulations can’t explain how large retailers can sell CBD products using anti-CBD payment processors. They speculate this could be due to the proportion of CBD products to the rest of the goods they sell, the indemnity clauses they may have with the payment processors and their better creditworthiness. Let’s examine each of these.
For large retailers, CBD products form a small percentage of their transactions compared to small businesses which niche in them. It could be the percentage is too small for payment processors to justify cutting off their services from the whole company. So, their large size and market share can be used as an advantage to process CBD products.
Another speculation is that large retailers have indemnity clauses in their contracts with payment processors. Indemnity clauses are powerful since large retailers can absorb losses caused to payment processors. Remember how Elavon was frustrated by excessive chargebacks and fraud? Well, if they had been dealing with large retailers, their costs would most likely have been covered. Unfortunately, many small businesses can’t make the same kind of offer.
Lastly, many small CBD businesses don’t process credit cards so their creditworthiness can’t be determined. Payment processors are; therefore, less willing to offer them merchant services. On the other hand, large retailers have years of credit history which can be assessed. This increases the inclination of payment processors to trust them.
What can small CBD businesses do in light of all of this? Realize there’s still hope.
We have a solution that will not only let you process credit cards but will also help open up the financial world to you.
Stay tuned for the next article…