If you’re one of the many CBD entrepreneurs caught up in the recent Farm Bill honeymoon, it seems like the excitement is officially over as major U.S. banks refuse to process CBD payments. In March 2019, the largest CBD payment processor, Evalon Inc., wrote an email to their CBD clients explaining why the company felt it had to pull out of CBD entirely. Here’s what part of the email said:
“After several months supporting this merchant segment, it has become clear that the pace of an evolving federal and state regulatory framework makes it extremely difficult to validate the qualifications required to operate within this industry,”
The email was followed by an announcement that Evalon was officially ceasing all hemp and CBD-related business, giving all merchants 45 days before their accounts were shut down. This decision was apparently sparked by a police raid at one of Evalon’s merchants who was caught selling CBD products containing THC. They had deliberately mislabeled their products in order to sell in states where THC is illegal.
Why CBD is taboo
Let’s back up to December 2018 when Donald Trump signed into law the Farm Bill. The new policy made hemp plants and products derived from them legal as long as they contain no more than 0.3% THC. The Farm Bill was exciting news for the medical marijuana industry, which was already worth billions and is expected to grow. You would expect that finance sectors would open their doors to profitable partnerships with CBD companies, but apparently, the cloud of uncertainty around the marijuana market still makes payment companies and government agencies cautious.
But why is this so?
The Farm Bill pretty much legalized interstate transportation of CBD, and meant that government agencies would put measures in place to regulate the industry, but that didn’t happen. It appears that American companies are still waiting for detailed regulations on CBD before investing huge sums into a vulnerable industry that is prone to regulatory changes.
Even social media giants are slow to accept CBD marketing – even though there’s plenty of money there. Every major social media website has banned CBD brands from advertising on their platform, and this is indicative of the uncertainty that surrounds the CBD market (and the wider marijuana market in general).
Evalon was responsible for processing 90% of all online CBD transactions, so it was a big problem when they pulled out of the market. Since March 14, companies have been scrambling for an alternate payment processing solution before they run out of business. The cancellation by Evalon meant that they wouldn’t be able to process credit card payments from customers buying CBD.
Current merchants that do process
With the exit of Evalon, only one bank remained that accepts CBD transactions; but there are many broker firms that are authorized to sell this particular bank’s services. In the weeks after March 14, CBD companies were preyed upon by dozens of brokers that charged money to submit an application to have their businesses approved to sell CBD using regular payment systems. The entire CBD industry (in the U.S.) was destabilized by the lack of payment systems, but there are four main options that CBD brands have made use of:
- Domestic credit card processing
This is the service Evalon provided and now only one bank offers the services. Companies that are yet to submit an application must be processing more than $200,000 in sales every month, so you might have to give it some time before new policies are made.
- Domestic E-check
E-check solutions are available for CBD brands of any size, and this is a decent alternative since the banks are playing hard to get. The system hasn’t been affected by recent changes, and charges are relatively lower than what Evalon offered, but keep in mind there may be additional fees.
- Offshore credit card processing
It’s a great option for brands of most sizes primarily based in the EU, where regulation on CBD is rather loose. But in recent weeks, policies have started coming up as the US seeks to control the CBD industry. At the moment, in order to process CBD payments through an EU merchant, MasterCard requires that a company have an EU address. Visa is likely to adopt the same policy.
- Payment terminals
CBD businesses that swipe credit cards on location may be in luck, as some payment terminals like GreenBox and Naturepay are still in business. The majority of dispensaries use this process, and it’s pretty convenient since they put all the swiped money into your bank account.
This isn’t a common option, but it has been used by some people in the industry. Paypal considers the entire cannabis industry as “high risk”, and so one would have to get around that to be able to process payments.
What the future looks like
Even it looks as if CBD brands have been reduced to the corporate equivalent of undocumented immigrants, they are still making money, and it is estimated that by 2025, at least 10% of the U.S. population will be using CBD. The industry is growing and evolving rapidly, and with the huge interest in alternative medicine, we can expect businesses to adjust quickly to the challenges. Potential consumers are still lining up, as more people start to take the whole CBD industry seriously.