Unraveling the Complexities of Cannabis Transactions
The world of payment processing is inherently complex, a complexity that’s magnified within the cannabis industry—a sector synonymous with regulatory ambiguity. This blog aims to unravel the intricacies that cannabis businesses face, particularly in online payment processing, and to clarify the term “Cannabis Space” as encompassing the entire industry, from those handling the plant directly to ancillary service providers.
A New Era for Hemp and CBD
The 2018 Farm Bill heralded a new age, particularly for CBD, categorizing any cannabis product with 0.3% THC or less as hemp, thus distinguishing it from marijuana—a Schedule I substance. This reclassification has ostensibly made CBD as lawful as dairy on a federal scale, allowing certain players to offer their products nationally and accept credit cards for payment.
Credit Card Processing: A Cautious Progression
Despite the liberalization, Acquiring Banks—the institutions providing merchant accounts for credit card transactions—have largely approached CBD retail with caution. CBD is still deemed high risk, and only a select few banks have engaged with the market after four years.
Banking Jargon Decoded: Acquiring Banks vs. Issuing Banks
Understanding merchant processing requires differentiating between two types of banks: Acquiring Banks, which provide merchant accounts, and Issuing Banks, which offer payment cards to consumers. A bank offering you a Visa card is an Issuing Bank, though it may also serve as an Acquiring Bank.
Navigating ‘High-Risk’ Waters
The ‘high-risk’ label attached to CBD by card associations such as Visa and MasterCard means that Acquiring Banks, which are risk-averse by nature, are hesitant to engage. This stems from a higher perceived risk of fraud or chargebacks associated with CBD products.
Legal Nuances and Compliance Challenges
For banks, the legality of boarding cannabis merchants is fraught with legal complexities. Selling products with just a hair over 0.3% THC can lead to severe federal penalties, while staying under that threshold is entirely legal. Banks depend on third-party lab reports to ensure legality, a reliance that introduces a significant degree of risk.
The Bank’s Dilemma: Understanding Lab Reports
Bank underwriters often find themselves in a quandary when assessing the THC content on Certificates of Analysis (COAs). While federal law and judicial rulings have affirmed that only the Delta-9 THC content is relevant, inconsistencies in COA presentations and a lack of standardized templates can lead to confusion and caution.
Advice for CBD Companies Seeking Payment Processors
For CBD businesses, differentiation between federally legal hemp and illegal marijuana products must be crystal clear. By adhering to Visa and MasterCard’s high risk merchant registration processes and maintaining comprehensive and up-to-date lab reports, companies can streamline the underwriting process for Acquiring Banks.
Conclusion: Charting a Path Forward
The payment processing landscape for the cannabis industry remains a maze of regulations and standards. CBD companies must navigate these with diligence and transparency to partner effectively with financial institutions. As the industry grows and the rules evolve, clarity and compliance will be the keys to unlocking the full potential of cannabis e-commerce.