The CBD industry has witnessed monumental growth ever since the spree of legalizations over the past decade. However, even as its consumption and mainstream acceptance continues to scale, the industry continues to be impaired by the lack of suitable payment processing options.
For a variety of reasons, payment processing service providers remain largely averse to CBD retail, given the risks associated with the same. As a result, the industry loses billions of dollars in potential sales each year, weighing down up-and-coming giants, the likes of Hometown Hero CBD.
In this article, we take a look at the core challenges that have led to such an aversion, and the possible solutions for overcoming the same and unlocking substantial value for the entire industry in the process.
Challenges Faced by the CBD Industry in Payment Processing
The CBD industry encounters several challenges in payment processing, hindering its ability to conduct transactions seamlessly. Here are a few such challenges that continue to hold the industry back,
Regulatory Uncertainty – The CBD industry operates in a legal gray area due to varying jurisdictional regulations.
CBD products derived from hemp, such as gummies and other edibles with less than 0.3% THC content are legal at the federal level in the United States, but individual states may have different rules.
This ambiguity makes banks and payment processors hesitant to work with CBD businesses, fearing potential legal and compliance risks.
High-Risk Classification – Payment processors and financial institutions often consider CBD a high-risk industry.
The association with cannabis, despite its non-psychoactive properties, raises concerns about reputation, fraud, and chargebacks.
As a result, many traditional payment providers decline to support CBD transactions, making it challenging for businesses to find reliable payment solutions.
Limited Access To Traditional Banking – CBD companies often need help securing banking services due to regulatory uncertainties and high-risk classifications.
Many banks refuse to open accounts for CBD businesses, making it difficult to process payments, access loans, or even maintain basic financial operations. The lack of traditional banking options forces CBD companies to seek alternative payment solutions.
Payment Processing Restrictions – Major payment processors like PayPal, Stripe, and Square have restrictions on CBD transactions, limiting the options available to businesses.
These restrictions can include outright bans on CBD-related transactions or requiring additional documentation and compliance measures that are often too burdensome for CBD merchants.
Possible Solutions for the CBD Industry
In recent years, the growing demand for CBD products has given rise to plenty of new innovations and service providers to address these common challenges. Here are some that are making a lot of headway in this regard,
Specialized CBD Payment Processors – CBD businesses can partner with specialized payment processors that understand the industry’s unique challenges.
These processors have expertise in navigating the regulatory landscape, managing compliance requirements, and mitigating risks associated with CBD transactions. By working with such providers, CBD companies can access tailored payment solutions that meet their needs.
Cryptocurrencies – Cryptocurrencies like Bitcoin and Ethereum offer an alternative payment method for CBD businesses.
By leveraging decentralized digital currencies, CBD companies can bypass traditional banking systems and reduce reliance on mainstream payment processors. Cryptocurrencies provide a more secure and transparent payment option while ensuring privacy for both customers and merchants.
Education & Advocacy – The CBD industry can benefit from increased education and advocacy efforts to address the misconceptions surrounding CBD products.
By collaborating with industry associations and engaging in public awareness campaigns, CBD businesses can help change the perception of their industry, making it more appealing to traditional payment processors and financial institutions, in addition to the broader public.
Regulatory Clarity & Industry Standards: CBD businesses benefit from clearer regulations and standardized industry practices. Advocating for consistent and transparent regulations across jurisdictions can help ease the concerns of payment processors and financial institutions.
Moreover, establishing industry standards for quality control, labeling, and testing can enhance the credibility of CBD products, instilling confidence in payment providers and consumers alike.
Payment Gateway Integration – Businesses in the sector can explore integrating payment gateways specializing in high-risk industries.
These payment gateways have experience dealing with the complexities and challenges that CBD companies face and can provide tailored solutions to process payments securely and efficiently.
Final Word
Despite the significant advances over the past decade, the CBD industry is still faced with an uphill battle when it comes to reaching its fullest potential.
Payments, banking, and financial inclusion is certainly the biggest one of them all, that has persistently held the sector back. Fortunately, we are seeing steady improvements in this regard, and expect to see more innovations and specialized services coming to their aid in the years ahead.
