Why Do CBD Businesses Struggle with Payment Processing and How Can They Fix It?

Introduction 

A new age was ushered in by the 2018 Farm Bill, which legalized hemp-based cannabis products at the federal level, opening doors for new businesses. However, there are a lot of regulations and misunderstandings, so starting a CBD business is not easy.

Operating inside the CBD realm entails navigating a maze of regulations, legal structures, and obstacles. One such issue is payment processing. Due to the legal ambiguity surrounding CBD products, many traditional payment processing providers are reluctant to collaborate with businesses in the CBD industry.

Even if they find the right one, there are other challenges as well. 

In this post, we will delve into the realm of CBD high-risk credit card processing, discussing the issues that CBD businesses confront and proposing innovative approaches to help them navigate this complex market.

Also Read: How to choose the Best Payment Processing Company

What is High-Risk Payment Processing Partner? 

Payment processing is the foundation of any business, allowing for seamless transactions and client satisfaction. But this is far from simple for high-risk businesses like CBD. Traditional financial institutions don’t usually would like to partner with high-risk businesses due to the perceived legal and financial dangers connected with them.

However, their are certain high-risk merchant payment partners who can help you with it. They are leading organizations who provides payment processing services designed for businesses in high-risk industries.

The CBD sector fits into this category because of the legal and regulatory issues surrounding its products.

High-risk payment processing companies provide solutions that reduce the risks involved while providing safe and effective transactions because they are aware of the particular difficulties faced by CBD companies.

High-risk payment gateways serve as intermediaries between financial institutions, merchants, and customers. These gateways have been created to address the unique issues provided by high-risk sectors. They include extensive security features, fraud prevention measures, and interoperability with high-risk merchant accounts, resulting in easy transactions for CBD businesses.

However, there are still so many challenges that CBD businesses when it comes to payment processing – so keep reading to know about the challenges & how it solve it.

Also Read: Guide to Start a CBD Business

Common CBD Business Challenges & its Solutions!

CBD businesses face unique, frustrating challenges when it comes to payment processing, mainly due to the legal complexities surrounding CBD and the hesitance of financial institutions to get involved. Let’s get a closer look at these pain points and actionable solutions that target each one.

Challenge 1: Financial Institutions’ Reluctance to Work with CBD Businesses

Despite the legalization of CBD businesses in 2018, the CBD industry remains in a legal gray area at both federal and state levels. It faces a lot of regulations & restrictions from the officials.

This ambiguity makes banks and credit card processors wary of working with CBD businesses, leaving them with limited options and less leverage to negotiate favorable terms. As a result, many CBD companies struggle to establish stable, long-term banking relationships, and they face frequent account closures or denials.

Solution: In order to solve this challenge you need to research a bit and find the CBD specialized financial institutions. Partnering with payment processors that specialize in CBD and other high-risk industries can help mitigate this challenge. 

These institutions understand the unique regulatory requirements of the CBD space and provide them with reliable, long-term partnerships along with robust support. They are less likely to close accounts unexpectedly – ensuring fewer disruptions in payment processing and offers best-in-class customer support.

Also Read: Which Bank Supports CBD Businesses?

Challenge 2: Limited Payment Options

Businesses in the CBD frequently face limitations on their payment methods. Many traditional payment channels avoid the CBD market because of the perceived risk. Merchants are consequently left with few options for payments, which detracts from the consumer experience and may have an effect on sales. 

However, it’s critical to give clients the necessary convenience and payment options with a variety of choices in this competitive marketplace.

Solution: You may get in touch with a top payment processing company that can integrate several payment methods, including cryptocurrencies, e-wallets, and other cutting-edge choices, to lessen the impact of having few payment options. This gives your consumers a convenient and secure option to make transactions, build confidence, and drive repeat business.

Challenge 3: Excessive Processing Fees

Another challenge that CBD businesses often face is excessive processing fees. It has become more of a norm for them. Because CBD businesses are considered high-risk, all the payment processes often charge much higher processing fees compared to other industries.

Many mainstream banks and payment processors charge higher processing in order to safeguard against potential legal complications or perceived risks. Higher fees lead to reduced profit margins for CBD companies and make it harder for them to compete in the wellness market.

Solution: The solution to this is to research your way out and work with payment processors that cater specifically to high-risk industries and are open to negotiation. It can open the door to more competitive rates.

These providers often offer tailored pricing structures that account for the specific nature of the CBD industry. Look for processors that offer discounts for high-volume transactions or customized pricing plans to keep costs under control and protect your business’s profitability. Just compare the pricing plans from different providers, analyze what works best, and make the right decision.

Also Read: How Much Money is Needed to Start a CBD Business

Challenge 4: Frequent Account Freezes and Closures

Many CBD businesses have faced sudden account freezes or closures due to the perception of CBD as a high-risk industry. This often happens with traditional banks and payment processors that are less familiar with the legalities of CBD and suddenly pull back when there is any hint of risk.

These sudden disruptions can leave CBD businesses unable to process payments for undermined, damaging customer trust and hurting revenue for your CBD business. It will also impact the customer credibility – which businesses probably do not want.

Solution: Choose Reputable, CBD-Friendly Processors

The best way to avoid account freezes is by partnering with processors that are high-risk and have a solid track record in the CBD industry. Reliable CBD-friendly processors ensure their services are legally compliant and well-supported by legal teams who specialize in high-risk industries.

Some payment processors even offer 24/7 support and dedicated account managers, which helps prevent and quickly resolve any issues that could disrupt your payment processing.

Also Read: How to Open a CBD Business Bank Account

Challenge 5: Risk of Chargebacks

The fact that CBD products are still relatively new and changing can cause customer confusion. They may not have a thorough understanding of the product or have irrational expectations regarding its effects. This can lead to a greater rate of chargebacks (when a client disputes a transaction and receives a refund).

The CBD industry is prone to chargebacks due to misconceptions and frequent chargebacks can quickly label a business as high-risk, leading to higher fees, account holds, or even being blacklisted by certain processors.

Solution: In order to better deal with chargebacks, you need a incorporate a strong customer support system and transparent policies on product returns, shipping, and payment terms. All of this assures them they can easily return which significantly reduces the risk of chargebacks.

Also, before, at the time of purchase, make sure you educate customers about products, their effects, and everything in between – so they what they are getting, solve confusion, and can minimize chargebacks.

 Additionally, some CBD-focused payment processors offer chargeback management tools to help businesses handle these situations effectively, reducing the likelihood of penalties or loss of processing capabilities. So, make sure to choose the right one who can help you with better chargeback management.

Also Read: How to choose the Best CBD Payment Processing Company? 

Challenge 6: High Risk of Fraud

CBD e-commerce businesses, in particular, are vulnerable to fraudulent activities because of chargebacks and other reasons as well as due to the high-risk nature of online transactions.

These higher percentages of frauds and chargebacks can damage a business’s reputation, hamper customer experience, lead to higher processing fees, and higher chargebacks, and even increase the risk of account closures from processors who view frequent chargebacks as too risky.

Solution: To reduce the risk of fraud, there are so many best security practices you can follow for payment processing. To know more about it, check out our blog. On top of it, many CBD-specific payment processors offer fraud prevention tools, such as address verification services (AVS), and card security code (CVV) checks to prevent fraud and reduce chargeback rates.

Also, check out with your support team – whether they have a dedicated support team who can assist you in handling the frauds, chargebacks, and overall support.

Challenge 7: Unstable Payment Processor Policies

CBD businesses are often vulnerable to sudden policy changes by payment processors. Even processors that initially agreed to work with CBD businesses can change policies with little warning or no warning or maybe freeze or terminate accounts unexpectedly.

This uncertainty leads to problems with payments, lost customer trust, tarnished business reputation, and disruptions in cash flow, forcing businesses to scramble for new payment options, sometimes within days.

Solution: While this might be common among CBD businesses, there are so many reliable merchant account providers available who are prepared to handle high-risk businesses and transactions. Some high-risk payment processors even offer transition services, helping businesses quickly switch providers without interrupting daily operations.

Rather than relying solely on one processor, CBD businesses can integrate multiple payment channels, including ACH (Automated Clearing House) payments, eChecks, and even digital wallets if compatible. Having alternate payment options provides businesses with resilience against disruptions caused by any one processor, while also improving customer trust and experience.

Challenge 8: Complex Application Process for Payment Processing

After you have done your research and found the best CBD-friendly payment processors, the work is not over yet. In order to register, you need to go through an extensive application process that includes thorough background checks, product compliance documentation, and detailed business financial records.

Even after the review, your status is not yet confirmed. It is in their hand whether to approve your business or not.

Solution: To simplify the application process, CBD businesses should prepare key documents in advance, such as product lab results, state licenses, and financial statements. Additionally, working with payment processors that specialize in high-risk industries can streamline the approval process.

These providers often have dedicated onboarding teams who understand the nuances of CBD compliance, allowing for faster approval and setup. Also, if possible – hire a professional to handle all the legal process and get quick approval.

Challenge 9: Inconsistent Payment Processing Times

For CBD businesses, payment processing times can be unpredictable, often varying significantly due to high-risk designation. This inconsistency in getting the payments can make it difficult to manage cash flow and plan for expenses, creating challenges in meeting payroll, inventory replenishment, and other essential operational costs.

Solution: Choosing a payment processor that offers predictable payout schedules tailored to high-risk industries can bring stability to cash flow management. Some CBD-friendly processors have set payout days and faster settlement times to ensure reliable access to funds. By securing a processor with consistent processing times, businesses can plan their cash flow more accurately and maintain a smoother financial operation.

Challenge 10: Regulatory Compliance and Changing Laws

CBD businesses often operate under a regulatory landscape that feels like it’s always shifting, which can make compliance a real headache. Both state and federal regulations on CBD are evolving, sometimes without much notice.

For payment processors, these changes can be a red flag, prompting them to reassess or even terminate relationships with CBD merchants they’ve partnered with. This isn’t always a deliberate move on their part but rather a way to avoid potential liability or fines.

Solution: CBD businesses can reduce the impact of regulatory changes by partnering with payment processors who are experts in CBD compliance. These processors have in-house legal teams or regulatory specialists who monitor changes in CBD laws and ensure their services remain compliant.

They often provide guidance to CBD businesses on compliance documentation and stay ahead of regulatory shifts, helping avoid sudden disruptions. Also, make sure to regularly consult with legal experts to stay updated on state and federal changes to strengthen a CBD business’s compliance efforts.

Challenge 11: Difficulty Securing Refunds for Disputed Payments

CBD businesses often face challenges in managing refunds and disputes because their transactions are considered high-risk. When CBD processing partners face any disputes, refund requests, or chargebacks – it takes a lot of time to handle the problem, All of these make it difficult for businesses to handle disputes, and leaving them can lead to huge financial loss, especially for online CBD businesses where disputes, frauds, and chargebacks are more common.

Solution: A practical way to address the challenge of managing refunds or disputes is partnering it with a payment processing provide who has robust security and chargeback management in place. Many high-risk payment processors offer tools to help CBD businesses track and respond to disputes more efficiently.

Along with this, displaying clear refund and return policies on the website helps set customer expectations, which can reduce disputes from the start. Educating customers about CBD products, including realistic effects, delivery times, and return conditions, builds trust and prevents misunderstandings. These proactive steps make it easier to manage disputes, protect finances, and keep customers satisfied.

Challenge 12: Higher Risk of Transaction Delays

Because CBD transactions are often flagged as high-risk, some processors may hold or delay payments to verify the legitimacy of the transaction. These unexpected delays could disrupt cash flow, leading to issues with inventory purchasing, payroll, and other operational expenses as well. Prolonged payment holds can also slow down order fulfillment, causing unexpected delays that frustrate customers and damage trust.

Solution: In order to solve this problem, you need to look out for CBD-friendly payment processors who can provide you with consistent payout schedules and faster settlement times for high-risk businesses.

They also specialize in minimizing hold times by streamlining their verification processes, ensuring that businesses have faster access to funds. Transparency is another important feature, as these processors provide clear policies and timelines for settlements, reducing uncertainty and making financial planning more efficient.

Many CBD-friendly processors offer additional benefits like next-day funding or expedited processing, ensuring quick access to money when it’s needed most. This helps businesses maintain smooth operations, restock inventory promptly, and fulfill orders on time, keeping customers satisfied.

To Conclude 

CBD businesses are booming, so does customer requirements, need to offer convenient payment processing and what not. But, all of these have its own challenges.

Right from high-rates of chargebacks and frauds to higher processing fees, less support from the payment processing partner, termination of account, lesser payment options and what not.

But, every challenge has solution as well. And, in this blog we have listed all the challenges and its solutions.

The thing that you shouldn’t forget is choosing the CBD-freindly, reliable, high-risk merchant account provider. With them by your side, you don’t have to worry about lot of challenges that comes your way. Just access to seamless payment processing & happy customers.

If you are looking for one, you can connect with CBD Merchant Solutions. We are a leading CBD payment processing partner who can help you handle your payment needs without the challenges & hassles.

Just get in touch, get started with seamless onboarding and accept payments with absolutely 0% processing fees. So, what are waiting for? Get started right away!