6 Obstacles CBD Merchants Need to Understand And Why Processors Struggle with CBD Accounts

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There are six major obstacles to CBD Merchant Processing that could be preventing you from accepting credit cards. Any one of them, if you fail to recognize and correct it, can hold you back on Shopify.

 

Obstacle to CBD Merchant Processing #1: Is the merchant selling a Controlled Substance?

There are two types of CBD available to consumers: hemp-derived CBD and marijuana-derived CBD. At a federal level, Hemp-Derived CBD is not a controlled substance and Hemp-Derived CBD can be transported through any of the 50 states. However, there are some states whereby either a lack of information, misinformed law enforcement and/or the states do not recognize hemp as independent of marijuana.

 

Obstacle to CBD Merchant Processing #2: Is the merchant complying with government regulations regarding manufacturing and distribution? Processors have to question CBD merchant’s product at both federal and state laws when it comes to compliance.

  • Are you compliant with the rules governing foods and other things that consumers use and consume?
  • Are you going to sell your CBD products into all states or only certain states?
  • Are you aware of your complete supply chain?
  • Are your products registered and tested properly?
  • Are you making any claims in your marketing?
  • Are you going to import/export out of the US?
  • And, the biggest being, “Are you in alignment with the current position of the FDA?”

Obstacle to CBD Merchant Processing #3: What products are a merchant selling and marketing online?

If the FDA says CBD cannot be used as a food ingredient (human or pet), cannot be sold as a dietary supplement, and cannot be marketed with therapeutic or medical claims (aka health challenges), how come industry-leading brands like TheCBDistillery, Charlottes Web, Exinol, KOI and every brand selling gummies, chocolate cookies, brownies, syrups, etc, are doing it with no issues.

 

While this is true, like all government agencies, the FDA has limited resources, and it APPEARS the FDA has chosen to use its resources to not attempt to remove CBD in food. Instead, what the FDA has been doing with its resources and very aggressively, is to target companies that are marketing dietary supplements and making therapeutic and medical claims on their websites, social media sites, print, and digital distribution, video channels, testimonials, and even packaging.

 

The FDA is also enforcing prohibition for some other health challenge claims that are not so outlandish like pain relief, helps with sleep, reduces anxiety, menstrual cramps, etc. And while some of these claims have been shown in some studies to be true, their truth is irrelevant because the FDA says you can’t make any claims about it. Period.

 

In addition to FDA violation warnings, multiple class-action lawsuits were filled in 2019 against CBD brands for these types of claims as well, many of them sent FDA Violation Letters.

 

Obstacle to CBD Merchant Processing #4: Is the merchant creating systems to manage products and quality control?

There are a lot of rules regarding food production and manufacturing.

For example, CBD consumers need to be able to see that the hemp-derived CBD was lawfully acquired and can be traced to a batch. Why is this important? Similar to other industries, if there was a recall or something happens, as the case does with consumer products, then that whole lot can be quickly identified, removed, and replaced.

 

Obstacle to CBD Merchant Processing #5: Does the merchant have third-party COAs?

While hemp farmers, extractors, and white labeling distributors have their own produced COAs, CBD merchants must have their third-party lab tests available to customers.

 

Obstacle to CBD Merchant Processing #6: Is the merchant following federal and state laws and regulations?

In the United States, “Federal Preemption” is the invalidation of a U.S. state law that conflicts with federal law.

When it comes to hemp-derived CBD, Federal law does override state law, to an extent because states also have the opportunity to regulate industrial hemp production.

 

For example, some states want to protect their citizens and so they apply additional regulations to things such as business licensing, facility licensing, labeling, how they monitor, quality control; there are many more things that the state will regulate and in some cases municipalities will regulate too.

 

What does this mean? In most cases “federal law” overrides a conflicting state law, except when it comes to things like the mentioned above.

 

(If you want to see a list of all hemp-derived CBD states and marijuana-derived CBD states, check out the original article)

 

How-To Obtain CBD Merchant Processing in 2020 on Shopify

With FDA violation warnings being sent in bulk, class-action lawsuits on the rise, and new rules and regulations being implemented in this industry, if you are playing the long-term strategy, compliance needs to be your mindset.

 

Elavon’s troubles started and ended with underwriting. Same with First Fresno, Modesto, Base Commerce, Greenbox, and, it wouldn’t surprise most that Square will shut down its CBD program or pay some ridiculous fine to the DOJ for poor underwriting and lack of merchant compliance.

 

If you need processing and want to learn more, email me at jd@integritypay.co

 

To read a more in-depth version of this article, take a look at my article on Medium.

IntegrityPay, Expert Web Developer, High-Risk Processor, CBD Consultant, Merchant Processor, & Shopify Partner
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