Navigating Payment Processing Challenges in the CBD Industry
The booming market of CBD products has transformed the landscape of health and wellness. However, businesses operating in this high-growth industry often grapple with unique payment processing challenges.
In this article, we will delve into the challenges of CBD payment processing, explore the hurdles faced by merchants, and provide insights into effective strategies for better transactions for both customers and CBD business owners.
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Which Challenges Does the CBD Industry Face?
The CBD industry, while promising, falls under the high-risk umbrella due to its association with the cannabis plant. As a result, CBD businesses confront a series of payment processing challenges. These include difficulty securing merchant accounts, higher processing fees, and increased regulatory scrutiny.
As a merchant wanting to sell these products, it’s highly important to understand these challenges and work towards an effective solution. Otherwise, a great business idea may turn out to be a nightmare filled with regulatory issues and complaints.
That being said, now seems to be a perfect time to get onboard the CBD train. It is, indeed, a booming industry. Just check the statistic below:
According to a report by the Brightfield Group, the global CBD market is projected to reach $23.6 billion by 2025, highlighting the industry’s rapid growth. North America remains the biggest market for CBD.
The Two Biggest Challenges for CBD Businesses
Merchants in the CBD space often face an uphill battle when trying to secure payment processing solutions. Traditional financial institutions can be very hesitant to support CBD transactions, resulting in limited options and higher fees.
To address these challenges, businesses can explore specialized CBD payment processors that understand the industry’s nuances and offer tailored solutions.
One of the (many) things CBD businesses struggle with is an increased chargeback rate, as high-risk CBD merchants experienced an average chargeback rate of 2.9%, according to a survey from PaymentWeek.
Mitigating Fraud and the Chargeback Risks
Fraud prevention and chargeback management are critical considerations for CBD businesses. Implementing robust identity verification protocols, transaction monitoring systems, and chargeback dispute resolution processes can help minimize risks and protect revenue.
You might think a chargeback or two doesn’t matter all that much. But actually, it does. LexisNexis Risk Solutions recently reported that chargebacks cost merchants an estimated $2.40 for every $1 in chargeback losses.
You don’t need a business degree to determine that’s bad for any company.
Many companies in the CBD industry seek out professional payment processors that have specialized in CBD payment solutions. This not only ensures industry expertise and knowledge but also the best rates, as these payment processors are accustomed to the increased risk CBD businesses bring to the table.
Understanding the Regulatory Challenges
The CBD industry operates in a legal landscape that is ever-evolving and often complex. As the popularity of CBD products soars, regulatory agencies like the Food and Drug Administration (FDA) in the U.S. are taking a keen interest in ensuring consumer safety and product integrity.
Staying compliant with these regulations is not just a legal obligation but a crucial step toward establishing trust and credibility in the market. While many countries have still not allowed CBD products to be sold legally, the U.S. is at the forefront of the industry – and even there, regulatory challenges are complex.
Many CBD business owners, although having the best intentions, are faced with warnings letters from legal entities:
For instance, a report by the American Herbal Products Association (AHPA) revealed that CBD companies received 53% of FDA warning letters related to mislabeling and inaccurate claims in 2020.
While the 2018 Farm Bill legalized hemp-derived CBD at the federal level, individual states and local jurisdictions may impose additional restrictions. Businesses must navigate a patchwork of regulations, from cultivation and extraction to labeling and marketing. Failure to comply can lead to fines, legal battles, and reputational damage.
In other words: It’s not easy to run a CBD business – even if you’re trying to do it legitimately. But it’s an absolute necessity to run a thriving CBD business.
To ensure compliance, CBD businesses must meticulously adhere to industry standards and regulations. This includes rigorous adherence to Good Manufacturing Practices (GMP) to maintain product quality and safety.
Proper testing and documentation of CBD products are essential to demonstrate their cannabinoid content, absence of contaminants, and accurate labeling.
In this rapidly evolving regulatory landscape, CBD businesses can take proactive steps to ensure compliance. Staying informed about federal, state, and local regulations, engaging legal experts, and participating in industry associations can provide valuable guidance.
By prioritizing transparency, accuracy, and consumer safety, CBD businesses can build a solid foundation for payment processing and overall success.
Wrapping Things Up
Navigating the complexities of CBD payment processing requires a strategic approach, a commitment to compliance, and a partnership with experienced CBD payment processors.
By understanding the challenges, staying informed about industry trends, and prioritizing customer trust, CBD businesses can thrive in the high-risk landscape and tap into the industry’s remarkable growth.
