You may wonder why your merchant service provider/credit card processor considers your hemp/CBD business as high risk. It’s definitely a good/fair question to ask as you may either be paying exceptionally high rates to accept credit cards for your hemp business and/or you’ve had your merchant account terminated in the past due to selling hemp-based products. There are a few different elements to this and where the acquiring banks/payment processors find risk in these products.
One valid reason is that there are some regulations in the business being that only what is considered a hemp product can be sold via the credit card networks. All products have to test at 0.3% or less Delta-9 THC by dry weight (the main psychoactive cannabinoid in cannabis) or they’re considered marijuana and against the Visa/MC/Amex policy to take credit card payment for them here in the US. Not to say that most of the risk isn’t on you as a merchant as far as being fined by the card brands and/or having to deal with legal action if any product being sold is over the 0.3% threshold, but merchant service providers are always weary of potentially facing large fines from the card brands for supporting merchants over the Delta-9 THC threshold. This has lead some of acquiring banks to refuse to do business with hemp businesses overall and others accept some hemp businesses but with certain restrictions as well as higher payment processing fees.
Then you have the biggest reason still to this day for the limited number of payment processors that accept hemp/CBD businesses. Although CBD and many non-psychoactive cannabinoids are considered by a majority of the population to be a safe form of alternative medicine essentially, there is still the unfortunate stigma that exists surrounding anything related to the cannabis plant. Even with political polls showing that even recreational marijuana access is supported by the majority of Americans, let alone non-pschoactive cannabinoids like CBD, there are still people who unfortunately hold a negative view on the cannabis plant as a whole. We can say that these merchant service providers/acquring banks are pandering to the ignorant, but this is indeed what they’re choosing to do.
Many of the acquiring banks are actually pandering to some of their shareholders who may happen to be ultra-conservative when they claim reputational risk for not wanting to support hemp products. Shareholders, particularly some of the very large ones, can play a pivotal role in the decisions made by the executives at large, publicly traded companies. The majority of the largest acquiring banks out there like Wells Fargo, Chase, US Bank, etc, are very large publicly traded companies. If their largest shareholders don’t want the bank to support hemp products due to their own personal beliefs, the bank can choose not to support hemp businesses whether it be for banking purposes or as the acquiring bank for merchant accounts.
I know this may sound straight out-of-left-field for one of these major acquirers, who happen to be some of the largest banks in the country, to actually claim reputational risk when deciding not to support hemp businesses whether it be for banking or merchant accounts. With most of these large banks, you may ask the question, “How can their reputation get any worse?” This is definitely a fair question to ask, and I’m right there with you if you do ask yourself the question of how the biggest banks possibly have the chutzpah to claim reputational risk in not wanting to support hemp businesses yet having such terrible reputations already.
I like to tell clients who ask why the merchant acquiring banks have these restrictions on the products they support for merchant processing, that unfortunately the merchant processing ecosystem is like a microcosm of the society we live in as a whole. In our society, people are unfortunately discriminated against by their race, ethnicity, religion, sexual preference, etc. This type of discrimination is obviously unfair and its one of the things that plagues our society, much like it is when product types are discriminated against in the merchant processing ecosystem by the acquiring banks. A lot of the acquiring banks don’t seem to realize it but it’s bad business by them as many of these products they consider as “high-risk” really aren’t high-risk at all when it comes to chargebacks and the bank possibly taking losses on these merchants. Not only that, but many of the businesses in these industries do really well for themselves as far as sales volume goes, so the banks lose much more money by not supporting these business types than they ever possibly could have in potential losses if they did support these industries.
I hope this gives you some clarity on why hemp/CBD businesses and some other business types are considered “high-risk” industries by the banks when they obviously really aren’t.
