The cannabis and CBD industries are experiencing an undeniable boom. With more countries and states legalizing cannabis and CBD products, this market is forecast to grow astronomically in the coming years. According to industry experts, the global cannabis market was worth $28.26 billion in 2021 and is expected to reach $197.74 billion by 2028. Despite these impressive numbers, businesses in this industry face significant challenges, especially when it comes to payment processing.
One of the most pressing issues is the need for high-risk merchant account. Business owners in the CBD and cannabis space are often labeled as “high risk” by banks and payment processors due to evolving regulations, stigma, and the complexities of managing payments in this niche. Let’s take a closer look at what high-risk merchant accounts are, why they’re crucial for CBD and cannabis businesses, and how they can pave the way for success.
What Are High-Risk Merchant Accounts?
A high-risk merchant account is a specific type of account given to businesses that are considered more likely to have payment disputes, chargebacks, or regulatory complications. This label doesn’t necessarily reflect poor business practices but is rather based on the nature of the industry. Companies in sectors like adult entertainment, gaming, and cannabis often fall under this category.
For CBD and cannabis businesses, the need for a high-risk merchant account becomes clear due to the complex legal landscape. While cannabis and CBD might be legal in certain regions, they remain federally restricted in others. These inconsistencies make standard payment processors hesitant to work with businesses selling these products.
Why CBD and Cannabis Businesses Are Labeled High-Risk
There are several reasons why payment processors classify these businesses as high-risk:
- Regulatory Uncertainty: Cannabis laws vary widely across states and countries, making it challenging for banks to navigate the legal aspects of processing payments.
- Chargeback Vulnerability: The cannabis industry often experiences high chargeback rates. Customers may dispute charges for various reasons, including dissatisfaction with the product or a misunderstanding of its legality.
- Banking Restrictions: Many mainstream banks avoid working with CBD and cannabis businesses simply due to the federal classification of these products.
Benefits of High-Risk Merchant Accounts for CBD and Cannabis
While being labeled high-risk adds additional hurdles for businesses, having a high-risk merchant account can open up opportunities. Here’s how these accounts benefit companies in the sector:
- Payment Processing: High-risk merchant accounts allow businesses to accept multiple payment forms, including credit and debit cards. Without this capability, companies are limited to cash transactions, which can deter customers and create logistical headaches.
- Improved Security: Most high-risk merchant providers offer fraud prevention tools and enhanced security protocols, protecting businesses from chargebacks and unauthorized transactions.
- Legitimacy: A merchant account signals professionalism and trustworthiness to customers. When clients see familiar card options and secure payment methods, they’re more likely to complete a purchase.
- Global Reach: For companies looking to expand internationally, high-risk merchant accounts make it possible to accept payments from different currencies and regions.
Trends in CBD and Cannabis Payment Processing
With the market evolving rapidly, there are new solutions emerging for payment processing in this space. Alternative payment systems, such as blockchain technology and cryptocurrency, are gaining traction. Additionally, as legalization expands, more financial institutions are beginning to explore opportunities to serve these businesses. Still, high-risk merchant accounts remain the go-to solution for most cannabis and CBD companies navigating the current landscape.
Adopting the right high-risk merchant account is not only critical but can help businesses thrive despite challenges. By ensuring their payment systems are secure, reliable, and flexible, CBD and cannabis entrepreneurs can focus on growth rather than worrying about payment obstacles.