The Agriculture Improvement Act, commonly referred to as the 2018 Farm Bill, had a profound effect on the CBD industry. But although it legalized the cultivation, processing, and sale of hemp and its derivatives, including CBD, many questions remained.
Most notably, sellers wanted to know how this legal change would affect the payment processing sector that is so essential for anyone wishing to transact customers’ CBD product purchases.
The FDA retains authority over CBD products, including their uses and the medications that can contain it.
Hemp and products derived from it were removed from the Controlled Substances Act (CSA) as long as they are produced in compliance with federal and state regulations. However, the industry remains under the oversight of the Food and Drug Administration (FDA).
According to ongoing FDA mandates, hemp-derived CBD cannot be marketed as a dietary supplement or added to food or beverages. In addition, only one CBD-based drug has thus far been approved.
FDA restrictions are not the only complexity. Payment processors shipping CBD products or aiming to market them nationwide must navigate a complex web of state-specific laws. Each state has its own regulations governing how CBD is produced and sold. In some areas, the sale of CBD is not permitted at all.
Once the federal hemp prohibition was lifted, access to payment processing became easier. Even so, problems like high-risk classification, regulatory uncertainty, higher fees, account closures, and limited options remain.
Before the Farm Bill passed, most financial institutions were hesitant to work with any CBD-related business, including when it came to loans and payment processing. However, the 2018 legislation changed everything – at least in theory. Although establishing and maintaining a payment processing relationship is easier now for CBD companies, the road remains bumpy.
For one thing, financial institutions continue to classify CBD sellers as high-risk.
Furthermore, CBD stores categorized as high-risk businesses must also accept the inevitability of higher processing and monthly fees.
These are imposed by a CBD merchant account provider as a way to mitigate the perceived risks incurred by partnering with companies in this industry. They must also put up with additional scrutiny during the application process, and may be hit with extra contractual obligations or charges.
Additionally, some CBD sellers may experience abrupt account closures. These can lead to service interruptions that have a severe negative impact on sales and can do irreparable harm to customer relationships.
Finally, sellers looking to find a different payment processor might have difficulty doing so. That is because the number of institutions willing to work with CBD companies remains quite limited compared to conventional businesses.
The 2018 Farm Bill was groundbreaking legislation with the potential to revolutionize CBD sales. However, CBD sellers still encounter obstacles to getting stable and affordable solutions. For this reason, it appears that the nuances of CBD payment processing will continue for the long term.