High Risk Credit Card Processing for CBD Merchants

CBD businesses are booming, but one major hurdle persists for merchants in this thriving industry—high risk credit card processing. Despite its legal status in many regions, the CBD industry often faces unique challenges when it comes to payment processing. These challenges stem from its categorization as “high-risk,” which directly impacts how transactions are handled, the security standards required, and the relationships with payment processors.

For CBD merchants, understanding the dynamics of high-risk credit card processing is essential for sustainable growth. This blog explores what makes CBD transactions high-risk and what merchants can do to successfully overcome these payment challenges.

Why CBD Credit Card Processing is Labeled High-Risk

CBD merchants are classified as high-risk businesses due to several factors tied to the regulatory and financial complexities of the industry. Here’s why payment processors are cautious when working with CBD businesses:

1. Evolving Legal Landscape

CBD legality varies by jurisdiction worldwide. Even within the United States, each state determines its own regulations on the production and sale of CBD products. The lack of universal regulatory clarity makes it riskier for financial institutions to manage these businesses.

2. Chargeback Concerns

The CBD market experiences an above-average number of chargebacks. Customers who claim their transactions were unauthorized, or those dissatisfied with product effectiveness, often request refunds or reversals. High chargeback ratios are a red flag for payment processors.

3. No Stable Banking Partners

Large banks and traditional payment processors have avoided the CBD industry due to its association with cannabis products. Without consistent support from reputable financial institutions, CBD merchants face difficulties in securing stable payment processing partnerships.

4. E-commerce Heavy Market

CBD transactions often happen online, further elevating the risk of fraud and disputes. Card-not-present (CNP) transactions inherently pose greater risks compared to in-person transactions, adding another complicating layer.

The Cost of High-Risk Processing for CBD Merchants

Operating in the high-risk payment category comes with increased costs. CBD merchants often pay higher fees compared to low-risk businesses to access essential processing services. Some common fees include setup costs, termination fees, or higher monthly transaction fees.

For small and medium-sized CBD businesses, these fees can quickly add up, putting pressure on overall profitability. However, this raises an important question for merchants to consider—is accepting higher fees worth the ability to process credit card payments? For most, the answer is yes since offering flexible payment options increases customer satisfaction and boosts conversions.

Steps to Secure High-Risk Credit Card Processing

CBD merchants can take necessary steps to align with high-risk payment processors and stabilize their transactions. The following actions can improve approval chances with payment processing partners and build long-term success.

1. Partner with High-Risk Processors

Instead of traditional card processors, CBD merchants should seek out specialized high-risk providers. These providers understand the complexities of handling CBD products and offer tailored solutions for payment processing, fraud protection, and compliance.

2. Transparent Business Practices

Payment processors appreciate transparency. CBD merchants should be upfront about business details, such as product sourcing, pricing policies, website disclosures, and refund terms. Establishing clear terms reduces risks and builds trust with financial partners.

3. Use Secure Technology

Data breaches and cyberattacks can ruin businesses reliant on e-commerce. Using secure payment gateways with fraud prevention measures like SSL certifications and adherence to PCI compliance strengthens merchant credibility and protects customer transactions.

Adapting to the High-Risk Label

While being categorized as a high-risk merchant poses challenges, it also provides an opportunity for CBD businesses to refine operations, strengthen transparency, and adopt innovative practices to outshine competitors. Partnering with the right payment processor, minimizing fraud risks, and keeping pace with regulatory trends can help CBD merchants thrive, amidst the evolving market landscape of this lucrative industry.