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Please note that in this article, any references to “CBD” or “CBD products” relate to hemp-derived CBD rather than marijuana-derived CBD.

CBD products produced from hemp are no longer an option. CBD products are on their way to becoming virtually ubiquitous in modern life, from CBD sweets at your local drugstore to hemp moisturizing skin lotion in your mother’s bathroom.

The floodgates have opened for the whole CBD and hemp sector, thanks in part to the 2018 Farm Bill, which officially authorized industrial hemp plants from which CBD can be derived.

Analysts estimate that consumer sales of CBD products in the United States will increase from $620 million in 2018 to $23.7 billion by 2023.

However, contrary to common perception, the 2018 Farm Bill does not completely authorize all hemp-derived CBD products, leaving CBD industry leaders in the dark.

Furthermore, “CBD products are still subject to the same rules and standards as FDA-regulated goods that include any other chemical,” as stated in the 2018 Farm Bill and verified by the Food and Drug Administration (FDA).

Because of the legal uncertainty surrounding CBD under state and federal law, several banks and payment processors have deemed it a “high-risk” commodity, leading them to abruptly and without warning discontinue merchant services for its CBD vending customers.

CBD ecommerce business entrepreneurs are keenly aware of this suffering. While brick-and-mortar stores can accept in-person cash payments for CBD, ecommerce stores must either accept pay-by-check or money order payments (slowing their revenue flow significantly), or contract with expensive and unreliable “high-risk” credit card payment processors to accept online payments.

Will these brave online hemp merchants see the light at the end of the tunnel? Recent developments indicate that the labyrinth of online CBD payment processing may soon be untangled as regulatory organizations soften their stance on CBD (no pun intended).

Why Are CBD Banking Services So Difficult?

Despite popular perception, the 2018 Farm Bill does not completely legalize all forms of CBD throughout the US. Hemp, a non-psychoactive form of the Cannabis Sativa plant, may be used to make CBD.

Hemp differs from marijuana in that it has relatively little THC (tetrahydrocannabinol), the psychoactive component of marijuana (0.3 percent). This makes it difficult to regulate hemp since it looks, smells, and tastes almost similar to marijuana.

Although CBD produced from hemp is usually allowed on a federal level, state regulations vary.

Just ask Robert Herzberg, who was carrying hemp from Colorado but was detained in Jackson County, South Dakota, on his route to Minnesota, despite a federal directive from 2019 prohibiting states from obstructing hemp transportation. Despite the fact that Herzberg had all of the necessary paperwork for his hemp cargo, it was nevertheless seized by local cops.

This inconsistency between federal and state regulations poses a danger not just to hemp company owners, but also to financial institutions that handle and hold hemp income.

Valuations that are high-risk.

It’s possible that if you operate a CBD company, it’ll be classified as a marijuana-related business (MRB). Banking institutions must scrutinize you more closely for risk assessment if you have an MRB.

Because CBD and marijuana-related goods are part of a sector with frequent chargebacks and varied legal statuses, they are classified as “high-risk.”

“In reality, the chances of federal banking regulators investigating and punishing your financial institution for working with a business selling CBD products from unknown parts of the cannabis plant (especially CBD products otherwise legal under state law) are probably small,” writes attorney William S. Hackney. It seems difficult, if not impossible, to establish which section of the plant a CBD product was produced from (labelling notwithstanding). Those odds, though, are not zero.”

Symptoms of a green surge

Banks are faced with a difficult decision: which CBD businesses should they fund?

So many companies have rushed to offer CBD in this “green rush” that it’s impossible to tell the good citizens from the bad. Companies who falsely advertised CBD as a cure-all created a financial climate with unusually large chargebacks.

CBD Payment Processing Faces Its Own Set of Obstacles.

The primary problem with CBD payment processing is screening, as Beryl Solomon, CEO and creator of Poplar, explains in this anecdote:

“Word on the street is that Elavon didn’t utilize rigorous enough screening procedures, allowing shady companies to pass.” It was simpler for them to remain in good standing with the credit cards if they simply dropped all CBD accounts rather than vet the CBD businesses they sponsored retrospectively.”

Here are some of the most significant difficulties CBD businesses encounter when it comes to accepting online payments and credit cards:

There aren’t enough processors.

Only the biggest payment processors have the financial clout to withstand credit card firms’ assault on CBD sales.

Vetting CBD businesses as customers is also an expensive procedure that never completely eliminates the financial risk for payment processors.

As a result, despite the fact that BigCommerce has over 60 payment processors on its platform (making it one of the most payment agnostic ecommerce platforms on the market), only a few of them would take CBD payments.

A lack of point-of-sale systems.

Is it possible that a client may pay in cash? No issue, however many companies are unable to establish physical stores without the use of point-of-sale systems. Conducting business exclusively with cash is a logistical headache. To safeguard the huge amount of cash on the premises, armed guards are often present, and armed couriers transport cash to the few CBD-friendly institutions within driving distance.

Everything financial for a brick-and-mortar CBD company gets more complex when it only has real money at its disposal – wages, inventory purchase, maintenance and other operational expenses, and so on.

Contracts with stipulations.

If prohibition produces a black market, then the legal gray area that “protects” financial institutions that provide CBD banking services is generating a gray market for payment processing.

Payment processing services are particularly expensive, with some firms demanding double-digit transaction fees and requiring escrow accounts with huge minimum amounts. Many more of these high-risk payment processors will bind you to lengthy contracts that will automatically renew, costing you early termination fees in the process.

These high-risk payment processors often work with international institutions. Taking money out of another nation may be costly due to transfer costs and new tax regulations. If anything unexpected happens, good luck moving your money out of a foreign nation.

Banks that are CBD-friendly

Because of the legal framework’s creation of a gray market for CBD, there’s a good possibility that your friendly local bank will refuse to conduct any CBD-related financial transactions.

Don’t worry, we’ve compiled a list of two example banks that reflect the kinds of financial institutions we think would be willing to accept CBD business transactions. Please note that we do not recommend any of the following, and we do not get any money for giving this information. It is only for educational reasons.

Chase Bank is the first.

Chase Bank may establish a vault for CBD-related bank accounts, but it will not be able to handle payments for the time being. Chase would most likely wait for the SAFE Banking Act or another CBD financial services-enabling law to pass, which will help the sector become less risky. Chase would most likely wait for data to accumulate on what successful CBD businesses look like in order to adequately screen prospective customers in the future, owing to its size.

North Bay Credit Union is number two.

North Bay Credit Union is one of the few American banks that openly admits to processing cannabis transactions, which they handle on a secret basis for businesses situated north of San Francisco. To keep their capital ratios in check, the credit union restricts the amount of deposits certain businesses may make. Despite the danger of federal punishment for processing these transactions, which are still unlawful under federal law, North Bay Credit Union continues to service its customers.

CBD Businesses Have Four Financing Options

Despite the difficulties of establishing a hemp CBD or other hemp-related company in a newly legalized market, profit will find a way if you have the desire and perseverance. Use these tried-and-true tactics to get any company off the ground.

Funding from the private sector.

Do you know any rich people or angel investors that you might persuade with your company plan? Professional investors, in addition to common stock, often seek additional types of advantages and may influence the company’s value with their investment.

In the early phases of their business, most entrepreneurs turn to their friends and family for funding. Persuade your wealthy friends to invest in your CBD business so that they may become even wealthier. You may have to jump through a few hoops or repay a few favors, but getting in on the ground floor of a rapidly growing business may be well worth the effort.

Begin with a little project.

If obtaining $25,000 in inventory is your primary goal, you may choose to acquire $5,000 in inventory instead and be forced to expand slowly and modestly (at first). If you can’t obtain $5,000 in inventory, maybe $1,000 would enough. If you can’t obtain $1,000 for inventory, you may want to put it off till you have more money. McDonald’s, too, began as a single burger stand. Sam Parr, the creator of The Hustle email newsletter, earned his first modest fortune from a mobile cart selling “hot dogs as large as a baby’s arm.” It doesn’t matter where your money comes from as long as it takes you where you want to go.

Put money aside.

If you need to save money on your own, it may take you longer to get started, but you will be able to do it without making a financial commitment to a bank. Can you put aside $200 each week for six months in a regular rate savings account? That’s all for your five grand. Saving money for a long time requires discipline, but no one said establishing a company would be simple. Restraint, on the other hand, has a benefit. Giving yourself six months to raise money gives you plenty of time to develop CBD marketing strategy and do more product research.

Personal loans are number four.

Personal loans have a higher interest rate, but if you have excellent credit and evidence of income, many institutions will give you one. This may be the greatest method to obtain financing if your CBD company is a side hustle. Just make sure that the interest costs are included into your company strategy so that you don’t end up with unsustainable debt. Furthermore, CBD is still regarded as a high-risk substance. Perhaps don’t use your home as collateral, and keep in mind that personal bankruptcies will appear on your credit report for ten years.

On every loan application, we suggest and encourage you to be open and honest about the intended use of the money.

Don’t give up hope; CBD’s future seems promising.

Prior to 2018, the hemp CBD industry in the United States was almost non-existent! Consider how much progress can be achieved in a single year.

So far, all but a few states have legalized hemp production, which opens a lot of possibilities for the hemp sector. Yes, operating in the CBD business is difficult at the moment, but major companies are attempting to figure it out.

CBD income is at an all-time high.

When Wall Street begins talking, you can anticipate legislation to follow soon after. According to the Motley Fool, sales of CBD products in the United States are expected to reach $23 billion by 2023, or a 107 percent compound annual growth rate (CAGR)!

Increased acceptability.

Consumer education and awareness is one of the major challenges that CBD merchants are working to solve. CVS Health, Walgreens, and Rite Aid have all declared intentions to offer hemp-derived CBD topicals in thousands of locations, while Kroger just revealed plans to sell CBD products in 17 states.

By increasing product availability, contributing to growing wellness trends, and supporting the proliferation of numerous product segments, these large players have not only introduced CBD products to the mainstream population, but they’ve also opened the door for smaller companies to try their luck in the market.

Conclusion

In the United States, medical marijuana is legal in all but four states, and CBD is moving toward full, transparent legalization — not the other way around. The cannabis business seems to be on the verge of a major expansion and profit potential.

What is my recommendation? Get informed, get financed, and get started as soon as possible. Mergers and acquisitions are one of the most intriguing developments in the cannabis industry. Larger, better-funded firms are buying up smaller players, turning tenderfoot tycoons into multimillionaires – as long as their businesses fill a need in the market that has yet to be filled.

Please note that any references to “CBD” or “CBD products” in this article relate to CBD produced from hemp, not CBD obtained from marijuana.

This information is not intended to be legal, tax, professional, or financial advice, and BigCommerce disclaims all responsibility in connection with it. On particular legal, professional, or financial issues, please contact your attorney or professional adviser.