Last updated on September 1st, 2021
Processing credit card payments has been a dismal prospect for most CBD and cannabis businesses, thanks to murkiness surrounding federal laws regarding the legalization of hemp textiles, Cannabidiol (CBD), and medicinal marijuana. Thanks to recent legislation that legalizes hemp products (including CBD oils) at the federal level, payment processor Square has given the green light to CBD businesses, allowing entrepreneurs in the CBD space much-needed breathing room to process credit card payments without exorbitant fees. Here’s what you need to know about Square CBD payment processing:
Story at a Glance:
- Due to restrictions placed by federally-backed banks and credit issuers, cannabis vendors have been forced to only accept cash or debit payments, limiting their profitability.
- Many hemp products, including CBD oils, are now legal at the federal level – but banks still are wary of allowing CBD vendors to process credit card payments, since this could potentially run afoul of federal and state regulations. These regulations vary by state, furthering the confusion surrounding them.
- The majority of people making purchases in 2019 use credit or debit as a payment method; fewer people carry cash each day thanks to the convenience of carrying plastic instead.
- Payment processor Square has stepped up, becoming the first company of its kind to allow CBD vendors to partner with them.
Square Revolutionizing How Americans Pay
In the age of credit and debit, cash is no longer king. Few people carry cash these days, and the need to go to an ATM to withdraw cash to facilitate a purchase at a cash-only business can be annoying, and discouraging for some. In fact, a 2001 study by MIT found data trends indicating that, even almost twenty years ago, businesses that accept credit and debit payments tend to have an advantage over those that are cash-only enterprises.
This report shows that on average, consumers will spend nearly twice as much when they can use plastic to make their purchase. The trend continues today, and the inception of digital pay options like digital wallets, the Apple Card, and chip technology on cards, has cash become more and more obsolete. Companies like Square have helped to bridge the gap between businesses who wish to accept digital/online credit and debit payments, and consumers who are no longer using cash as a primary means of purchasing items.
Square is a U.S.-based payment processing company that sells hardware and software products designed specifically to allow businesses to process debit and credit payments both online and in person. They market point-of-sale systems, as well as apps and card readers, that help companies that might otherwise be unable to process credit card payments do business in the modern, cashless era. Their concept has become popular because it is not only well designed, but affordable – and it makes life much easier for small businesses and consumers alike. Square CBD is helping to pave the way for small businesses to be more profitable by accepting multiple forms of payment, and they’re trailblazing in other areas, too. Read on to find out more!
Cash vs Card in the World of Cannabis
At times, it makes sense to run a business that doesn’t accept cards – banks and card issuers charge small-transaction service fees that can add up when your business makes frequent small transactions throughout the course of each day. A good example of this might be a coffee shop, or a used bookstore.
For some types of businesses, using credit cards isn’t even an option, though. As more states begin to legalize medicinal and recreational marijuana, and Cannabidiol (CBD) products (that contain 0.3 percent THC or less) are legal at the federal level, the legal grey area surrounding cannabis – and marijuana – vendors has become much more prominent. It also doesn’t help that the rules governing regulation and sale of these items appear to vary state-by-state; what is permitted in Colorado may not be legal according to Arizona state law, for example.
Traditionally, businesses that sell cannabis products have a hard time accepting credit card payments. Due to federal restrictions surrounding the use, and sale, of hemp and cannabis products, most credit issuers have opted to avoid the issue entirely – despite the already-lucrative cannabis industry showing incredible potential for growth.
Marijuana itself is illegal at the federal level, and banks (read: card issuers) are federally regulated and insured; this leads them to avoid dealing directly with marijuana-related businesses, and because credit cards are backed by banks, it complicates daily business for budding marijuana businesses. Actual cannabis dispensaries have an even harder time – and although ATMs have become commonplace at many dispensaries, which can also process debit card payments under a third-party system – many marijuana businesses are forced to either forgo allowing their customers to pay with credit, or get creative.
In fact, Blüm, a Nevada-based marijuana dispensary has gone so far as to classify their business as a food truck in order to be able to accept and process credit card payments. While this card-friendly business model seems to work in Colorado and in Nevada, it represents a big risk for businesses, who could be targeted by prosecutors for money laundering.
Legalization of marijuana – whether medicinally or recreationally – does not mean that a business is safe from prosecution at the federal level, and because of this, most banks – and credit card issuers – have stayed clear. On the other hand, hemp and its derivatives – including CBD – was federally legalized under the Farm Bill that was signed into law last year.
Even though public support for cannabis products is growing daily, there’s still a potentially high price for business owners who run afoul of these federal regulations, whether they sell marijuana or its slightly less-controversial cousin CBD; there have been reports that banks have gone so far as to shut down personal savings accounts of entrepreneurs who sell marijuana legally. Even if cannabis purchases – including hemp textiles and CBD products – are legal at a state level, like in California and Nevada, “cannabusiness” owners can run into big issues when it comes to handling their finances, and are often unable to process credit card payments due to the restrictions placed on them by federally-backed banks and card issuers.
Square Launches CBD Financial Services
While there is more support for CBD and hemp sales, as CBD isn’t classified as a Schedule I drug by the DEA, hemp and CBD businesses still run into issues because banks quite simply would rather not risk backing a business that is related to marijuana. Although a lack of financial services has been a big problem for cannabis companies – including those that sell Cannabidiol products – there is still good news to be had. As advocacy for CBD products and marijuana grows, more and more people recognize the potential windfall that may come from involvement in the cannabis industry, and it’s attracting the attention of credit processing companies like Square.
Back in May of 2019, payment processor Square launched a small-scale, invite-only pilot program to offer financial services to a limited number of CBD sellers. This was hailed as a big step forward within the cannabis community, since until that point most payment processors and card issuers had refused to work with CBD companies at all.
Now that several months have passed without issue, Square cbd has expanded their pilot program and now appear to be accepting more CBD vendors, offering fair pricing, and seamless integration for companies who want the ability to quickly and easily process credit card payments for CBD products. Square’s blog states that they are “thrilled” to “allow businesses in the U.S. to sell CBD products on Square quickly, easily, and securely.” Square CBD is one of the first payment processors to tackle the CBD market, and there’s hope that this trend will continue and more processors will warm to the idea of working with cannabis companies, eschewing exorbitant fees to make the CBD space lucrative for both vendor and bank.