Up until recently, having a payment processing service accept CBD distributors—both startups and established businesses—was unheard of.
With worries over legalities and potential moral implications that may come from making these changes, most payment processing services have chosen to avoid potential red tape by banning these companies from using their services altogether.
The Agricultural Improvement Act of 2018, more commonly referred to as the Farm Bill, was supposed to change that.
Voted to pass by the United States Congress on December 12th 2018, and shortly after made into a bill by Donald Trump, it confirms the legislative standing of hemp.
Hemp is a term used for cannabis that contains less than 0.3% of the psychoactive cannabinoid THC.
Under this act, provisions about the cultivation, transport and sale were set out, which allowed hemp to be moved across state borders.
Provided CBD was derived from hemp and meets the requirements of the Farm Bill, then it will be totally legal to run and distribute a company that sells CBD and related products.
The reality of this act is that it hasn’t gone far enough to reassure payment processing providers.
Rep. Andy Barr (R-KY) confirmed this during a recent hearing, when he pressed federal financial regulators about the issue.
He said, “I’ve had constituent businesses tell me that their access to financial products, specifically card services, have actually deteriorated since we descheduled industrial hemp in the Farm Bill.”
In April, Senate Majority Leader Mitch McConnel (R-KY) and Sen. Ron Wyden (D-OR), who heavily campaigned hemp’s legalization through the Farm Bill, sent a series of letters to various federal agencies pushing for new guidance about financial services access for hemp businesses.
In one letter, they said, “while some institutions have agreed to offer financial products to the growing hemp industry, many of them have not due to confusion over the legal status of hemp.”
For a long time, Square could be included on this list of payment providers who adamantly stated that they would be unable to provide services for those selling CBD and related products derived from hemp.
This was true for many providers, and even those who may have previously established themselves as providing payment services for CBD companies are succumbing to the confusion surrounding the new legislation.
Perhaps one of the most shocking announcements was when US Bank Subsidiary Elavon announced that they would be removing financial services for accounts created by companies selling CBD products back in March 2019.
This uncertain market leaves many CBD startups with no other choice but to invest in services with high transaction fees—as much as 7 percent in some cases we’ve found.
The alternative is to invest in PayPal, though many startups have reported doing so negatively impacts their businesses due to a large proportion of their client base wanting to use credit cards directly for their purchases.
The good news is that, at least for Square, things might be changing.
Earlier in May, a spokesperson for the payment processing provider spoke out to reveal that they are currently conducting an invite-only beta for some CBD products.
When pushed to explain the reasoning behind the launch of their new program, they explained, “the company closely watches evolving public policies and strikes to create new opportunities for clients.”
Other than the above statement, Square has been quite quiet about the intricate details of their beta-led program, so we cannot be certain of what their process involves.
There have been suggestions that more established companies will have first pickings when it comes to their beta program, but even if this is the case, it could mean that startup CBD companies benefit from the program in the long term.
Square is also providing confidence in the Farm Bill, acting as a frontrunner in the payment processing sector.
This means that, if the program is viewed as successful and profitable by the company, many other major processing services may be tempted to follow suite.
In conclusion, though many small CBD startups feel cut-off from mainstream financial services in a way that make sit difficult for them to succeed with their businesses, this may soon be changing, and Square could be the one to start the chain reaction. A bill to legalize banking support for marijuana and CBD vendors is currently being prepared for a vote in the immediate future.