Running a business comes with its fair share of challenges. As a CBD vendor, your business faces additional challenges due to compliance requirements. You must adhere to state and local laws, and you must also ensure that you are compliant in how you set up your merchant processing account. If your business is not fully compliant, it can have major implications, including your business being completely shutdown. Being 100% in compliance requires knowing what is required of you as a CBD supplier.
Here are three key Red Flags to watch out for that can get you in trouble for non-compliance:
Red Flag #1: The Changing Ins-And-Outs of Legally Selling CBD in Your State and Locality
When it comes to CBD sales, one size does not fit all. Licensing and product testing regulations vary from state to state and even locally. And, what’s more confusing, laws are frequently changed or updated, especially when it comes to cannabis-derived products such as CBD. What’s legal in one state or county may not be compliant in another. And just when you think you’re OK, the laws change again. Find out what licenses you need for your location and if you are required to have your products tested by an approved lab prior to selling. You may think you are licensed and are conducting testing, but you may not have all the licenses you need, and if your testing is not from an approved lab, it can be considered invalid. Check with state, local, and federal organizations to make sure you are 100% compliant.
Red Flag #2: Liability for Fraud
Customers complain and request chargebacks. Whether legitimate or not, this can tip off your merchant processor that you are selling CBD products. Because CBD is a highly regulated product, it is treated differently by merchant processors. Businesses that sell CBD products are considered a high-risk industry, and you must notify your payment processor that you will be selling CBD products prior to selling them. Many merchant services providers do not allow payment processing for the sales of CBD products, and even if they do, you must disclose that you will be selling such products. Processors also audit merchant processing accounts to ensure compliance.
Perhaps you were not aware of the requirement to disclose that you will be selling CBD products. Maybe you thought you could get away with not telling your payment processor that you are selling CBD products. Either way, by not disclosing that you will be selling CBD products, technically, you are committing fraud and are non-compliant with your card processor’s rules and regulations.
If you are not in compliance, it can result in your merchant processing account having funds held, being frozen, or worst of all, being shut down abruptly. Not only can this be financially costly but it can also do significant damage to your brand. To avoid fraud and scams by manufacturers, research their products to make certain their claims are accurate, read customer reviews, check for lawsuits, and be suspicious of outrageous claims. To ensure compliance with your payment processor, you must read your merchant processing agreement’s fine print and the processor’s terms and conditions. Most well-known payment processors do not allow sales of CBD products, including Square, Stripe, and PayPal. You should partner with a trusted payment processing solution specializing in high-risk industries such as businesses that sell CBD products.
Red Flag #3: Marketing Your Products Like You’re Selling Ice Cream
Unlike most consumer goods that can be marketed using emotionally charged visuals and compelling copy, when it comes to CBD marketing, the FDA says, “None of that!” The CBD industry is plagued with so much misunderstanding and misinformation that what you say and how you say it is critical to be compliant with FDA rules and regulations, social media advertising terms and conditions, and other digital marketing platforms. CBD companies and, hence, any retailers selling CBD products must adhere to certain language restrictions, marketing claims, testimonials, and reviews presented to the public in their marketing efforts. To be sure, refer to the FDA website as a resource for clarity on the options available to market your business.
All of these uncertainties involving state and local legal compliance, fraud issues, and marketing restrictions may compound your difficulties in finding a reliable merchant processor that will work with you, not against you. There are many high-risk processors available, but some also charge high fees. Due to the high-risk classification, CBD merchant accounts usually come with higher prices and more restrictive policies than standard merchant processing accounts. Some of these restrictions include increasingly high chargeback fees, costs you never heard of hidden in your contract, and high fees if you want to get out of your contract.
However, there are a few merchant processors that don’t think high-risk should mean high costs. One example is Unity Payments. Unity Payments is specifically designed to offer CBD businesses advantages such as no contracts, no cancellation fees, locked-in service rates, 24/7 tech support, loss prevention specialists, and the ability to accept Visa® and MasterCard®. Unity Processing is powered by Nuvo Company, an established leader in the merchant processing industry with over 35 years of experience serving various businesses, enabling Unity Payments to absorb a higher amount of risk. If you’re unsure if your CBD business is compliant, if you are looking to change payment processors, if you would like a free audit of your existing processor, call Unity Payments at (321) 972-9838 or sign-up online.