Why Is CBD categorized as High Risk?

Accounts Wizard
November 15, 2021
CBD merchant

Why Is CBD High Risk? | The Laws, Challenges, and Solution for CBD Merchants

Are you a CBD Merchant in need of payment processing? The CBD industry has been on the rise in the past decade due to the health benefits of cannabidiol. With many people experiencing the “miracles” of cannabidiol (CBD), a lot of companies started selling CBD products. But, since cannabis is still not fully legalized in the USA and still considered a Schedule I illegal drug on a federal level, CBD companies face some problems.

They are considered a high-risk by banks, credit card processing companies, lenders, and the state in general. This causes them troubles in operating, especially when it comes to payment processing. Why actually is CBD a high risk? To get the answer to this question, we must go to the basics and learn more about CBD.

What Is CBD?

CBD is an acronym for cannabidiol, an active chemical compound of cannabis. Unlike THC, the psychoactive cannabinoid found in cannabis that causes the “high” feeling associated with marijuana, CBD is not psychoactive and has no such effect on people. On the contrary, CBD has a lot of health benefits due to directly affecting and “fixing” the endocannabinoid system.

Due to the proven health benefits of CBD, it’s widely used as a natural remedy for multiple conditions. It’s mainly used for chronic pain and anxiety but also for achieving overall wellness, heart health, and acne.

CBD Products

As a result of the CBD health benefits, pharmaceutical companies have developed various CBD products, including:

  • CBD oils
  • CBD tinctures
  • CBD capsules
  • CBD gummies
  • CBD topicals
  • CBD balsams

You can find them in specialized shops and pharmacies where you can buy them without a prescription. Actually, you can find them almost everywhere, even in convenience stores and gas stations. While they are widely sold on the market, the CBD industry still remains a high risk.

Why Is CBD a High Risk?

Although CBD is nothing like THC and the “high” feeling marijuana causes, the fact that it’s derived from the plant causes the misconception that it’s bad for our health. Many studies have confirmed the health benefits of CBD and multiple states have legalized the use of medical marijuana. However, it’s still a taboo topic and remains a high risk.

There are three main reasons why CBD is considered high risk:


The FDA doesn’t approve selling CBD products that can be added to food or a dietary supplement. They did approve only one CBD product, a prescription drug for treating Dravet syndrome, Lennox Gastaut syndrome, and tuberous sclerosis complex. While FDA recognizes the potential health benefits of CBD, they are aware that some companies sell products that violate the Federal Food, Drug, and Cosmetic Act.

The 2018 Farm Bill legalized only hemp-derived CBD, which means the marijuana-derived CBD is still illegal. The reason why hemp-derived CBD is legal is that it contains less than 0.3% THC. Therefore, companies must ensure their products are derived from hemp and contain less than 0.3% THC in order to sell CBD legally.

While selling CBD is still illegal, the laws are constantly changing. Some countries loosen their laws for hemp production and sales while others still have them lifted. As a CBD merchant, you need to keep up with every change to ensure you operate under US law.

High Risk of Fraud and Chargebacks

CBD companies are considered high-risk merchants because the risk of fraud and chargebacks is high. This is mainly because of the nature of the products they sell and their legal status. Another reason for shops that sell CBD online is that only adults (18+) are allowed to buy a CBD product and there’s no way to verify the buyer’s age. Lastly, although studies have confirmed the health benefits of CBD, there’s no guarantee that it can cure all health issues. Since it can have a different effect on everyone, there’s a high risk of chargebacks for the efficacy of the product.

Reputation Risk

Although the medical use of cannabis has been widely accepted, a lot of people still perceive CBD the same as marijuana, with a psychoactive effect. Due to being associated with marijuana, businesses that legally sell CBD products are associated with selling marijuana.

The Challenges CBD Businesses Face

There’s no doubt that the CBD industry is growing and will continue to grow. However, CBD businesses face a lot of challenges that businesses in other industries don’ due to the legal status of CBD. Namely, CBD companies face with:

Slow and Expensive Licensing

Since the legal status of CBD isn’t quite clear and FDA doesn’t approve it, getting a license for selling CBD products is a really slow and expensive process. First, they have to prove that all the products they sell contain less than 0.3% THC. Then, they have to pay application fees and other fees required to get a license. And, then, they have to wait for who-knows-how-long to receive their license.

Merchant Account and Payment Issues

Since the CBD industry is considered high risk, they have limitations on their merchant account and higher transaction fees. In fact, they have a really hard time when it comes to merchant accounts because banks and payment processing companies don’t want to take the risk of working with CBD businesses. As a result, they either aren’t allowed to open a regular merchant account or pay sky-high fees for the same.

Issues with Online Sales

The whole world went digital and so do sales. To keep up with the changes, most businesses have gone online. While online stores have made a boom and are accepted by people due to the convenience of shopping from home or wherever there are, CBD online stores have a hard time operating. This is related to the above-mentioned problem with merchant accounts.

Namely, banks and payment processing companies don’t want to have anything to do with high-risk businesses like CBD, so they don’t allow them to merchant accounts. And, without a merchant account, they can’t accept credit/debit card payments, which is the core of online shopping.

Negative Criticism from the Public

The legalization of marijuana for medical and recreational use has been a topic of debate among Americans for years. While it has been legalized for medical use and some states have even legalized it for recreational use, a lot of people still consider CBD to be the same as marijuana due to the lack of knowledge about CBD, marijuana, hemp, and the difference between them. As a result, they often criticize CBD companies for selling “drugs”.

What Does the “High-Risk” Label Mean for CBD Merchants?

Being labeled as high risk, CBD merchants have a lot of issues that prevent them from operating with full capacity. Namely, they can’t find investors, obtain funds or bank loans for their business, nor find commercial space in the start-up phase. This affects not only their business in general but also their day-to-day operations.

One of their biggest challenges is payment processing, especially debit and credit card processing. First and foremost, banks and payment processing companies don’t want to work with them because they are high-risk businesses. Second, even if they get a merchant account in a bank or a payment processing company, they are very limited on the number of transactions per month. And, lastly, they are charged high fees for their merchant accounts and all associated services, as well as the credit/debit card processing

Being a high-risk business prevents them from using some of the best-known credit card processors like PayPal and Stripe. Also, they are a legal risk for banks, lenders, and commercial property owners until the federal laws change in favor of responsible CBD use and sales.

Challenges with Banks

The 2018 Farm Bill legalized hemp production for agricultural purposes and removed the plant from the Schedule I list. This gave a green light for selling hemp-derived CBD products. However, not all states have accepted this law and most of them have laws against producing, using, and selling CBD. In fact, some states have banned CBD production which raised the question of the legality of the hemp business. And, since CBD production, sales, and use fall in the grey area, the CBD industry is considered high risk for banks.

Apart from the laws, CBD is a high risk for banks also from a financial aspect. Due to the uncertain legal status and unpredictable future of the industry, banks are afraid of great financial losses. As a result, they don’t want to do business with CBD companies and deny them merchant accounts.

Challenges with Payment Processing Companies

CBD businesses also have a hard time with payment processing companies. No payment processor wants to work with them and allow them payment processing services. Hence, these companies can’t use debit and credit card processing. This prevents them from selling CBD online and limits their in-store payment options. And, not being able to offer multiple in-store payment options and running and Online CBD shop has serious consequences for CBD companies and growth.

Even if a payment processor is willing to work with them, due to the laws and risk of fraud and chargebacks, they treat them differently from other businesses. Namely, payment processors charge them very high fees, limit their number of transactions per month, the amount of money per sale, keep their funds for some time, and keep reserve funds.

What Can CBD Merchants Do?

The CBD industry is considered high risk and there is nothing CBD merchants can do about that. They can’t change the decision banks and payment processing companies have made in terms of doing business with them. However, there’s one thing they can do – open a high-risk CBD merchant account.

Opening a CBD merchant account at a high-risk processor like us will allow them to operate legally and accept credit and debit card payments.

What Is a CBD Merchant Account?

A CBD merchant account is a high-risk merchant account that allows CBD companies to accept multiple payment options. This includes debit cards, credit cards, gift cards, and buy-now-pay-later options. Opening this type of merchant account not only allows credit card processing but also supports your business, its operations, and growth. In order to open one, you need to find a reliable high-risk payment processor.

CBD Merchant Account Features

CBD merchant accounts come with features that support the “fragile” nature of CBD, including:

  • Fraud protection
  • Chargebacks protection, alerts, and disputes
  • Secure payment gateway
  • Acceptable processing fees
  • Fast approval for a merchant account
  • ACH/Check processing
  • Multi-bank processing
  • No funds reservation
  • Unlimited processing
  • Limited or no hold options
  • Next-day funding

The Benefits of CBD Merchant Account

Opening a CBD merchant account has many benefits for your high-risk business, including:

  • Credit card processing – You can finally accept debit cards, credit cards, and other types of payment. This allows you to offer multiple payment options in your store and sell CBD online.
  • Fraud protection – Since CBD isn’t fully legal in the USA, CBD companies are at a high risk of fraud. By opening a high-risk merchant account, your business gets protected against unfound chargebacks and fraudulent actions. It does that by constantly monitoring every transaction.
  • Multiple payment options – Apart from accepting credit cards and debit cards, you’ll also be able to offer bank transfer, gift cards, prepaid cards, and buy-now-pay-later payment options.
  • Business growth – With a CBD merchant account, you’ll be able to sell CBD products online. Hence, you’ll have the chance to expand your business internationally and reach a wider audience. Also, you will offer a more convenient shopping experience to your customers by allowing them to buy CBD from wherever they are and support their anonymity (for those who don’t want to be seen buying a CBD product).


The CBD industry has been on the rise in the past decade. While its fame is greater than ever, with many people interested in CBD products, CBD merchants face some issues. The main reason why running a CBD business is a big challenge is the unclear legal status of cannabidiol. This leads to other problems, such as a high risk of chargebacks, which make the business a high-risk one. Fortunately, opening a high-risk merchant account can solve all of their problems.


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