The State of Payment Processing for Cannabis E-Commerce

January 30th, 2018

The cannabis industry is booming, and the online sector is no stranger to the success. Over the last few years we've watched a sea of new companies flood the digital market with cannabis based goods. But how do these companies sell products like CBD online and process credit cards? It's not magic -- you just gotta know a guy.

High Risk

Payment processing for cannabis falls under the category of 'high risk'. It literally means just that for the banks and processors, they're dealing with a client that's a higher risk than others. Whether it's a higher risk of chargebacks or fraud -- or in the case of cannabis, selling a product that's borderline illegal.

Other companies that fall under the category of 'high risk' include:

  • Adult orientated sites (anything porn)
  • Auctions
  • Drug Paraphrenalia
  • Gambling
  • Get Rich Quick / Life Coaching

What does High Risk mean for business?

You'll have to find a payment processor that specializes in high risk accounts, and they'll connect you to banks and credit institutions willing to work with you.

It also means you'll have to pay more. You'll pay more per transaction, as the fees tend to be around 6-12% -- instead of the 3.5% you see on a site like Paypal or Stripe. You also may have to pay a small fee per chargeback.

The Rules

Most online processors have a baseline of rules for dealing with cannabis companies.

  • CBD or services. No actual cannabis with THC (unless you get a really good deal, and honestly, it's probably not a permanent solution)
  • 21+ popup (most processors require it)
  • Terms of Service that reflect the age limitation
  • No sale or promotion of illegal drugs (As tempting as it may be, you can't associate your brand with magic mushrooms, cocaine, or any other illicit substance)

In some cases, processors may ask for this (but if they do, I'd personally keep looking):

  • Clean site of any cannabis references, apply, then re-apply canna-branding after confirmation.
  • Remove all social media posts referencing cannabis

The Slim List

Here's where things get interesting. In my research of over 200 companies, I found that most (read: 99%) of American based companies would not offer any website associated with cannabis processing. And I'm talking any website, even if you're in lifestyle selling apparel -- if it's got a leaf it's a scarlet letter.

If you're working in the online space and you're looking for a quick option to sign up and get going -- there are few and far between. And the handful that are listed only work with non-cannabis selling entities, you'd basically have to be slinging only CBD.

What should you pick?

Your easiest bet is to go with Shopify. I tried going directly to Authorize.net, Shopify's payment processor, and they denied any form of cannabis business. But they informed me that their resellers can offer payment services to cannabis companies at their own risk. Which Shopify does --
albeit not openly, you can find plenty of paraphrenalia and CBD shops on their platform.

Your safest bet is to go overseas to Europe and poach on financial institutes in countries like the UK and Amsterdam -- where they already have a proliferation of quazi-legal cannabis-based businesses between coffeeshops and headshops. Find a bank/processor that allows for overseas banking and you should be set.

SkyHighMoly is a semi-safe option. They've been around for at least couple years now, and they were able to offer me personally some of the best rates around. And I've shopped everywhere else.

My Advice?

  • Never settle for check processing. It's a scam. In this day and age, there's no reason you can't be processing with credit or even debit. If the salesman offers you check processing and can't offer credit, walk away, they're a waste of time. Don't give any percent of your profits to people who can't even provide you a standardized experience.

  • Go hard. Never hide anything. Show all your cards from the start and see what's allowed. The hidden cards will be played out on the table eventually. Most processors will work with you and advise you on what particular aspects failed their criteria. It's easier to go back and forth a few rounds in the preliminary process, than lose profits when your site is booming due to a random spot check.

  • Have a backup plan. Make sure to have a minimum top 2, or top 3-5 options. With the flaky relationship of finance and cannabis due to federal limitations, a processor that seemed reliable for years may disappear in a day. It happened to dispensaries in Florida recently when their banking solution closed all cannabis accounts. The bank wanted to clean their slate due to a buyout from a federally regulated institution.

Oh and don't fall for any of those phony "potcoin" fads. Cryptocurrency has proven to be an excellent way for businesses to facilitate sales. However, it comes at the cost of pouring money in a volatile micro-economy often controlled by a small subset that have been known to steal funds. But if you're seriously interested in cryptocurrency, I'd recommend going with a mainstream coin like Bitcoin. And services like Bitpay can get your sales going.

Still need help?

If you've gotten this far and you've already expended all the options I've laid out -- welcome to the club!

Regardless of what choice you make, there is always an immense amount of risk involved in sustaining payment processing. And most businesses can and will lose their current processor in the next 1-2 years (or tomorrow!). That's why you might want to look into a payment processing consultant who specializes in developing relationships with processors and even banks to offer you solutions. These experts find private banks on your behalf and create the relationship to facilitate sales. If you're selling cannabis, like a dispensary or distributor, this is your best option.

It's not impossible!

You can sell cannabis, and cannabis-related products, with a credit card. It is totally possible, and it's happening every single day with countless businesses. The most important thing is to not feel defeated, because the battle for payment processing will be an uphill struggle. That's why most people lean on simple solutions like Shopify, or run to consultants who solve everything for small percentages of everything.

Whichever you decide, I wish you the best of luck on your entrepreneurial journey!

Stay regular,
Oscar