CBD Industry – Why Is It Considered as High Risk?

The age of internet and online shopping has made it convenient for people to know about various products. Some things were considered inappropriate or taboo to talk about before, but people can easily gather information about such stuff on the internet. One such thing is Cannabidiol or CBD, a substance derived from the Cannabis plant. Based on local laws, CBD products carry an element of risk.

In health and fitness, and the natural wellness industry, CBD products are rapidly increasing. The substance comes from certain cannabis plants, the same plant that grows marijuana. Marijuana is a recreational drug and contains the psychoactive THC chemical. THC induces a high in the human body, but its counterpart CBD has mild relaxing effects on the human body. Epilepsy, body pain, stress, insomnia, anxiety, etc., can be treated by administering varying doses of CBD.

Cannabis plants are generally of two types. First is the marijuana plant, and the other is the hemp plant. Marijuana plants have a combination of THC and CBD, but hemp plants are CBD-heavy and contain little to no THC. There are multiple health benefits of CBD, and therefore it is trending worldwide. Most businesses want to sell CBD products because their demand is rising with each passing day.

The rise in CBD Companies

Over recent years, scientists have discovered various medical and health benefits of CBD. It essentially has all the benefits of marijuana without getting users high like it. Companies sell CBD tablets, gummies, edibles, lotion, creams, etc. People are attracted to CBD products, and by 2026, the global CBD industry is projected to pass $90 billion.

The industry has also risen rapidly because most CBD products have become legal to produce and sell. Laws vary based on every country, but almost all European countries have deemed CBD legal, provided it has a THC concentration less than 0.3%. Countries like South Africa, Costa Rica, India, Russia, Canada, Mexico, etc., have legalized CBD with some rules and regulations. The 2018 Farm Bill in the USA made hemp-derived CBD, with less than 0.3% THC legal.  

You can purchase CBD products at multiple places, including gas stations, salons, convenience shops, etc. However, there are certain regulations and restrictions tied with CBD production and use. Even after proven health benefits and high demand, the CBD industry faces various challenges related to legality, production, and distribution,

Challenges faced by the CBD Industry

The CBD industry has gained popularity in recent years and a heavy surge in demand. However, there are many hurdles and challenges faced by CBD companies.

  • The legal status of CBD products is a major issue. Laws differ based on your country or state of residence. In some places, medical use of CBD is legal, while in some states, you can use CBD for both recreational and medical use.
  • Payment processing is another issue for the CBD industry. Complicated regulations and various laws regarding CBD products make it a high-risk business. Most payment service providers like PayPal, Stripe, Visa, Mastercard, American Express, etc., don’t approve merchant accounts for CBD businesses.

Why do Payment Processors deem a business high risk?

Most banks and payment getaways act on red flags and deem certain businesses high risk. They do not approve accounts for such companies, and such companies are subject to strict rules, severe penalties, and high processing fees. These are some common reasons that make a business high risk.

§  A new business with negligible transactions

§  If a business has been dropped by a payment service provider before

§  If a business experiences a high number of chargebacks

§  A business with a poor credit score

§  A business selling high-value services or products

For High-risk CBD business owners, the best thing is to partner with a reliable and secure payment getaway like PayPound for your merchant account.

Why is the CBD Industry Considered High Risk?

Even though multiple CBD companies are popping up every day, the industry is considered high risk because of multiple reasons.

Complex laws and tight regulations

Laws and regulations regarding CBD have become favourable recently, but there is a lot of confusion. Most countries and states have different laws, and people still associate CBD with marijuana and its intoxicating properties. There is no clarity surrounding CBD production and use, and that’s why payment processors avoid these companies.

Negative public perception

Many citizens confuse CBD with marijuana and the harmful effects of THC. They do not have proper knowledge about CBD, its various health benefits, and its relaxing properties. People mix up hemp, marijuana, THC, and CBD and don’t know their properties. This is the reason why CBD companies are often criticized and not approved for merchant accounts.

Slow and costly licensing

Even though CBD is legal now, most producers and distributors need to complete various legal processes and regulations. Obtaining a license for selling CBD products is a long process and involves application and other related costs. You need to wait many months to obtain a license, and getting a loan for this business is even more difficult.

Higher risk of chargebacks

The CBD industry is relatively new, and transactions can get a bit tricky at times. Research is still going on the benefits of CBD and its various products. Most of them are new and very unpredictable. Customers are not impressed in many cases and instantly file for chargebacks. This is a big issue faced by CBD companies.

Transaction processing and merchant account problems

Even after legalisation, most payment processors considered CBD businesses high risk, and there are many issues because of this. CBD companies have to find a high-risk payment provider that is often costlier and has strict rules and regulations.

Conclusion 

We have witnessed huge rise in the CBD industry, and there are no signs of it slowing down. The positive and relaxing health effects of CBD are well-known by now, and businesses are pouncing on the chance to sell CBD products. Even after legalisation, there are a lot of challenges faced by this industry, as discussed above.This makes the CBD industry to be considered high risk by financial institutions. Opening a merchant account is a big issue for companies in this industry. For CBD business owners, it is recommended to partner with a trustworthy payment getaway like PayPound for a merchant account and electronic transaction services.

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