The Ins and Outs of Cannabis Credit Card Processing

Mar 30, 2022

Cannabis credit card processing can be a tricky thing to pin down. With the cannabis industry occupying a legal gray area, it’s no surprise processors consider these accounts to be high risk. 

Both the chemical compounds in the products (such as THC and CBD) and the intended use (medical, therapeutic, or recreational) are considered in each state and federal cannabis law. This has resulted in as many variations on these laws as there are states. 

Because of this, cannabis-related business owners must remain aware of not only the laws in their states but those in their customer’s states as well. They must also keep track of what is legal to mail and which products are banned by their credit card processor. 

It can all be a bit overwhelming, particularly for business owners new to the industry. The great news is that Easy Pay Direct can help!

Easy Pay Direct has been working with businesses in the cannabis industry since 2010. While legal credit card processing options for cannabis have at times been scarce, we’ve remained on the leading edge of service to this unique market. 

The rules are still in flux, but the ever-changing tides are moving steadily toward a more relaxed legal status for cannabis across the board.

It’s never been easier to find reputable, legal credit card processing for hemp and cannabidiol (CBD) products, and new possibilities are on the horizon for marijuana businesses as well. 

What is a High Risk Business?

A high risk business is a business that a credit card processor deems to be a greater risk to extend a merchant account compared with average businesses. 

Each credit card processor sets its criteria to determine what businesses are considered high risk and which are not. 

There is no universal set of guidelines. There are, however, common factors that tend to result in a business being high risk. 

Businesses can be considered high risk for several reasons including: 

  • High average dollar transactions
  • High rate of chargebacks
  • Previous bankruptcies 

A business can be classified as high risk due to the nature of its industry. The cannabis industry is relatively new and controversial. It is regulated by both state and federal governments. 

These laws and regulations are in constant flux and may change to hinder a cannabis business’ operations. 

Some other industries considered high risk because of regulations are firearms and tobacco. 

Credit Card Processing for High Risk Businesses

Some of the largest and most well-known companies in credit card processing will not extend services to high risk businesses. 

This means that a cannabis-related business will not be able to accept credit card payments. 

Many third-party credit card processors are experienced in serving clients in high risk industries. Typically, these companies take steps to mitigate risks associated with high risk accounts. 

Application Process

When establishing a credit card processing account for a high risk business, you can expect a thorough application process. 

Be prepared to share documents that can help the credit card processor verify your financial history, business model, and legal operation of your business. 

Some items you may be asked to produce include recent transaction history, bank records, and documents showing the legality of your business such as any relevant licenses. 

This process moves quickly but be prepared to produce information if requested. 

It is best to be open and honest about business practices upfront. Being honest can help a credit card processor find the best solutions to fit your business. 

Also, if your transaction patterns differ greatly, your account might be subject to closure. 

Mitigation Strategies

Just like an insurance company, credit card processors take steps to mitigate the risks associated with processing credit card payments for high risk businesses. 

Some of the most common might be holding a capital reserve and charging higher rates and fees. 

Capital Reserve

This is a strategy used by banks to protect themselves in the event your business experiences high rates of chargebacks or is involved in any fraudulent case disputes. 

Typically, there may be a portion of capital required upfront and held as a ‘just in case’ fund or alternatively, there can be a rolling reserve.

A rolling reserve is when a portion of the total transaction volume is set aside and held for a period of time. This amount can be an additional 5 – 10% of sales. 

After the period of time expires, maybe 6 months later, those funds are released to your account for settlement. 

Obviously this delays cash flow to your business so you should be aware of this requirement if it exists. 

Higher Rates and Fees

Credit card processors make a profit by taking a percentage of each transaction plus a small markup. This can vary by pricing model being used in an account but it is one of the most common pricing structures. 

When compared to traditional businesses, high risk businesses can expect a higher cost of processing. 

A credit card processor may also require a high risk business to enter into a contract for a longer-term period versus other business types. 

Since chargebacks are more prevalent in high risk industry transactions, chargeback fees tend to be higher for high risk businesses.  

Other types of fees may be less common such as an application fee, a recurring monthly service fee, or even an early termination fee. 

Any reputable processor should be able to provide you with a written breakdown of all rates, fees, and terms associated with your credit card processing account. 

It is highly recommended you take the time to read any agreement carefully before consenting. 

Final Thoughts

The cannabis industry is constantly evolving and can prove to be a successful business opportunity for budding entrepreneurs. 

Providing customers the ability to purchase products using credit cards is essential to being able to compete in the modern marketplace. Unfortunately, the most common credit card processors won’t work with cannabis-related businesses.

Although cannabis businesses are classified as high risk industries due to the nature of the industry, business owners can still find payment processing solutions to complement their businesses. 

Be aware of the more involved application process that accompanies establishing a cannabis business account. 

Also, know that your high risk business will not qualify for some of the lowest advertised rates and fees that are enjoyed by other businesses. 

Before entering into any agreement, it is prudent to review all requirements of the account so there are no surprises that might impact your cash flow, such as the requirement for a rolling reserve. 

Easy Pay Direct can help answer any questions you might have about establishing a high risk cannabis credit card processing account. 

Get in touch today for more details about a credit card processing account tailored to your cannabis business.


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