Payment Processing, Banking Issues Continue To Hinder Small CBD Brands

Many CBD companies continue to report issues with payment processing as well as maintaining a bank account.

The issue has also been discussed in the U.S. and other countries, like the U.K., where recent regulations may be adversely impacting businesses.

Tyler Beuerlein is a cannabis banking expert and serves as the chairman of the banking and financial services committee for the National Cannabis Industry Association

Banks are still sitting it out, he told Benzinga.

“Most financial institutions are risk averse by nature and are not yet willing to take on the regulatory compliance burden of banking this industry,” Beuerlein said, adding that "at least a few" U.S. banks are taking on hemp-based accounts.

Don’t miss out on the top cannabis stories of the day. Click here to sign up for our daily insider newsletter.

Account Closures

Braden Perry is a regulatory and government investigations attorney with Kennyhertz Perry, LLC. Local banks, state-chartered institutions and community credit unions are still more likely to work with the industry, he said.

"But it’s important to remember that it is still federally illegal, and the Bank Secrecy Act makes even the state-chartered banks subject to money laundering issues and can make banking a federally illegal substance difficult, if near-impossible."

Several CBD companies reported friction with banking institutions, both at the federal and smaller level.

Evan Nison is a cannabis entrepreneur and former lobbyist who has worked with prominent names like Whoopi Goldberg on launching ventures in the industry.

On July 22, 2019, Nison said that his New Jersey-based CBD smoke shop was informed that his account with Bank of America Corp BAC would be closing in 21 days.

Nison said he was sent a letter stating the account's closure at a time when he was exploring how larger operators like CVS Health Corp CVS are able to process CBD sales when he and other smaller brands have continued to run into issues.

The entrepreneur said he was told he would be able to speak with a bank exec, but instead received the letter notifying him of the account's impending closure.

Bank of America did not respond to a request for comment on this story.

Click here for more information about the upcoming Benzinga Cannabis Capital Conference Oct. 22-23 in Chicago.

'We Had To Scramble Again'

Luke Stead is the CFO of the CBD brand Simply Crafted. He said he had a similar experience with Minnesota's Firefly Credit Union.

Stead said he spoke to several bank representatives to ensure his CBD brand could open an account. He said he received approval from a senior banker, but did not receive any checks or cards in the following weeks.

When Stead followed up with Firefly, he said he was informed that Simply Crafted's account was opened in error and would be closed.

"After a month of waiting and thinking we had an account secured, we had to scramble again to find a bank that did not discriminate against CBD businesses."

Stead said he did eventually find another local bank that has only two locations.

Firefly Credit Union did not respond to an emailed request for comment on this story.

A Growing CBD Company's Experience

Payment processing is an issue for companies in the U.S. and abroad.

Keeon Yazdani is the CEO of Southern California's We R CBD. Yazdani said his company lost its account with processor Elavon on June 1, 2019. The CBD company was experiencing 30% growth and sales of $250,000 in May, the CEO said.

The company did not receive a response from Elavon, Yazdani said, but he has a theory as to why it was shut down.

"Elavon was associated with U.S. Bancorp USB, and people across the country flooded US Bank branches wanting to open CBD and cannabis merchant accounts," Yazdani said.

"We believe this may have raised some red flags, especially since many of these accounts were getting approved without any reviews or approval process."

Elavon declined to comment on this story.

New Rules In UK

In the U.K., some say the Payment Services Directive, or PSD2, fraud rules have harmed business.

Elliot Blackler is the founder of CBD brand Evopure.

After PSD2 became a regulatory requirement for European companies accepting digital card payments, he said he was unable to partner with a popular U.S. option, Authorize.net.

He received a response from Authorize stating it does not support 3-D Secure and a recommendation that Evopure try CyberSource as an option, Blackler said.

CyberSource's 10,000 monthly transaction threshold disqualified Evopure, Blackler said.

The company also considered merchant acquiring services but foundthe  costs to be unfeasible. Evopure eventually found a processor, but it is not ideal, Blackler said.

"Being just one of the two main providers in the UK, the rates are still very high for a startup business," he said.

While there is no signup fee, Blackler said Evopure pays a 20p (24-cent) charge for transactions and declines. Other rates include a 1-pound refund fee, a 5% rolling reserve and 3-pound wire fee, among others.

With smaller operations still struggling to find payment processing and banking options, some like Nison wonder how CVS and others can continue to accept CBD sales.

NCIA’s Beuerlein offered up a possible answer.

These companies still face risks, he said. “However, in most cases these transactions make up a small portion of their total sales and are inconsequential. Smaller operators whose percentage of CDB sales are much smaller only have access to a few small acquirers within the U.S. willing to take on that type of risk.”

Nison considers this preferential treatment.

“If we sell 15 SKUs of CBD, and [large retailers] sell 15 SKUs of CBD but they have a box store, I don’t think that’s any different.”

Related Links:

SAFE Banking Act Advances To House Floor After Committee Vote

The SAFE Banking Act Would Be A Giant Leap For Legal Cannabis