The use of cannabis and cannabis-derived compounds (e.g., CBD and hemp) remains controversial. Regulations regarding cannabis for recreational and medical use vary by country. In many countries and territories, its possession by individuals could mean years of jail time and heavy fines while in other places its use for recreational purposes is completely legal.
In recent years, many countries are decriminalizing the mere possession of marijuana to a non-criminal offence – somewhat like a traffic violation.
Medical use of cannabis and, and by extension, CBD products is now legal in many countries.
In 2020, the market size of the global legal marijuana market was valued at $9.1 billion. This is expected to reach $70.6 billion at a compound annual growth rate (CAGR) of 26.7% by 2028.
CBD or Cannabidiol contributed to $2.8 billion of this market share in 2020. Its market share is expected to rise to $13.4 billion at a CAGR of 21.2% by 2028
However, the stigma and uncertainty in regulation surrounding such products make it difficult for such businesses to open merchant account.
Types of Cannabis-derived products accepted by CutPay
- Medical Marijuana
- Cannabidiol or CBD
Why are legal marijuana and CBD considered high risk?
Due to the uncertainty around marijuana and marijuana-derived products, many financial accounts are reluctant to open a merchant account for businesses trying to sell products related to these sectors; hence, legal marijuana and, by extension, CBD have been classified as high-risk industries.
Three major factors contribute to this phenomenon, namely legislation, high chargeback and reputational risk.
The laws regarding marijuana and marijuana-derived compounds vary for each territory. Because of the differences in legality of medical marijuana or CBD, many financial institutions shy away from processing payments for businesses related to this industry. Major acquiring banks like Paypal, Stripe, Square and Elavon do not allow their merchant service providers to cater to such businesses.
In addition, merchant service providers may feel such laws limit their ability to sell to a wide, diverse audience. Opening a merchant account is also a complex and tedious process for legal marijuana and CBD businesses. Merchant service providers might not want to engage in these long and complicated procedures.
2. Risks related to CNP Transactions
Selling legal marijuana or CBD products online exposes the merchant to the risk of chargebacks and/or fraud.
- High Chargebacks: Customers can simply call their banks and dispute their online transaction either because they were not happy with the service or because they forgot about the purchase. This risk is further augmented by the unverified claims of efficacy of the products. A customer may file a chargeback if they feel a medical marijuana or CBD product did not help them or make them feel better at all.
- Fraud: Most marijuana or CBD businesses are based offshore. It becomes difficult for financial service providers like banks or merchant service companies to conduct the necessary KYC and AML checks. This increases the risk of related products being misused by buyers colluding with one another/or with the merchant. Important financial information of clients might also be compromised online during a CNP transaction. There are numerous fraudsters hacking bank accounts, skimming credit card information and stealing identities. Crimes like money-laundering, fraud and identity theft are synonymous with the marijuana industry.
3. Reputational Risk
Financial institutions are reluctant to cater to the needs of marijuana and marijuana-derived due to the controversy and uncertainty surrounding these industries. There have been times when financial institutions had to shut down their services for these businesses due to a new legislation or because they were caught carrying out illegal activities. This not only resulted in a financial hit but a reputational hit as well. Most banks are conservative and highly concerned about their reputation. They do not want to be associated with any controversy.
Why Choose CutPay?
CutPay specializes in processing payments for businesses related to legal marijuana and CBD. We are one of the best merchant service providers for high-risk businesses in Europe and the UK.
With our extensive network of various acquiring banks, we can help you diversify the processing of your payments among multiple banks to mitigate risk as well as expand your business globally.
CutPay offers high-risk businesses a host of fraud and chargeback protection features as well as a secure payment gateway that provides legal marijuana and CBD businesses with long-term, reliable payment processing solutions.
|Industry Account Experts|
|Fast Account Approval|
|Relationships with Leading Acquiring Banks|
|Large Merchant Case Studies|
|E-Commerce and Retail Options|
|B2B Vendors Supported|
|Multiple Payment Solutions|
|Multiple E-Commerce Gateway (Mobile apps or website)|
|B2B-Level II/III Data Discounts|
|3D Secure Frictionless Checkout|
|Level 1 PCI-DSS Merchant Gateway|
|Support & Guidance|
|International Merchant Accounts|
|Gateway Recurring Billing|
|E-Commerce Cart Plugins|
|Developer API /SDK/ Docs|
|POS/Terminals (Virtual or MOTO)|
|Dedicated Account Managers|
|Superior Customer Service|
Terms & Conditions
The eligibility criteria, restrictions and requirements for legal marijuana or marijuana-derived compounds vary by category.
Ready to Get Started?
So are you legal marijuana or CBD business that wants to open a high-risk merchant account? Don’t know where to start? Fear not – CutPay is here to solve all your problems!