Cannabis and Payments. What You Need to Know.

There is much confusion in the cannabis industry regarding credit card transactions. Learn more about accepting credit cards in this tricky industry.

cannabis and payments

Many credit card processors are just as confused as you are about whether credit cards can be used in CBD-based products, cannabis, and hemp transactions. Industrial hemp is legal at the federal level and has been for some time. However, industry merchants in Ohio and Idaho have experienced seizures of their inventory based on violations of state laws. The conflict between federal, state and even local municipalities complicates what is legal and what isn’t.

Defining the Market

For this article, we will focus on retail “smoke” shops. Some vape tobacco shops might also carry CBD, hemp and cannabis products. Anything derived from cannabis is still considered a Schedule I drug by the Federal Drug Administration. This is where problems arise. A vape shop typically sells eCigarettes and flavored “juices” as its main items. The second type of high-risk smoke shop is cannabis dispensaries. A cannabis shop is likely to sell strictly cannabis and food products such as brownies, gummy bears and cookies infused with THC, the psychoactive component in marijuana.

Contrary to what you might think, people can use credit cards to pay for weed. In states where the sale of cannabis is legal, merchants can process debit cards that are used with a PIN. While considered a high-risk group, stores devoted to selling CBD oils and CBD-infused products, along with products such as lotions containing hemp, can accept credit cards for payment.

Difficulty with Credit Card Processors

While vaping is legal in the United States, merchants might have difficulty finding a credit card processor who will take them as a client. This is because the vape industry is considered “high risk” whether you accept credit cards in person or use a website. Because of the many regulations placed on vape shops, such as age restrictions, many processors shy away from vape shops. 

Additionally, since some vape shops also sell cannabis, processors have no way of knowing which products are being sold through credit card transactions, and processors can get in trouble for allowing such transactions in some states. It is possible to accept credit cards, but you must find a “high risk” credit card processor. 

Understanding Credit Card Processing Fees

Credit card processing fees will be assessed the same whether your merchants are high risk or low risk, but the rates paid for high-risk will be substantially higher and should be considered a cost of doing business and factored into pricing. 

There are three separate credit card processing fees paid as a merchant, although they may not be displayed that way. For instance, some processors charge a flat fee of 4.0% for every transaction. There may be additional fees, such as a transaction fee for every card processed. Other processors might break it down and show fees by their proper names: interchange, assessments, and markup. Interchange fees are non-negotiable, and fees go directly to the bank that issued the customer’s credit card. Assessments fees are also non-negotiable and get paid to the card brand, such as Visa or MasterCard. The final fee is called the markup, which is negotiable in most cases. This is the amount the processor charges for handling the account and facilitating the transaction.

High-Risk Processing Fees

Interchange and assessment rates will likely be higher because merchants in this business are considered high-risk. The processor’s markup is likely to be higher as well since they share some of the risk. For shops that sell CBD oil and CBD products, many high-risk processors will gladly accept a merchant if they can demonstrate through bank records or other proof that they have revenue of more than $200,000 per year.

Registration with Visa and MasterCard

Visa and MasterCard require tobacco businesses and vape shops to register with them. The processor will do this for the merchant, but it comes at a high cost. High-risk registration for Visa and MasterCard has a $500 annual fee. The processor will charge this fee when setting up the account and annually as long as the merchant continues to process. 

Be Honest 

It may be tempting for a merchant to withhold some information about what they truly sell to establish a merchant account. They may be inclined to believe that once they have a credit card terminal and a merchant account, no one will know precisely what they are selling. You and your merchant should fully disclose what their product line consists of. If they sell vape pens and juice, don’t claim that they only sell tobacco products. Likewise, if they sell marijuana and don’t report it, it will catch up to everyone involved. 

If caught, any funds that are in the pipeline to be paid from prior transactions will be frozen during an investigation. Additionally, your merchant will likely be added to a file known as the Terminated Merchant File (TMF). Landing on the TMF file will make it impossible for them to open a merchant account in the future with any processor. As a solution provider, you run the risk of damaging your reputation, losing your payment business, and even facing potential legal trouble. ν

Jim Luff

Jim Luff is the Corporate Communications Manager for Aurora Payments, a credit card processor. None of the contents of this article should be considered legal advice. For more information about credit card processing email or call 833-287-6722.

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Jim Luff

Jim Luff is the Corporate Communications Manager for Aurora Payments, a credit card processor. None of the contents of this article should be considered legal advice. For more information about credit card processing email or call 833-287-6722.