Merchant Processing In the Hemp/CBD Industry

With the passage of the 2018 Farm Bill and the USDA’s release of the interim final rules, the hemp market continues to grow. As many processing services remain hesitant to service the growing hemp industry due to legal uncertainties, companies continue to face difficulties securing a reliable merchant processor for processing payments for the sale of hemp-derivative products, such as CBD oils and edibles. Though organizations such as Square Inc. and WooCommerce recently have begun to provide processing capabilities and support to legal hemp and CBD sellers, many remain skeptical due to confusion on the legal status of hemp and hemp-derived products.

A Tale of Nuances

Many entrepreneurs hoped that the 2018 Farm Bill would clear the way for the booming hemp industry, but even legalization failed to remove the association of hemp and CBD products with their Schedule I substance and counterpart, marijuana. Confusion surrounding the differentiation between hemp and marijuana is partly responsible for inaccurate stigmas and the resulting reluctance by merchant processors and banks.

Hemp and marijuana are both varieties of the cannabis plant, but with distinct genetic variations. Marijuana is typically abundant in the chemical cannabinoid known as tetrahydrocannabinol (THC), a compound that exists only in trace amounts in hemp—specifically, less than 0.3 percent as allowed by the Farm Bill. As a psychoactive compound, THC is responsible for the mind altering effects or the high associated with marijuana when smoked or ingested. Hemp is becoming more commonly known and utilized for its high levels of CBD, which is a different kind of cannabinoid. This non-psychoactive chemical compound is believed to provide several benefits related to mood, anxiety, pain, inflammation, appetite, and more and is one of the main elements driving excitement and growth in the hemp industry.

7 U.S.C.A. § 1639o defines hemp, in part, as any part of the plant Cannabis sativa L. including seeds and derivatives with a THC level of “not more than 0.3 percent on a dry weight basis.” The passage of the 2018 Farm Bill legalized hemp and all cannabinoids derived from hemp as long as it contains below 0.3% THC and is grown in accordance with the Farm Bill and USDA and state program rules. This distinction classifies cannabis containing above 0.3% THC as marijuana, which remains a Schedule I substance federally. The USDA’s interim final rule set forth the federal rules governing the hemp production programs for individual states and tribes It permits the USDA to oversee and monitor legal hemp production.

These recent legislative changes impacting the hemp industry have driven market demand. Unfortunately, the supporting market infrastructure, such as banks, and merchant processors, has not caught up with the legal changes.

Issues Linger Even After Legal Progress

The Secure and Fair Enforcement Banking Act of 2019 (the “SAFE Banking Act”) passed the House on September 25th, 2019, but the bill will still require approval from the Senate and signature by the President. The SAFE Banking ACT is designed to provide a safe harbor for banks and other financial entities to service customers engaged in state-authorized, legal cannabis businesses. The bill would make it illegal for federal regulators to prosecute members, partners, or customers for dealing with or providing services to legal cannabis companies, which includes offering insurance or financial services. The bill also includes a provision that clarifies that it is perfectly legal for banks and merchant processors to service hemp companies, as long as the hemp companies are complying with federal law.

Even with a clear federal directive that hemp is legal and guidance for financial servicers to follow in ensuring compliance by a hemp customer, many banks and merchant processors continue to refuse to service hemp customer accounts.  Required steps for operating a business, such as opening a bank account, remain challenging for any cannabis or hemp-related business. The refusal of banks to service state recreational and medicinal cannabis companies often leads to increased criminal activities, as the business is forced to resort to storing large amounts of cash.

Leading the Way in Merchant Processing

WooCommerce, an open-source e-commerce platform, has recently allowed users to sell cannabis and hemp-derived products with their plugin from, specifically. However, is different from, and it’s important to notice the distinction. WooCommerce through does not support the sale of products derived from cannabis and hemp whether or not they are over or under 0.3% THC, which remains a cause of much confusion for owners. WooCommerce from is hosted through Automattic, which is currently unable to offer support for hemp and cannabis sites. Entrepreneurs and owners of hemp or CBD businesses should thoroughly check all services policies before connecting and working with them. 

As of October, Square, Inc. announced that it was opening up merchant processing capabilities to sellers of CBD and other hemp-derived products after the initial launch of its beta program. As a pioneer in payment processing for CBD companies, Square charges sellers 3.9% plus 10 cents per transaction with slightly higher rates for e-commerce. The compliance team at Square works diligently to ensure that their partners and customers comply with federal regulations including the Farm Bill’s definition of hemp, THC content, marketing, and medical claims

With continuing uncertainty regarding hemp and CBD, it is imperative to retain a qualified cannabis lawyer to advise your hemp or CBD business, especially in merchant service issues. The hemp lawyers at Ritter Spencer Cheng work with a wide range of clients in the hemp industry, including the CBD market. We remain active in legislative activity surrounding the hemp and cannabis fields and continue to represent hemp and legal cannabis companies for their business, transactional, and compliance issues. Contact Ritter Spencer Cheng or give us a call at 214.295.5070 for more information.