Like many entrepreneurs with cannabis-adjacent businesses, Maya Shaw’s path to opening up her online shop started as a dissatisfied consumer. “I didn’t really find a store or space that felt like a community I could really be a part of,” she said.
Shaw’s online store, Shaw BK, opened last April. It is fiercely mission- and community-driven and informed by her experience as a woman of color, with items like handmade pipes and CBD tinctures from women and minority artisans.
When Shaw first launched her shop using payment processor Stripe, everything seemed fine. Many small businesses opt Stripe thanks to its easy setup and pay-as-you-go fee structure, which deducts 2.7 to 2.9 percent plus 30 cents per credit card transaction. But after about nine months, Stripe informed her that she could no longer use its service because her store was a “cannabis-affiliated business.” She had 15 days to find another payment processor.
Last October, before the Farm Bill, which legalized industrial hemp by removing it from the Controlled Substances Act, passed, Sephora started selling CBD products. Back then, cultivating hemp was still technically federally illegal, and larger businesses tended to stay away from CBD. Verena von Pfetten, the co-founder of cannabis magazine Gossamer, said she started hearing that many independent CBD brands were banned from working with mainstream credit transaction processors, so how was Sephora selling items like Lord Jones CBD body lotion?
This question extends to major retailers including DSW, Neiman Marcus, CVSand Rite Aid, all of which announced this year that they are also getting into the business of selling CBD products. Luxury retailer Barney’s launched a cannabis shop in Beverly Hills in partnership with a luxury weed brand, at which consumers will be able to order real weed (not just hemp-derived CBD products) for delivery. But again: How?
“Credit-card processing [is] perhaps the biggest Achilles heel for CBD companies,” Lex Pelger, the Director of Education for CBD producer CV Sciences, told me over email. “Overly cautious credit-card processors are hamstringing the industry over their own cowardice.”
The cannabis scene has long been dominated by a certain underground, stoner-bro aesthetic. Growers and shop owners were (and still are) overwhelmingly men, but more women are entering the industry thanks to legalization efforts across the U.S. Cannabis is undergoing a re-branding of sorts, as producers and marketers move away from “stoner stigma” and seek to become the “Apple Store of weed” or the “Hermes of marijuana.”
For hemp-derived CBD products, which contain trace amounts of THC and therefore do not produce a “stoned” feeling, producers have long operated in alegal gray area. The 2014 Farm Bill allowed states to create hemp pilot and research programs, which helped spur the growth of CBD businesses across the country. But many of these companies were not operating under state hemp programs. The DEA wasn’t cracking down on the CBD industry or consumers. And the wide availability of the products lent a sort of legitimacy to the industry. But there were still stories of people getting arrested and stores getting raided by local law enforcement who viewed hemp as still definitely illegal. With the passage of the Farm Bill last December, it finally seemed that CBD would be legal.
Cannabis companies were thrilled. “We will be able to access this raw material — industrial hemp — across state lines,” said Nancy Whiteman, CEO of cannabis edible company Wana Brands, in a statement after the bill’s passage.
“Federally regulated institutions including banks and credit card companies will now be able to freely conduct business with companies involved in the hemp product industry,” went a press release from Denver-based cannabis company Dixie Brands.
But unfortunately for small businesses like Shaw BK, payment processors like Stripe still seem to prohibit the use of their services for sales of hemp-derived CBD, even while being used by larger retailers, like Target and Amazon, which sell hemp products. Target will begin stocking hemp products from Schmidt’s Naturals this fall. (Stripe did not respond to multiple requests to clarify its policy on CBD and hemp products.)
Stripe’s Terms of Service lists “cannabis dispensaries and related businesses” as “restricted businesses,” with no special exception for hemp-derived CBD. The payment processor Square also emphasizes federal law when explaining that it does not serve marijuana-product retailers because such substances are “not currently legal at the federal level.”
Payment processors appear to have no qualms about rejecting small, independent businesses, while major chains that have started to get into CBD products like DSW or Neiman Marcus have been able to elide such policies.
“Realizing how the regulations are being selectively enforced based on who the brand is and what the size it is really disheartening to see,” von Pfetten said.
The payment processing world is split between big and small players — a few giant companies like First Data, World Pay, TSYS and Elavon provide processing technology for major retailers, while smaller ones target small businesses, explained Elie Katz, the founder and president of National Retail Solutions (NRS), a point-of-sale payment processor that began working with CBD transactions in March. Katz said that none of these companies besides Elavon allowed CBD transactions, but Elavon had pulled out of serving the CBD industry in March. Elavon did not respond to multiple requests for comment.
“There shouldn’t be one standard for small, independent businesses and one standard for large stores,” said Katz. “I believe [the larger players are] using their size and throwing their weight around.”
I spoke to several attorneys with experience in CBD and financial regulation. Though no one could tell me exactly how large companies get away with selling CBD products while using supposedly anti-CBD payment processors, they speculated that larger retailers were able to sell CBD products for several reasons: CBD makes up a tiny fraction of their businesses, large retailers have better creditworthiness, and they may have indemnity clauses in their contracts with payment processors.
“It’s a really frustrating experience as such a small business not to have a payment processor to support you,” Shaw said. While she switched to using PayPal, she has seen “quite a drop in sales” from people who wish to pay with a credit card directly.
Other small CBD businesses have similarly struggled with finding payment processors that would serve them. Lauren Forsch, the founder of CBD retailer Popped.NYC, said she was able to use Square at first because she had formerly operated a gift shop unrelated to CBD. (Full disclosure: She has previously donated to my cannabis newsletter.)
But within a week of launching her website featuring CBD products last summer, Square reached out to Forsch and informed her that it couldn’t serve business that sold CBD. Eventually she switched to authorize.net, a payment processor that accepts CBD retailers charges seven percent per transaction — much more than the 2 to 3 percent fees that Stripe, Square and others in the industry charge.
Such high fees are undoubtedly a burden for small businesses struggling to get their start. Luckily, Forsch managed to negotiate her rate down to 3-4 percent after the Farm Bill passed.
And now, it seems that Square is getting warmer to the industry, too. The payments provider recently started “conducting an invite-only beta for some CBD products,” said a spokesperson for Square. She declined to comment further beyond that statement, and it’s unclear what kind of businesses are being invited into the program. She also declined to clarify whether the company’s ban on CBD businesses applied to other types of hemp products as well.
The trend of CBD as a health-and-wellness product shows no signs of slowing down.
Investment bank Cowen & Co. predicted that retail sales of CBD products could reach $16 billion by 2025. But for Shaw, stocking CBD products isn’t about getting a piece of the latest trend. It’s about fostering community and using her platform to elevate women and minorities.
Hearing about these large retailers getting into the CBD space is particularly frustrating for Shaw, “especially when you know that these big businesses are in it because they’re riding this wave of it being a trend,” she said.