/Square will now serve CBD clients, expanding beta test

Square will now serve CBD clients, expanding beta test

Square is rolling out its full payment processing platform to all CBD sellers in the US, the company announced on Thursday.

The company is opening up its platform to CBD sellers after it conducted a three-month, “invite-only” beta program for a small group of CBD startups starting in May, Business Insider previously reported

“We’re just really excited to be able to offer this solution to a historically underserved industry that’s faced so many challenges and interruptions to their businesses,” Square’s general counsel, Sivan Whiteley, said at a press event at the cleverly-named Manhattan CBD shop Come Back Daily. 

CBD sellers can apply to use Square’s platform like any other merchant, Whiteley said. Part of Square’s challenge is doing due diligence on each merchant — because the CBD industry is so new, there’s no way to automate that process so it requires “a lot of eyeballs,” said Whiteley. 

Read more: CBD companies were courted hard by a unit of US Bank — but they got ghosted despite having a 100% legal business

Payment processors, in short, handle credit and debit card transactions on behalf of companies that sell their products online. They take a fee for each transaction. A new, booming industry like CBD could provide a windfall for Square since most other large payment platforms do not accept CBD companies.

Square is pushing into an industry in which there are not many ways for young companies to safely process payments, said Whiteley. Elavon, US Bank’s payment-processing subsidiary, pulled out of the CBD industry in May over what the company said was the lack of clarity around CBD’s legality in the US, Business Insider previously reported

Hemp-derived CBD — containing less than 0.3% THC, the chemical responsible for the “high” associated with marijuana — was legalized in December of last year through the Farm Bill. Each state has its own rules guiding the industry, however. 

Because of the complexity of the CBD industry, Whiteley said launching Square’s service to CBD merchants took an effort across the company’s sales, risk, product, and compliance teams. 

“We had to understand the general legal and regulatory landscape,” said Whiteley, which involved conducting “enhanced due diligence” on CBD sellers compared to merchants in other industries.

Once Square put together a program on its due diligence process, Whiteley had to “shop it around” to its payment partners — credit card companies — to make sure that “everyone was on board.”

Once Square got everything aligned, they rolled out the closed beta program in March. 

“That was an interesting experience because we saw how much demand there was outside of the beta for credit card processing,” Whiteley said. 

FILE - In this Friday, Jan. 4, 2018 file photo, a worker adds CBD oil to a drink at a coffee shot in Fort Lauderdale, Fla. Cannabidiol is one of more than 100 compounds found in marijuana. (Jennifer Lett/South Florida Sun-Sentinel via AP)/South Florida Sun-Sentinel via AP)

A worker adds CBD oil to a drink at a coffee shot in Fort Lauderdale, Fla. Cannabidiol is one of more than 100 compounds found in marijuana.
Associated Press

Solving the biggest pain points for CBD startups

For CBD merchants, Square’s entrance into the industry will smooth over lots of the headaches they faced while trying to build their businesses. 

Despite selling what’s ostensibly a legal product, most online CBD sellers have been forced to turn to high-risk payment processors that are often based overseas and charge exorbitantly high fees. 

These payment processors charge upwards of 10% fees per transaction and often hold the funds for weeks, CBD sellers previously told Business Insider, whereas most non-cannabis related e-commerce businesses are charged in the 3% range and the funds are dispersed immediately.

Read more: Square has started working with a select group of CBD startups while other payments rivals shy away from the trendy substance

Apart from the higher fees, companies that use overseas payment processors are sometimes forced to set up companies abroad, and customers’ credit cards often get flagged, adding an additional headache for entrepreneurs, CBD sellers previously told Business Insider.

Square, for its part, is charging 3.9% + a 10 cent fee for each in store credit card transaction, and 4.2% + a 30 cent fee for online transactions. While higher than other e-commerce businesses, Whiteley said this price reflects the added due diligence Square must conduct to onboard new CBD sellers.

As part of the rollout, Square will also provide payroll and inventory management services to CBD sellers. On that front, Square has some competition. 

Shopify rolled out its online platform for CBD sellers in September, though payments are contracted out to a third-party processor. 

Payment processing is just one of the myriad ways that CBD sellers— startups in an ostensibly legal industry — face specific challenges. Business Insider previously reported that CBD startups are banned from running paid promotions on Facebook and other large tech platforms. 

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