Despite the legalization, CBD credit card processing seems untouchable. However, it looks like distributors are trying to help make credit card transactions easier for resellers.
High-Risk Banking Environment for CBD Brands
After the passage of the pro-hemp legislation in October, many expected a smooth transition from high-risk banking services into more conventional categories. If hemp is now a traditional crop, shouldn't it be covered by standard banking services? Elavon, a subsidiary of US Bank, was one of the first to step up in the hemp industry. They announced last fall their intention to supply low-fee, low-risk services to many hemp-related companies who had previously gone without.
As of May 31, Elavon essentially fired their last customers, reversing its previous decision. Suddenly they reclassified all hemp as high-risk. It's left many CBD customers paying hefty fees on top of other unfavorable rates to predatory merchant service providers. Kyle Rapoza, of Mansfield Provisions, recently explained to Ganjapreneur, “We have processors asking us for $10,000 in an escrow account plus 10 percent of monthly transaction fees.” Other financial service providers have followed Elavon's industry exit, some firing their CBD clients with less than a day's notice.
Where has that left the CBD industry? High and dry, and strapped for cash. Many CBD retailers like Upstate CBD in New York and Future Leaf Organics cannot process credit card transactions at all. Sisters of the Valley, a California based business, is still processing credit cards through their online portal – but their credit card processing company is holding the money hostage until a bank will grant them a business account. The IRS advised the Sisters to switch to cash, and they got the same advice from the California Tax Authority.
Every CBD producer and retailer seems to have a similar story of banking woes. Some have reverted to cheque and money orders, which would be a bad joke if it weren't so serious. Many companies are seeing sales plummet without credit card service, and brands like Sisters of the Valley, are drowning with hundreds of thousands of dollars held up by processors.
A New Approach from Folium Biosciences
In a press release in May, Folium Biosciences announced their attention to move into a brand new service offering under Folium Financial. Ears perked up across the country at this announcement, CBD merchant services by a CBD company? Their timing is perfect, with many companies were losing their CBD credit card processing during this same period.
Folium Biosciences is a “vertically-integrated producer, manufacturer, and global distributor of hemp-derived phytocannabinoids.” With approximately $9 million in annual sales according to some estimates, they are fast growing and eagerly expanding into new markets. They focus exclusively on B2B relationships, selling bulk hemp derived CBD oil, edibles, cosmetics, and pet products. With their financial stability and the growing market need, CBD merchant services and banking solutions is the next logical step.
CEO, Kashif Shan stated, “We're excited to provide the hemp industry with the first CBD-centric financial solutions. Even with the pressures brought on by the uncertainty surrounding traditional institutional banking services, we continue to maintain the highest levels of compliance, standards, best practices, and transparency with our banks and underwriters.”
A Roller Coaster Ride in an Evolving Sector
Since the announcement May 10, there has been little additional information made available about what these services will look like. While it's unlikely they'll fall into the predatory patterns of the options available services, can they match other low-risk rates?
As per the press release, “Folium's Financial Engineers strategically assist clients in achieving profitable growth by resolving the critical business challenges associated with accessing sustainable merchant processing, financing, and insurance services.” A tantalizing taste, but few details on whom they will serve, what services they offer, and when it will roll out.
Both the Safe Banking Act and The Secure and Fair Enforcement (SAFE) Banking Act have passed through the House. There are considerable profits to be made providing CBD merchant services and other banking options. If these bills pave the way for the sector, will Folium Biosciences sneak in before the banks open their doors to the industry? In the coming months, it will be interesting to see how Folium chooses to differentiate itself from traditional and far more established financial services when the banking bills become law.