Why Are Marijuana Merchants High Risk?

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    Payment processors classify merchants in different ways to identify the rates they should charge. Some industries are considered more high-risk than others, which means they are seen with high chances of fraud, chargebacks, or returns.

    One high-risk merchant has a controversial product — marijuana. As marijuana and its products are being legalized in many locations, more marijuana merchant accounts need financial solutions, especially for payment processing.

    Why are marijuana merchants considered high-risk, and what can you do about it? Keep reading to find out.


    Marijuana Merchants As A High Risk

    The global cannabis business has been thriving in the past few years. However, like most businesses, it has its own set of challenges. One main problem is that marijuana merchants are considered high risk.

    There are two main conditions for a business to be considered high-risk. First is that it belongs to an industry where there are safety and health concerns. The second is that the company is at risk of financial failure. Companies in the marijuana industry meet these two conditions.

    Marijuana businesses are deemed high-risk because of the legal status of these substances. Because there are many products you can derive from cannabis — both medical and recreational — the legalities can be blurry for companies in the industry. CBD products, or cannabis derivatives, have more freedom, but recreational marijuana is still highly regulated or prohibited in some areas.

    Why Banks Will Not Issue You A High-Risk Merchant Account For Marijuana

    The marijuana sector has a complicated past, especially looking at the laws regulating them and the illegal use attached to it. Recently, these things have been changing, but the impression the industry left keeps the topic quite gray. Even some doctors are still hesitant to prescribe it despite recent advancements.

    Because of this, commercial transactions remain messy because most are unsure about where cannabis stands in a legal aspect.

    Regarding banking and merchant processing, marijuana-based sales are still primarily taboo. These things result in marijuana merchants being classified as high-risk. Risk can mean a threat to profits, so it’s no surprise that financial institutions are scared to take a chance on any type of marijuana trader.

    How To Get A Marijuana High-Risk Merchant Account

    If you are a business in the cannabis industry, here is how you can land a marijuana merchant account.

    Before looking for payment processors, you should first prepare your business and tax documents. Prepare your government-issued IDs, SSN, and EIN. If you have them, you should provide the most recent bank statements, processing statements, as well as a functioning website. 

    You will be asked to complete the application process, which may vary depending on the provider you plan to work with. The details in your application will affect your approval and your high-risk classification assessment.

    Frequently Asked Questions

    If you are a marijuana trader, knowing the most important details about getting a marijuana merchant account from these top questions is essential.

    What is a CBD merchant account?

    A CBD merchant is a payment terminal dedicated to sellers that offer high-risk, cannabis-related products. These are accounts that only a few providers give and require special precautions for transaction approval.

    How much does it cost to set up a merchant account?

    There are numerous merchant account fees that you’ll have to pay to avail these services. You may be required to pay setup fees, which generally vary from $700 to $1,000.

    Can I sell CBD with PayPal?

    Unfortunately, PayPal does not allow high-risk industries to use the platform to accept payments, meaning any marijuana trader cannot use this option for their transactions.

    High-risk merchant accounts may be a more expensive option to help marijuana businesses accept more payments, but they provide solutions that will otherwise be unavailable. Ultimately, until legalities settle down, high-risk merchant accounts are the best choice.

    Learn more about the payment processing solutions available for your business by exploring our guides at Processing Card!