This is a personal rant and opinion piece on what happened today.
The only reason I’m writing this post is because you may be interested to ‘look under the hood’ about what’s really going on in the CBD industry.
All I can tell you is it’s just absolutely crazy.
Calling this the wild wild west probably doesn’t do it justice.
So this morning I wake up to find emails from potential customers saying they can’t complete the checkout on our site, saying their card was declined.
Of course their card is fine.
It’s our credit card processing that’s the problem.
It finally happened… we’ve officially been shut down and our website is now nothing but a fancy tool that only looks pretty.
A Little History About CBD & Processing
When my partner and I started this business a little over a year ago, one thing we didn’t fully understand was how crazy the credit card processing situation was.
We figured since it was CBD and not marijuana, and it’s being sold everywhere, it shouldn’t be a problem.
Boy were we wrong.
We quickly found out that very few banks wanted to work with us, and if they did, the rates were astronomical.
For example, most brand new cc merchant customers get the base rate of 2.95% with a $.15 transaction fee, or something like that.
Well CBD was considered ‘high risk’, and rightfully so since it was classified as a Schedule 1 Drug.
(calling CBD a ‘drug’ is another conversation all on its own)
So for being a ‘high risk’ account, we were being offered a 6.95% rate with a $.50 per transaction rate… PLUS the privilege of the bank keeping 10% of our gross revenue for 6 months, as a security backup.
Let me repeat that.
6.95%, $.50 transaction fee, 10% gross revenue held for 6 months.
Are you kidding me?
Anyone legit would have to raise their prices by a minimum of $10 just to cover these costs.
It gets better…
The 10% reserve is held for 6 months, and then your account will be re-evaluated by the bank.
Then and only then, at their sole discretion, the bank will decide whether to keep your 10% or give it back.
Which way do you think that was going to go?
It’s also important to know most of the banks that offered this were international banks.
So, when looking at all of this, website sales didn’t look very promising.
A Major Event In The CBD Space
At this point, we’ve been searching for processors for a few months now.
(sarcasm alert, starting now)
We won’t talk about how our first merchant processing broker we attempted to ‘work with’ were straight up crooks.
I won’t mention how they tried to pull $500 out of our bank account fraudulently in a matter of 2 days… before we even sold an item.
It’s not important that we had to shut down our bank account, open a new one, order new checks, etc.
(this is where having tequila to reminisce about the journey really helps)
The important development in the CBD space was the 2018 Agricultural Act was close to passing, and it included a very important provision in there.
Dubbed the 2018 Farm Bill, the provision basically made all hemp, and it’s derivatives (which is CBD) 100% federally legal.
And then it passed in December 2018.
Boom… drop the mic!
Along Comes Elavon
We had found a new broker to work with, which we still have today, and he told us about Elavon.
They are a huge company, owned by US Bank, and they were opening up regular risk merchant accounts for CBD companies.
This was our answer, our Golden Ticket.
In a very quick and simple process, we were approved for our merchant processing account and up an running in no time.
Our rates were just like any other new ‘regular risk’ account.
Well as you can imagine, as word of this spread, it seemed almost everyone went to Elavon to open a CBD account.
Apparently, US Bank locations were just swarmed with people wanting to open up accounts.
So What Happened Next?
If you want to know anything about the CBD & marijuana industry, know this.
Many dispensaries, both legal and illegal, are looking for ways to not take cash at their stores.
People would much rather pay with a credit card if they can.
Furthermore, tons of new CBD companies are opening daily completely funded by their illegal weed businesses.
I’m sure you can only imagine how many people opened up CBD processing from Elavon and then started running illegal stuff through Elavon they shouldn’t have.
It’s not even a question of ‘if’ it’s happening, but more like ‘how many’ are doing this.
And that’s only one of the reasons this happened…
In mid March, Elavon notified all it’s CBD customers they would be shutting down their credit card processing services at the beginning of May 2019.
They offered no help, no contingency plan, nothing.
Just thanks and don’t let the door hit you on your backside on the way out.
As you can imagine, the entire industry went crazy.
Luckily we got word the first time before May 1st hit that Elavon was going to give us another 15 days and extend their cut off date to May 15th.
Mind you we’ve been working with our broker on a solution, but so was everyone else.
EVERYONE was basically calling the same few banks who were taking CBD merchants.
The backlog was enormous and still is to this date.
As May 15th approached, we didn’t know what was happening.
We hadn’t heard a thing from Elavon, and the main bank we were trying to get approved with had a backlog of over 2500 applications, only to find out later they were ‘selectively’ approving only 10-20 per day.
Literally on May 15th, we get notice from Elavon they were extending the deadline again until June 1st.
Whew… live to fight another day.
Other Banks Step Up
Before May 15th, our broker was telling us quite a few things.
The most notable was that there were some serious big banks working feverishly to get into the CBD space, and fast.
I won’t mention their names as things may change, but things are looking up.
Furthermore, the banks I’m referring to are happily taking CBD companies with normal risk rates.
Our broker has been working on structuring things correctly with these new banks, so applications weren’t available to us yet.
I also heard from my broker that Elavon was rumored to be giving us another month extension.
In hearing this, I’d hoped that Elavon was coming to their senses and was looking to find a way to weed out the bad players, no pun intended. 😉
So as June 1st was quickly approaching, I was getting nervous about what might happen.
Then Today Happened
As I mentioned earlier, I woke up to a few emails of customers trying to buy but couldn’t.
I immediately got that feeling of… please let this be a coincidental mishap.
I went to my site and tried to buy like anyone else would… and I got declined.
Elavon pulled the plug, and a day early to boot.
What’s ironic is we got the approval to submit our application with the other bank we will be switching to, so hopefully all is not lost for too long.
I heard the new bank is approving apps pretty quickly, so hopefully our site will be back up in no time.
But for the time being… our customers get to see this.
Thanks for listening to this rant…
You Kill The Wod, We’ll Recover The Bod!