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Square’s top lawyer explains what’s behind the company’s push into the trendy CBD space

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Square’s top lawyer explains what’s behind the company’s push into the trendy CBD space

Category : entrepreneur

  • Square is rolling out its full payment-processing platform to all CBD sellers in the US.
  • The company is opening up its platform to CBD sellers after it conducted a three-month “invite-only” beta program, which started in May, for a small group of CBD startups.
  • Square is solving one of the biggest issues for CBD merchants, which often have to use high-risk payroll processors and pay exorbitantly high fees.
  • Click here for more BI Prime stories.

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, which started in May, for a small group of CBD startups, 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,” Sivan Whiteley, Square’s general counsel, said at a press event at the cleverly named Manhattan, New York, 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,” Whiteley said. 

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, Whiteley said. 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 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,” Whiteley said, which involved conducting “enhanced due diligence” on CBD sellers compared with 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 shop.
Associated Press

Solving the biggest pain points for CBD startups

For CBD merchants, Square’s entrance into the industry will smooth over a lot 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 fees upward of 10% per transaction and often hold the funds for weeks, CBD sellers previously told Business Insider, whereas most noncannabis-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% plus a 10 cent fee for each in-store credit-card transaction, and 4.2% plus a 30 cent fee for online transactions. While higher than other e-commerce businesses, Whiteley said this price reflected 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. 

  • Read more:
  • CBD and hemp startups are using creative loopholes to skirt Facebook’s ad ban. Here’s how they’re doing it.
  • Square has started working with a select group of CBD startups while other payments rivals shy away from the trendy substance
  • Unilever is the latest consumer giant to break into the potentially $16 billion hemp and CBD space with a new line of deodorants
  • Wall Street thinks the $1 billion market for CBD could explode to $16 billion by 2025
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About Author

Sammy Singh

Global VC, Founder, and entrepreneur extraordinaire as featured in Inc. Magazine, Bloomberg, and Forbes. Sammy Singh is a graduate of UCLA and Wharton School of Business as well as a former student of Loyola University of Chicago. Sammy is best known as a renowned financial technology global entrepreneur and has founded over 26 different firms across industry and all over the world. He is a venture capitalist,a TV/ Film actor, tax specialist, and marketing solutions strategist. Connect with Sammy Singh on social media below! www.linkedin.com/in/cfo www.instagram.com/champagnegqpapi www.facebook.com/officialsammysingh www.twitter.com/cxosynergy www.medium.com/@sammysingh www.crunchbase.com/sammysingh

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