CBD is officially everywhere.
As recently reported, the global CBD oil and CBD consumer health market size are expected to reach USD 123.2 billion by 2027, expanding at a growth rate of 25.6 percent over the next six years. Many direct selling companies have joined the CBD gold rush, motivated by high consumer demand and the various product categories that can benefit from CBD. Some have found that creating great products with CBD was the easy part. Selling it can be a bit trickier.
The global CBD oil and CBD consumer health market size are expected to reach USD 123.2 billion by 2027, expanding at a growth rate of 25.6 percent over the next six years.
The Path to Selling CBD Products May Not Be Simple
For years, the only legitimate way to sell CBD products was to transact in cash—not an efficient or scalable solution and certainly not tenable for direct selling companies.
Even with the onslaught of new products, banks and U.S. based merchant service providers have struggled to distinguish CBD from marijuana. Historically, both have been considered prohibited products by most payment processors and their sponsor banks. Even after the recategorization of CBD from a Schedule 1 Narcotic to Schedule 5 by the DEA, many banks still worry about legal challenges and liability for providing financial services and issuing merchant accounts to companies selling CBD products.
The good news is that old perceptions are changing, and your ability to sell products containing or formulated with CBD as an ingredient is becoming more feasible. The SAFE Banking Act, HR 1595, which was passed by the House in 2019, is likely to be reintroduced to Congress this year. This bill would allow financial institutions to provide financial services to legitimate cannabis-related businesses without facing potential penalties
Here are Five Essential Keys to Selling CBD products
1. Use an Experienced and Reputable Payment Processor
Ensure you have the right payment processor fit for your business. You will need a provider who has real experience with and knowledge of CBD products. Ask them a couple of fundamental questions:
- Where will your transactions be processed — in the United States or abroad? If your transactions are processed in the United States, your money will remain in the United States and is easily accessible. Be aware of the ramifications of offshore processing. You will need to set up a local entity within that processing region. You may be responsible for taxes in that country. Additionally, you will likely need local experts to set up, manage and keep the foreign entity in good standing. Since these transactions are technically occurring outside the United States, your American customers will likely see unexpected cross-border fees from their credit card company.
- Will there be any restrictions on receiving your funds, such as delayed settlement times or a reserve?
- What documentation is needed before selling your products? You may be asked to provide legal disclosure forms to validate that your products conform to the FDA’s 0.3 percent THC requirements. Additionally, you may need to provide a detailed list of product ingredients. Be aware that several ingredients acceptable in the United States are only allowed through a doctor’s prescription in other countries.
- What are your product limitations? Today, a processor who processes payments for CBD products will have clearly defined product limitations. Should you add products outside of those limitations, you could find your merchant account immediately terminated and be at risk for being placed on the e-commerce blacklist: MATCH aka TMF (Terminated Merchant File).
2. Check with Your Payment Processor Before Selling Products with CBD in Them
Many businesses wrongly assume they can add CBD products to their list of offerings simply because of the perception that everyone is doing it. Merchants from several industries—nutraceuticals, pharmaceuticals, and even beauty products and weight loss—have made this potentially fatal mistake, placing them in breach of their merchant account contract and risking account termination and being placed on the TMF.
Make sure you engage your processor early and throughout the process of integrating your CBD products. They can lead you toward the most direct route to selling without risk.
3. Hold Back Your Marketing Efforts Until you are Approved
You may have an amazing new CBD product, and you can’t wait to tell the field and your customers. However, posting too soon might put your new account approval at risk. Your processor should give you guidelines about what you can and cannot say about your pending products.
A word to the wise, the FDA has been known to take decisive action against CBD companies for making product medical or health claims. This applies to your field as well. As we all know, over-enthusiastic product claims from your field can leave you liable. You don’t want to spoil the party before it even gets started because comments about an upcoming product are in violation of your merchant agreement and incur the FDA’s rancor.
4. Verify the Accuracy and Labeling of your Ingredients, Particularly Regarding CBD
As mentioned previously, CBD products must contain less than 0.3 percent THC to be acceptable from the FDA. For products derived only from hemp, this is a non-issue. However, in a recent study of current CBD oils on the market, there was a wide variance in the actual quantities of CBD and THC compared to what was stated on the label. It should go without saying that even unknowingly misrepresenting the ingredients can be a sure-fire way to find yourself on the TMF.
Many U.S. states demand that the labels of CBD products sold within their borders be free of any health claims. It’s important to understand that claims don’t need to be explicit. If a company implies that its product can be used to treat a disease, the FDA and local authorities may conclude that the product is a drug. Consequently, if a CBD company makes any medical, disease, or structure and function claims, the FDA will likely conclude that the company is marketing “unapproved drugs in violation of the FDCA.”
The FDA is definitely watching, and they have consistently issued warning letters to companies for making disease treatment and cure claims.
5. Stay Aware of the Federal and State Laws Regarding CBD and Hemp
The laws surrounding cannabis, hemp-based products, and CBD are still largely a grey area. Federal and state laws vary widely. Staying up to date and maintaining compliance with the evolving laws and regulations will ensure that you and your field can be confident in selling your products.
There is no question that the potential for hemp-based products and CBD, in particular, has massive potential for direct sales. As more direct sales companies embrace this potential, we look forward to what is poised to be a skyrocketing marketplace.