When the UK government decriminalised the use of hemp-derived cannabidiol (CBD) in 2018 mainly because of its medicinal benefits, you'd be forgiven for thinking that the market for CBD would finally establish itself as the legitimate industry it always sought to become.

Things turned out to be a little more complicated. 

CBD occurs naturally in cannabis plants. But unlike THC - the ingredient that can make cannabis use offer a 'high' - CBD has no psychoactive effect. Cannabis itself remains a Class B drug, but CBD extracted from hemp is now used medically to manage conditions including chronic pain, PTSD and epilepsy. CBD is now also found in a range of recreational products, including vape liquids, but the UK laws surrounding its supply remain muddled.

The UK Puzzle

In the UK, farmers can obtain a Home Office licence to grow hemp but the licence does not permit the use of its flowers and leaves - which are sources of CBD - only its fibre and seed - which are not. Therefore while it is perfectly legal to use CBD in the UK, it is illegal to produce it here. Consequently, it is also illegal to sell UK-produced CBD.

The solution to this conundrum would appear to lie overseas. UK-produced CBD is outlawed but you may sell CBD sourced from other countries. In many European countries, it is perfectly legal so there is no shortage of suppliers. Unfortunately, the end of the free movement of goods which was a consequence of Brexit means that the administrative burdens on importers are now time-consuming and costly.

If a CBD merchant does succeed in accommodating the form-filling, shipping delays and authorisation procedures, they may still encounter frustrating difficulties in the processing of payments from customers. The EU's Court of Justice ruled in 2020 that a French ban on the marketing of hemp-derived CBD breached EU law. But despite its gradual acceptance in many countries - including the US where hemp was legalised in the 2018 Farm Bill - cannabis and hemp remain controversial substances. Many payment providers consider the CBD industry to be a high-risk one, partly because of its reputation but also because the legislation is so confused.

Finding a Payment Processor

Many payment providers such as PayPal and Stripe may allow merchants to process online orders for CBD until the moment when their compliance teams identify the product being sold. The likelihood is that concern for their own protection against the uncertainties of the legal position will persuade them to suspend your account.

Fortunately, a growing number of payment portals are waking up to the reality that the CBD industry is legitimate. In the US alone, CBD sales are predicted to reach $22 billion by 2022 but because of the regulatory grey areas and consequent potential for card fraud and charge-backs, as a CBD merchant, you will need the services of a payment processor that can handle 'high-risk' transactions. These will generally be companies that already serve sectors such as online dating and gambling, bitcoin trading, pharmaceuticals and e-cigarette companies.

It makes sense to use a provider whose card processing system can be integrated with your existing ecommerce site rather than adopting a whole new platform. Choose one which is built on API integration, the most widely used gateway, which will allow you to monitor its use and the kind of customer experience it provides.

Although your model may be to trade online, it certainly won't hurt to choose a payment provider that also offers a point-of-sale facility. Not only does that give you access to the kind of reporting and stock control tools that POS software generates, but it also covers you for most eventualities in the developing market.

Do some careful research into the different fee structures of payment processing services. With some, you will have to pay a registration fee while others will simply levy transaction charges. Remember to look at the whole package because there may also be fees related to statements, compliance, and hardware as well as monthly or annual account charges.

Don't get locked into long-term contracts. Unless there are extremely good financial reasons to do so it will be more advantageous for you to retain the flexibility to change providers at your own discretion, especially in a growing and volatile industry.

CBD Merchant Accounts

Many of the providers you will come across with be based in the US but acquiring banks in Europe are now entering the market and in order to use their services, you will need a CBD merchant account. There are a number of conditions you will need to satisfy to obtain one, of which these are the main ones.

Your business must be registered in one of the countries of the European Economic Area (EEA), which is slightly larger than the EU, and you must be able to provide proof of this. You will also need to secure the relevant licences for each and every product you plan to sell, since regulatory compliance is essential for every party involved. In addition, you'll need to supply bank statements showing at least three and possibly six months of processing history to demonstrate your financial stability.

You need to ensure that CBD products are legal not just where you are selling them but also in the territory where your chosen provider is based. The laws differ from country to country. For example, UK law permits the sale of CBD products with a THC content of up to 0.2% while in Spain they must be completely THC-free.

Your website must comply with stringent requirements such as age verification protocols, disclosure of ingredients and a total prohibition on claims of medical benefit. Don't forget that like any ecommerce enterprise, you will be subject to the requirements of the GDPR (General Data Protection Regulation) and PCI-DSS (Payment Card Industry Data Security Standard).

Finding the right payment processor and applying for a merchant account can be onerous processes but to make a successful entrance into this market, there are no shortcuts. Doing the research and making the right choices at the start will stand you in good stead to benefit from this very new and very exciting market.

Since January 2019 CBD has been considered a ‘novel food’,  meaning that you need to apply to the FSA for authorisation to sell it in the UK. At JM Wholesale, all the CBD products we stock are Novel food compliant, meaning you can buy with confidence, knowing they’re fully approved by the Food Standards Agency.

To find out more about CBD, or to purchase from the UK's leading CBD distributer, visit the JM wholesale website.