The internet (and subsequent online shopping) has opened a lot of doors when it comes to product and information accessibility. People are now able to educate themselves about things that were once too taboo to talk about openly. Like CBD for instance – a cannabis derivative. Depending on your local laws, these subjects may still be too risky to explore outside of the confines of your screen. The websites and businesses that capitalize on these subjects are considered “high-risk”.
But what exactly does that mean? Will your name be put on a list if you type the term into Google? Will your employer be notified if you make a purchase? Well, no. From a consumer perspective, as long as you’re behaving within the confines of your local state laws, you won’t get into trouble for using these sites or businesses.
On the store-owner side of things, however, it makes navigating the regular hills and valleys of business ownership even more troublesome.
CBD is High-Risk? Says Who?
“High-Risk” is a designation applied by payment processors, insurance companies, and banks. It acts like a sort of red flag. It helps them determine whether or not to accept your business as a customer for their services. In some cases, it may mean you have to deal with stricter rules and harsher penalties than other “low-risk” business. There are many reasons your business might be labelled high-risk. And they aren’t all to do with the types of products you sell. You may be considered high-risk for any number of the following reasons:
- You’ve been previously dropped by a payment processor.
- You’re a brand new business with little-to-no credit transactions on the books.
- You’ve experienced excessive chargebacks. Even if you’ve never had a one, being in an industry that has a higher-than-average chargeback ratio means you could be flagged.
- You have poor or no credit.
- You sell products or services that generally result in very high-value transactions (i.e. jewelry, electronics).
Anything that makes processing payments a little riskier than other businesses can deem you high-risk. This, of course, also applies to the types of products you sell. If you sell items that have varied or limited legal status, you could find yourself labelled high-risk:
- CBD products.
- Marijuana products and/or accessories.
- Alcohol and tobacco products.
- Adult content.
- Online gambling or casinos.
You could also be considered high-risk if you rely on subscription services like online dating memberships or subscription boxes. If your business is classified as high risk, you can expect to run into a few roadblocks in day-to-day business operations.
What Will Being High-Risk Mean For My CBD Business?
The hurdles that come along with being labelled high-risk used to make operating a business almost impossible to do legally and truthfully. Business owners would resort to not fully disclosing the products they sold to try and circumvent the prohibitive conditions put in place by service providers. CBD, for instance, has been used for therapeutic purposes for decades. Only very recently has it come into the spotlight to become a house-hold name. While the processes may be evolving, there is still some extra action that needs to be taken by a high-risk business.
Fees and Terms
Products and services like CBD, online dating, and subscription boxes have become so commonplace that the markets have bloomed. As such, service providers (like banks, insurance companies, and payment processors) have begun to recognize the lost value in turning away these “high-risk” companies. However they are still careful about where they put their trust.
As a high-risk business, you can expect to be met with higher fees, and potentially stricter contract terms, as well. Consider them carefully before signing on the dotted line. And don’t be afraid to renegotiate the terms of your contract when possible.
It will be no surprise that you’ll need to pay extra attention to your state and federal laws. Make sure you’re in compliance with all applicable laws for your industry. As the political climate changes (especially nearing election time), states may begin legalizing or restricting cannabis products. That might affect your sale of CBD.
You’ll also have to watch what the FDA and the USDA have to say on the matter. The FDA finally began crafting federal laws surrounding CBD late in 2019. As those laws develop, they will surely have an effect on your business.
ToS and Privacy Policies
As a business already in a vulnerable position, it’s a good idea to ensure every base is covered. Lawsuits against small online retailers are currently on the rise, for things like not being fully accessible (compliance with ADA guidelines), and not having complete privacy policies (compliance with GDPR, CCPA and other guidelines). There are services that can quickly and inexpensively ensure your website becomes and remains compliant to accessibility and privacy guidelines.
You should also be expecting to update your terms of service on a regular basis. Post disclaimers about your products, clear terms and conditions of your services, and the shopper’s responsibility upon making a purchase. Anything to make your obligations and expectations as clear as possible will help in the case of any trouble.
High-Risk Can Still Be High-Reward
Generally speaking, the classification of “high-risk” is often due to poor or illegal behavior on the part of the customer, not the business. Industries that attract higher-than-average chargebacks, order cancellations, and credit card fraud will end up labelled as high-risk regardless of the individual business’ transaction history. In other words, there’s nothing you can do about being labelled high risk. But it doesn’t need to be a death-sentence for your business, either.
The CBD industry is forecasted to reach more than $20 billion in the US alone by 2024. By taking the right precautions, you can have your slice of the pie. If you need help setting your site up for compliance or finding a payment processor who will accept you, contact us today.