Square, the credit card processing company, now allows sellers of cannabidiol (“CBD”) products to use its services. Merchants can apply to accept payments for CBD transactions through Square’s platform for both online and brick-and-mortar sales. The move offers streamlined payment processing for a rapidly growing industry mired in regulatory uncertainty.
CBD is derived from hemp. Like its more famous cannabinoid cousin, tetrahydrocannabinol (“THC”), CBD is one of the active ingredients in marijuana. Some scientists have claimed CBD has medicinal benefits, such as quelling childhood epilepsy, insomnia, and chronic pain.
Sales of CBD-infused products are spiking. From 2014 to 2018, CBD sales exploded from $108.1 million to $512.7 million. Market analysts expect this growth to continue. Pharmaceutical companies are entering the field as well, following the FDA’s first approval of a CBD-based drug. With consumer and pharmaceutical investment expanding, one might wonder why Square did not hop aboard the hemp train sooner.
A hazy regulatory landscape offers an explanation. The 2018 Farm Bill declassified hemp as a controlled substance, paving the way for hemp-derived CBD’s legality at the federal level. But each of the fifty states have their own independent drug regulations that often fail to mesh with the federal ones. For instance, Virginians can only buy or possess CBD if they have a prescription, while Californians can purchase CBD dog chews from their local PetSmart—no prescription required.
Square’s response to the regulatory uncertainty focuses on maximizing its own compliance and highlighting product vendors’ responsibility. Square’s general counsel, Sivan Whiteley, stated the move into CBD was “born out of the compliance team,” and that Square attempts to ensure that vendors comply with labeling, marketing, and medical claim regulations. However, Whitely also stressed that it is “generally on the sellers” to make sure they follow the law.
Though Square runs the risk of catching regulators’ watchful eye, the move could pay dividends as the CBD market continues to boom. Square currently charges vendors selling CBD products online a transaction fee of 4.20%—notably higher than the industry standard.
Our Cannabis Practice provides advice on issues related to applicable state law. Cannabis remains an illegal controlled substance under federal law.