How To Choose A Processor

The vape and CBD industry is booming, with the global e-cigarette and vape market projected to reach a staggering $1.12 trillion by 2037. But while the potential for success is huge, navigating the complexities of payment processing in this industry can be a real challenge. The industry’s complex legal landscape often leads to vape and CBD payment processing being classified as high risk.

The high risk designation can result in sudden account terminations that disrupt business and hurt your ability to sell. Many CBD and vape retailers have had their payment processing abilities suddenly cut off at least once.

This makes choosing the right payment processor absolutely critical for your success. In this blog, we’ll go over what you need to watch out for when picking a payment processor for your vape or CBD store so you can do business in confidence:

Why is vape and CBD payment processing high risk?

The 2018 Farm Bill legalized hemp-derived CBD products at the federal level in the United States, and vaping has been around since 2007, but this doesn’t mean it’s smooth sailing for businesses. Payment processing for CBD and vape businesses is still seen as high risk due to a few key factors:

• Lingering legal gray areas: while hemp-derived CBD is federally legal, the FDA still has strict regulations on its use and marketing, particularly in food and beverages. This creates confusion and potential legal risks for businesses, making some payment processors hesitant.
• Reputational risks: vape and CBD products are sometimes associated with “vice” industries like tobacco and cannabis, even if they don’t contain nicotine or THC. This can lead to a higher perceived risk of chargebacks, fraud and reputational damage.
• Regulatory uncertainty: the regulatory landscape for CBD and vape products is constantly evolving. New laws and guidelines at both the federal and state level can create uncertainty for businesses and payment processors alike.

Compared to lower risk retail industries like apparel or home goods, which experience far less regulatory volatility, payment processors can see high risk verticals as not worth the effort. This means, while legal and lucrative, vape and CBD retail can be pushed to the side with other high risk industries, like tobacco and adult entertainment retailers. 

What goes into high risk vape and CBD payment processing?

Vape and CBD credit card processing is not as simple as a customer swiping a card and you getting paid. Several key players are involved, each with its own set of challenges for high-risk businesses. 

Understanding the components of payment processing and the potential pitfalls at each step can help you make informed decisions when choosing a provider. 

1. High risk merchant account

This is your business’s dedicated bank account for processing credit and debit card transactions. 

For high-risk businesses like CBD and vape retailers, securing an e-cigarette merchant account can be difficult. Just like payment processors, many traditional banks hesitate to underwrite high risk accounts. They may offer an account with higher fees and stricter terms, or decline to do business with you at all.

Challenges with vape and CBD merchant bank accounts you’ll need to watch out for include:

• Higher fees: potentially higher processing fees, monthly fees and reserve requirements.
• Stricter underwriting: be prepared for a more rigorous application process with detailed financial scrutiny.
• Account termination risks: your account could be terminated if your business activities change or regulations shift.

2. Payment gateway

A payment gateway is the technology that securely transfers payment data from the customer to the merchant account and the acquiring bank—this is where the actual CBD and vape credit card processing takes place. It encrypts sensitive cardholder information and ensures transaction security.

Potential pitfalls with payment gateways for vape and CBD retailers include:

• Lack of access: many major payment gateways (like PayPal or Stripe) do not support CBD or vape transactions, leading to account freezes.
• Expensive fees: some high risk gateways charge additional compliance and risk assessment fees.
• Integration challenges: not all high risk gateways integrate with all POS systems or ecommerce platforms. Ensuring compatibility between your POS system and the gateway is crucial for increased fraud protection.

3. Acquiring bank

The acquiring bank partners with the payment processor to settle transactions and deposit funds into the merchant’s account. This bank assumes financial liability for chargebacks and fraud, which is why many are hesitant to work with high risk industries.

Challenges when finding and working with an acquiring bank may include:

• Limited choice: high risk retailers may not be able to access mainstream acquiring banks due to industry stigma.
• More red tape: increased chargeback rates in high risk industries may lead to account holds or terminations, and regulatory shifts can impact ongoing banking relationships.

4. Payment processing for CBD and vape payments

Finally, we have the processor itself. This is the company that facilitates the transaction, working with the merchant account and gateway to authorize and settle payments. 

Hurdles to be aware of when looking for payment processing for CBD and vape retailers include:

• Hidden fees: beware of processors with unclear or unpredictable pricing structures or hidden fees; you should be able to work with your processor to find a rate structure that works best for your business.
• Lack of experience: some vape and CBD retailers may feel pushed towards newer, untested payment processors when the traditional ones fail them. You don’t have to do that—opt for a processor with a proven track record in handling high risk transactions.
• Poor customer support: reliable support is crucial in case of issues or disputes.

What to look for in a high risk vape and CBD payment processor 

Now that you know what the challenges are, let’s go over what you need to consider to mitigate or avoid them.

Experience with high risk payments

Don’t settle for a payment processor that’s new to the high risk game. Look for a vape and CBD credit card processing provider with a proven track record of successfully serving businesses like yours. They’ll understand the unique challenges you face and offer tailored solutions to help you thrive.

What to ask:

• How long have you been processing payments for high risk businesses?
• What high risk industries do you usually work with?
• Do you have any case studies or testimonials from vape or CBD retailers you work with?
• Can you help my business secure a high risk merchant account?
• Can you provide data on your approval rates for high risk merchants?

Contract terms favourable for vape and CBD payment processing

High risk businesses often have less bargaining power when it comes to contract terms, but that doesn’t mean you should settle for unfavorable conditions. 

Watch out for hidden fees, excessive early termination penalties and restrictive clauses that could limit your growth. Look for a processor that offers transparent pricing and flexible terms that can adapt as your business evolves.

What to ask:

• What fees are involved in your standard contract? Do they differ for high risk retailers?
• What will my business owe if our account is terminated?
• Are you open to re-negotiation of terms as our business relationship evolves?
• What are your rolling reserve policies, and how do they apply to my business? 
• Are there any restrictions on transaction volume or product types?

Fraud detection and security

Security is paramount, especially in the high-risk space. Ensure your payment processor is PCI DSS compliant, meaning they adhere to the highest security standards to protect your customers’ data. Look for advanced fraud detection and prevention, chargeback protection and address verification (AVS) to minimize your risk and prevent costly disputes.

What to ask:

• Do you handle PCI DSS compliance for your retailers, or will my business need to do anything?
• What sort of fraud detection do you offer? What specific fraud prevention tools do you offer for high risk merchants? 
• How do you protect my business from account takeovers and data breaches?
• Can you provide a case study or story of a vape store or CBD retailer you’ve successfully supported through a fraud incident?

Customer support for vape and CBD payment processing

When issues arise, you need reliable support you can count on. Choose vape and CBD payment processing backed up by expert customer service, ideally with the option to speak to a live agent in some way (such as chat or phone). Responsive and knowledgeable support can be a lifesaver when dealing with technical glitches, chargebacks or other unexpected problems.

What to ask:

• How can I access your customer support?
• What are your average response times for support requests?
• Do you have free support, or paid support? If you have both, what are your paid support tiers like? 

POS integration and hardware

Seamless integration between your Vape or CBD POS system and payment processor is essential for efficiency and accuracy, and helps protect your business by removing unnecessary human entry steps. 

What to ask:

• What vape shop POS (or CBD POS systems) integrate with your payments?
• How long have you worked with that POS provider?
• Does that POS system have a lot of experience working with vape and CBD retailers?
• Will I have a dedicated account manager with that POS system to answer any other questions I have?

Your point of sale matters as much as your payment processor

Lightspeed POS integrates seamlessly with experienced high risk payment processor 2Accept, offering high risk businesses like vape and CBD retailers a streamlined checkout experience and reducing the risk of errors. 

Lightspeed also provides robust inventory management, ecommerce integration, vape and CBD integrations for age verification and detailed custom reporting designed for vape and CBD retailers.

Consider CBD Kratom, a rapidly expanding retailer with 62 locations across the US. They switched to Lightspeed to overcome the limitations of their previous POS systems and custom-built solutions. By switching, they gained a robust platform with essential tools for managing inventory, processing sales and analyzing data across all their locations.

Lightspeed’s integrated system streamlined their operations, providing features like real time inventory tracking and comprehensive reporting. This allowed CBD Kratom to gain valuable insights into sales trends, optimize their product offerings and improve overall efficiency. With Lightspeed’s support, they were able to focus on innovation and growth, confidently expanding their business while maintaining smooth and efficient operations.

Flat rate vs. Interchange Plus pricing

Understand the difference between flat-rate and interchange-plus pricing models:

• Interchange Plus: this pricing model includes the interchange rate plus a fixed markup. 
• Flat rate: offers predictable costs, which can be advantageous for budgeting in high-risk industries.​

Interchange-plus pricing can be complex and unpredictable for high-risk businesses, as it involves fluctuating fees based on card type and transaction volume. Flat-rate pricing offers more predictability, making it easier to budget and manage costs.

What to ask:

• Do you offer flat rate pricing?
• What is your processing rate for card-present high risk payments? What about card-not-present payments?
• Do you charge the same fees for all types of credit cards?
• Can you provide a breakdown of how interchange fees are calculated for my industry?
• Are there any volume discounts or tiered pricing options available? 

Funding time

Cash flow is king, especially for high risk businesses. Choose a payment processor that offers fast funding options, like next day deposits through Lightspeed and 2Accept. This gives you quicker access to your funds, allowing you to reinvest in your business and manage expenses more effectively.

What to ask:

• Do you offer next day deposits?
• Is there a charge for next day deposits?
• How are funds deposited?

Chargeback protection

Vape and CBD businesses are often more vulnerable to chargebacks due to the nature of their products and evolving regulations. Look for a payment processor that offers robust chargeback protection tools and strategies to help you prevent disputes and minimize losses.

What to ask:

• Do you have experience handling chargebacks for CBD and vape retailers?
• What is your chargeback process like?
• What strategies do you employ to help merchants prevent chargebacks?
• What is your chargeback rate for CBD businesses?
• What is your success rate in representing merchants in chargeback disputes?

Additional features to consider

Consider any additional features that might benefit your business, such as the ability to accept alternative payment methods like digital wallets or ACH transfers. These features can enhance customer convenience and expand your payment options.

What to ask:

• What other features does your payment processor offer?
• What payment types do you accept?

Choose wisely to grow confidently

Finding the right payment processor is crucial for vape and CBD retailers to navigate the unique challenges of this industry. By understanding the complexities of high-risk payment processing and asking the right questions, you can find a partner who will support your growth and protect your business. 

Lightspeed POS and payments, integrated with 2Accept, offers a comprehensive solution for vape and CBD retailers, providing the tools and support you need to succeed. Watch a demo today and see how Lightspeed can help you streamline operations, optimize sales and elevate your business.