Last week, when Shopify announced it was allowing U.S. cannabidiol (CBD) sellers onto its platform, it cited a study predicting that the market would grow from $1.9 billion in 2018 to $20 billion by 2024.
At the same time, the company was clear that not just anyone could jump on its bandwagon, telling potential sellers that it was welcoming them “provided you comply with applicable federal, state and local laws.”
Which got us wondering, what are the considerations for payment facilitators interested in accepting payments in the rapidly growing CBD market?
We reached out to LegitScript, which operates a certification program for CBD manufacturers and sellers who wish to demonstrate that they are complying with the laws and regulations governing the production and sale of their products.
According to David Khalaf, communications specialist for LegitScript, there are three main considerations that are relevant to PFs thinking about this high-risk market.
The first is the type of product the merchant is offering. At this time, Khalaf said, the U.S. Food and Drug Administration (FDA) has not approved CBD for use in food or in dietary supplements, making its sale in those products impermissible.
That leads to the second consideration: the “layers of laws” at the state, federal and local levels that govern the use of CBD. Every state has its own rules about how CBD may be manufactured and sold – rules that are continually changing and may differ from federal law. Payment facilitators must make sure their sellers are compliant with all of the laws where they’re operating.
For example, while New York state law does allow edible products to contain CBD under strict standards, that contradicts the federal position.
And in another example of differing state laws, Khalaf said that Alaska currently permits CBD product sales for merchants who register and follow labeling requirements. But merchants must also display a placard at the point of sale, which effectively prohibits online sales from that state.
“To be compliant, a merchant must ship a compliant product from a compliant jurisdiction to a compliant jurisdiction,” Khalaf said. “That’s a lot of compliance.”
And finally, CBD sellers must follow laws regarding marketing claims about their products. For example, they may not make impermissible claims that their product cures, treats or prevents disease anywhere – on the product label, the web site, or on social media accounts. Even third-party testimonials are within the scope of claims that invite federal scrutiny.
If you’re reading this and thinking that you’ve seen CBD sellers who are not adhering to some of these laws and regulations, you’re probably right.
“The vast majority of online CBD merchants are noncompliant in some way,” Khalaf said.
Because PFs are responsible for conducting the due diligence needed to make sure the merchants on their platform do comply with applicable laws, operating in this regulatory gray area requires extreme caution.
“There’s a lot of opportunity in this, but right now there is also just so much complexity and massive noncompliance that payment facilitators need to be very careful,” Khalaf said.
As always, payment facilitators should consult with their acquirers and attorneys or other advisers for detailed advice particular to their situations.