There is much confusion in the industry regarding credit card transactions for vape shops depending on products sold as well as state and federal laws. Learn more about accepting cards.
The credit card processors in America are likely just as confused as you are about whether credit cards can be used in the transaction of CBD based products, cannabis and hemp. Industrial hemp is legal at the federal level and has been for some time. However, industry merchants in Ohio and Idaho have experienced seizure of their inventory based on violation of state laws. The conflict between federal, state and even local municipalities complicates what is legal and what isn’t.
Defining the Market
For the purpose of this article, we will focus on retail vape shops. However, some vape tobacco shops might also carry CBD products as well as hemp and cannabis products. Anything that is derived from cannabis is still considered a Schedule I drug by the Federal Drug Administration. This is where problems arise and there must be a distinction of what your main retail business is. A vape shop typically sells eCigarettes and flavored “juices” as its main item. The second type of high-risk smoke shops are cannabis dispensaries. A cannabis shop is likely to sell strictly cannabis and food products such as brownies, gummy bears and cookies infused with THC, the psychoactive component in marijuana. Contrary to what you might think, people can use plastic to pay for their weed. In states where the sale of cannabis is legal, merchants can process debit cards that are used with a PIN. The last high-risk group are retail stores devoted to selling CBD oils and CBD infused products along with products such as lotions containing hemp. These define the three types of retail businesses that are considered high-risk in the credit card processing industry.
Difficulty with Credit Card Processors
While vaping is completely legal in the United States, you may have a hard time finding a credit card processor. This is because the vape industry is considered “high risk” whether you accept credit cards in person or using a website. Because there are so many regulations placed on vape shops such as age restrictions and FDA oversight, many traditional credit card processors shy away from processing for vape shops. Additionally, since some vape shops sell all of the items mentioned above and processors have no way to know which products are being sold through a credit card transaction, processors themselves can get into trouble for allowing such transactions. Thus, most elect to take a pass on providing merchant services for merchants that might pose a risk to the processor. Vape juice and eCigarettes aren’t the only products that fall under the high risk category for vaping. Accessories such as atomizers and even batteries can fall under high-risk vaping scrutiny, even if you don’t sell the liquid. It is indeed possible to accept credit cards but you must find a “high risk” credit card processor.
About Tobacco Sales
If you sell tobacco or juice online, you are considered an even higher risk as opposed to in person sales. The main reason is because every state has different laws regarding tobacco sales, including how old customers must be to purchase it and it’s difficult to verify an online customer is legally old enough for the purchase. MasterCard has a specific requirement that an adult must sign upon delivery of online tobacco purchases. You are much more likely to be approved if you operate a brick and mortar smoke shop and have a good relationship with your bank who can vouch for the validity of your business. All merchants in all industries go through an application process that includes an “underwriting” process. This means the owner of the merchant account is subject to a background check of financial worth, credit worthiness and other factors. If you’re using a chip reader for the sale of tobacco products only and don’t carry other types of products you likely do not need a high-risk processor.
Understanding Credit Card Processing Fees
Credit card processing fees will be assessed the same whether you’re high risk or low risk but the rates paid for high-risk will be substantially higher and should be considered a cost of doing business and factored into your pricing. For every person who pays cash for an item, you simply make more profit. To simplify the costs associated with processing a credit card, there are basically three separate fees that you will pay, although they may not be displayed that way. For instance, some processors charge a flat fee of 4.0% for every transaction. There may be additional fees such as a transaction fee for every card processed. Other processors might break it down and show you the fees by their proper names. They are: interchange, assessments, and markup. Interchange fees are non-negotiable and the fee goes directly to the bank that issued your customer’s credit card. Assessments fees are also non-negotiable, and get paid to the card brand, such as Visa or MasterCard. The final fee is called, the markup and it is negotiable in many cases. This is the amount the processor charges for handling your account and facilitating the transaction.
High Risk Processing Fees
Interchange and assessments rates don’t usually change simply because you’re high-risk. However, the processor’s markup is likely to be higher. The risk to the processor is much greater for many reasons and the processor must balance that high risk with the amount of profit it receives. For shops that sell CBD oil and CBD products, many high risk processors will gladly accept you if you can demonstrate through bank records or other proof that you have revenue of more than $200,000 per year.
Registration with Visa and Mastercard
Visa and MasterCard require tobacco businesses and vape shops to “register” with them. Your processor will do this for you. You should know that this registration has a high cost associated with it. High risk registration for Visa and MasterCard has a $500 annual fee. Your processor will charge you this fee when setting up your account and once a year thereafter as long as you continue to process.
It may be tempting to withhold some information about your business or what you actually sell just so you can establish a merchant account. You may be inclined the believe that once you have a credit card terminal and a merchant account that no one will know exactly what you are selling. The fact is, misrepresenting your business or products you sell to a credit card processor amounts to fraud. You should fully disclose what your product line consists of. If you sell vape pens and juice, don’t try to claim that you only sell tobacco products. Likewise, if you are a tobacco shop or vape shop that sells marijuana, even in states where marijuana is legal, it can and will catch up to you. If this happens, any funds that are in the pipeline to be paid to you from previous transactions will be frozen while an investigation takes place. If credit card sales represent the bulk of your transactions and your account is frozen on a Monday, you are likely to have transactions from Friday, Saturday and Sunday held up. You will likely be added to a file known as the Terminated Merchant File. Landing on the TMF file will make it impossible for you to open a merchant account in the future with any processor. SVBS
Jim Luff is the Marketing Manager for Chosen Payments, a credit card processor. None of the contents of this article should be considered legal advice. For more information about credit card processing visit www.chosenpayments.com, email [email protected] or call 855-4CHOSEN.