Square Launches Pilot Program for CBD Companies
Square’s CBD Pilot Program
Credit card payment processor Square has launched a pilot program to service CBD businesses, on an invite-only basis for businesses operating in compliance with the Farm Bill. Despite the announcement of this beta launch, the Square website still explicitly says “we do not allow sellers to sell marijuana or related items on our platform.” It is possible that at this stage Square is ahead of federal regulators in drawing a distinction between cannabis and CBD, and allowing the pilot program to proceed because of the new federally legal status of CBD, post Farm Bill.
As both state and federal legislators undergo increased pressure from organizations such as The National Association of State Treasurers (“NAST”), basic financial services may soon be offered to CBD (and cannabis) businesses within states where such commercial activity is permitted.
CBD and Banking
As outlined in an earlier post on CBD and Banking, even though hemp-derived CBD was made legal for interstate commerce by the 2018 Farm Bill, bank regulators still do not distinguish between hemp and cannabis. You can read more about the FinCEN guidelines here and the pressure on the FDIC to provide guidance to banks regarding CBD here.
Federal Banking at a Standstill regarding CBD (for Now)
In May, it was announced that NAST “supports common sense federal laws and regulations to provide essential banking services to state legalized cannabis businesses, promote public safety and financial transparency, and facilitate local, state and federal tax and fee collection.” Banking Committee Chairman Mike Crapo (R-ID) has been the primary hold-out on progressing the Secure And Fair Enforcement (SAFE) Banking Act through the House, leaving cannabis (and CBD) businesses with zero assurances (since FinCEN does not distinguish between the two).
The benefits of integrating CBD (and potentially legal cannabis) sales into a regulated economy are apparent to legislators and businesses alike. The NAST resolution states that “[whereas] unbanked cannabis businesses are unable to write checks, make and receive electronic payments, utilize payroll providers, accept debit or credit cards, or pay taxes through a financial institution, tax collection is more difficult and burdensome for both businesses and governments, and the potential for tax fraud is substantially increased.” As such, it has become the responsibility of payment processing platforms like Square, Stripe, and Evalon to work with CBD businesses to bridge the gap since the Farm Bill passed last December. Unfortunately, only a handful of smaller companies have continued to work with CBD retailers, at significantly higher fees than the industry standard of 2-3 percent.
Legislature Must Act to Create more access to Financial Services
Prior to Square’s announcement, Evalon - a subsidiary of US Bank - terminated all CBD related accounts on May 15th, but this was likely due to the unrestrained approach the company had taken towards business approval in a highly-regulated market. Square’s approach to allowing CBD sales has been far more cautious. By providing space for a few CBD businesses to operate electronically, Square has sensibly opened up a channel for secure financial transactions around which subsequent ecommerce activity may be modeled. This will only succeed on a larger scale if legislators continue to push banking reform forward as it pertains to cannabis businesses across the US.
Lauren Estevez is an attorney who advises international, multi-state and California cannabis brands, operators, and investors. She is nationally recognized as a subject matter expert in Cannabis Law and her work has been featured on CNBC, Bloomberg Law, and SXSW. The National Law Journal awarded Lauren the recognition of Cannabis Law Trailblazer in 2019. Lauren is the founder of LME Law.