In short, it’s because you’re not rich enough, corporate enough, old enough. While innocent people are rotting away in cages, these companies are laughing all the way to the bank.
Operating in the current CBD landscape comes with a fair share of grey area that is already shrouded by bureaucratic red tape. Exorbitant taxes, license lapses, product seizures, raids, arrests, etc are the norm for businesses operating in the cannabis industry. Not to mention the retail and eCommerce portion of this space is quite littered with murky merchant processing solutions that are either off-shore or through a few select domestic banks – but ONLY if you’re bringing in a certain amount of revenue.
What’s the threshold? Some banks require you to be doing $50,000 in revenue per month to even be considered, a number that varies based on which broker is doing the deal.
For instance, I was recently approached by a broker about a potential solution, but only if we were doing $200,000 in revenue on a monthly basis. Another broker told us that the same bank was allowing accounts at $50,000 or less!
Here are some screenshots from those conversations:
To which I say this:
How do these banks and brokers expect businesses to compete in the retail and eCommerce arenas if they don’t have a viable processing solution in place, allowing them the opportunity to achieve those arbitrarily high numbers?
My assessment: We are witnessing the market being co-opted before our very eyes.
Make no mistake, this is a deliberate slap to the face of American entrepreneurs attempting to operate in the CBD niches they have carved out for themselves.
Just the other day, I took a trip to Bed, Bath & Beyond, and upon entering, what was the very first product I saw? A water soluble essential oil diffusion containing CBD, with… the dosage of CBD directly on the label. They also sell topical essential oil roll-ons that claim calming, sleep, and energy benefits for humans and “for dogs.” First of all, roll-ons for dogs? Okay, Bed, Bath & Beyond, this is just silly, but I’m willing to wager that some woke corgi with a dreadlocked man-bun who goes by the name of Bodhi, has probably wandered into the essential oil section enough times for this to be a viable product.
Either way, how is it that this large department store is able to offer these vaporization products and topical “pet” products with little to no resistance from their merchant processing solution, yet companies such as Honey Oil, Simpli Hemp, Pink Honey Collective, and about 1500 others have all faced financial barriers to compete in the very same retail and eCommerce arenas?
The dirt: Money talks.
This largely unregulated portion of the banking industry – by design – has forced the up-and-comers to fight for our lives as small businesses, while these Big-Box stores get free reign to sell CBD. This year alone, Honey Oil saw nearly a 250% increase in revenue month over month from February-April before PayPal shut us down. All the momentum generated by a tireless staff of determined individuals is now unceremoniously on pause. But don’t fret – if you’re shopping online with Bed, Bath & Beyond, the option to buy CBD with PayPal is available to you…
The story has almost become predictable at this point. It seems that every 3-4 months, the current processing solution goes down, then the application frenzy begins. Meanwhile, the same rules don’t apply to the big players.
A complex eventuality, not unique to any emerging industry gaining interest from the grubby hands of modern day capitalism.
Again – How are we, as small businesses, expected to see continued growth if we can’t sell our products?
After filling out a dozen different merchant applications, we took the time to reach out to other small businesses via CBD-biz related social media groups. Shortly after posting our inquiry, we connected with Tyler Huerkamp and Tripp Michaelson of Simpli Hemp, a Florida-based company that offers a variety of CBD products online. The two were enthusiastic to recount their experience to us, saying that, “dealing with a handful of shaky processors left them with little confidence to enable competition long-term.”
Not only did this situation affect their own eCommerce business, Simpli Hemp also lost a white label client who dealt with the same issue. While they are currently operating without a hitch, what got them up and running was developing a relationship with a local institution. They told us, “providing full transparency into their operation,” secured the current path to move product through a local credit union.
So while BIG banks are not legally allowed to open up the floodgates to businesses in the cannabis space and its adjacent markets, there is a glimmer of hope for those companies to operate in some manner.
However to get there, the path is not always as cut and dry as it is for others.
Our path requires metaphorical bushwhacking through the greed-ridden, metro-detritus left by banks and corporations.
Unfortunately, it makes a great deal of sense considering the symbiotic relationship banks and big business share, and the stranglehold they have on the economy. That – and for California-based companies specifically – constant changes to BCC (Bureau of Cannabis Control) regulations on packaging, impending but unexpected license lapses, and exorbitant taxes on anything to do with commerce are just another set of hurdles cannabis and CBD companies have to “put up with.”
Until Federal policy is written to allow big banks to work with us, some companies will inevitably fold in the process – all due to the ignorance of what is now an incredibly viable industry by our governing bodies, which paints a sad picture for any newcomers to the industry.
However, if there is one thing I’ve learned from my experience in the world of biotech, it’s the following: The more noise you make about something, the more likely that relevant regulatory bodies are to respond.
For instance, in the medical lab industry when a new technology emerges that renders a previous technology obsolete, insurance companies are not just going to outright adopt the new tech as standard, until a few things happen first. Often times it takes the voices of Key Opinion Leaders (KOL’s), physicians, scientists, clinicians, other medical personnel, and patients, to sway the right groups.
The process works a bit like this:
- Forward-thinking physicians adopt the new technology as a part of their practice.
- The physicians then order the new tech in place of the old tech and submit the claims for reimbursement to the insurance companies.
- The insurance companies then deny coverage.
- Repeat step 2, over and over, and over again, while the case is made by the physicians, scientists, KOLs and other groups, that this new tech should be covered in place of the old tech, or at least offered the same coverage.
- Over time, and lots of phone calls, letters, studies, presentations, and other forms of communication, insurance companies eventually respond by writing policy around the new tech.
A similar story is unfolding here, as CBD and cannabis companies continue to fight to achieve merchant processing capabilities with the banks who can’t work with us, but WANT to. Yes, banks want in on the action. Earlier this year, 38 states attorneys general co-signed a letter urging congress to encourage banking regulation for cannabis companies. A survey conducted by Finance-Tech firm, Promontory Interfinancial Network, asked Bankers across the U.S. what their stance was on this topic. The survey yielded majority approval across all regions of the country, according to this Sacramento Bee article. So what gives?
It’s fairly obvious: The opportunity to capture a large chunk of a NEW revenue stream from the legal cannabis industry is a very low-hanging fruit to any bank paying attention. The wheels are in motion at this point, and we believe it is only a matter of time before the policy is written, so long as cannabis companies continue to make noise. Banks stand to gain EXPONENTIALLY from the cannabis industry, and it’s absolutely mind-boggling to know there is nothing yet written in terms of policy that would allow banks to confidently work in cannabis, an industry already worth well over $8b, domestically.
Even nimble, modern merchant companies like Square are getting in on the action, but only a select few businesses are a part of their “invite-only” pilot program, which we’ve been told is full by Square, via Twitter:
If you are a company operating in the cannabis industry, I urge you to continue making noise through the adversity we are facing, on all fronts. Keep fighting tooth and nail until the bittersweet victory is achieved. While we have some form of permitted or decriminalized cannabis use across 46 states, the battle is far from over.
There is power in numbers.
From what I’ve gathered through the dozen merchant accounts that we at Honey Oil have applied for and the conversations we’ve had with brokers, it’s blatantly obvious: There are at least 1500 businesses in the CBD space alone that likely employ thousands of people who are dealing with this exact issue, meanwhile huge conglomerates like CVS, Walgreens, and Bed, Bath & Beyond generate a new revenue stream without interruption.
There is clearly a set of rules in this country that applies to big business, yet a system of discrimination and constant challenges that small businesses are faced with. Corporations do not get the same kind of treatment, because money talks. The current situation is a prime example of the underlying, unspoken rule of the business world that has held small companies such as ourselves to a set of standards that large companies aren’t equally held to.
What needs to happen?
I believe the STATES act is a step in the right direction, and is somewhat necessary as a foundation, but it is definitely not the final boss stage for cannabis legalization by any means. What ultimately needs to happen is a complete rescheduling of cannabis, all of her components and extracts. While the cannabis industry is already worth well over $8 billion by conservative estimates, rescheduling will be the next necessary step in fortifying its legitimacy.
Following that would be releasing all those who are currently incarcerated for nonviolent cannabis crimes. Something a handful of states, and most recently Illinois, have already initiated. Many other necessary events will need to happen before the industry is serving the people who made the ultimate sacrifice to get it to where it currently is.
Present day may seem bleak, but there are definitely a few glimmers of light emerging on the CBD industry’s dark horizon. For instance, on June 14th, a Federal Reserve official by the name of Michelle Bowman asserted to the Banking, Housing and Urban Affairs Committee that banks CAN work with Hemp, and subsequently, CBD businesses.
Watch the clip here:
In closing, to draw a comparison – working in legal cannabis is just like learning how to drive a car! The only problem is that the car we’re attempting to drive is very slow. Gas is extremely expensive, and the road we’re on isn’t maintained. Also, the car breaks down all the time, and finding the right replacement parts often requires you to jump through hoops. The hoops are on fire. Everything is on fire. Water is $10,000/gallon.
It’s now July in the year 2019, and a non-intoxicating extract of cannabis with purported and clinically proven health benefits has an entire nation up in arms in terms of how to regulate and sell it, even though Hemp has been a federally legal crop since 2018’s Farm Bill was signed.
Meanwhile, billions of dollars are being spent and taxed in the alcohol and tobacco industries, two legal recreational substances clinically proven to be addictive and detrimental to health.
Which dystopian timeline is this again?
