What a Year For CBD and eCommerce!

I never would have thought 2019 would be the year I’d become a thought leader for CBD and Cannabis brands around eCommerce and marketing in a restricted industry. I began this journey in the summer of 2018 when my company started acquiring CBD brands that were getting kicked off of Shopify. I learned the pains they were having selling online and came up with a solution to help them.

Education is Key

As I started getting the word out about how to do CBD eCommerce, my message began to resonate with event organizers and I started speaking at numerous shows. My main purpose speaking wasn’t to sell my company’s eCommerce platforms but rather educate CBD brands and entrepreneurs of what they need to consider before selling online.

Most of the hundred plus brands I’ve talked to don’t spend much time thinking which eCommerce platform they’ll use. They are more concerned with the business aspects around sourcing, testing, branding, packaging, and the list goes on and on. When it comes time for them to choose an eCommerce platform, a lot of them choose with what’s familiar to them; Shopify, BigCommerce, and any other Software as a Service or SaaS platform. It makes sense, those brands, most notably Shopify, spend millions on advertising.

While those SaaS platforms make it very easy and turn-key to spin up an online store, the costs when you grow are pretty big. What I mean by that is two things. One, if you choose the Shopify beginner plan for example, you can’t use Shopify Payments for the credit card processing online, you’ll have to use an external merchant. Since you’re considered “high risk” by banks and merchant processors, you’re going to have transaction fees around the 3.5% to 6% range. And then Shopify is going to add an additional 2% on top of that since you’re not using Shopify payments. So now your margins can get hit pretty tough here for just selling your product and that $29/mo plan isn’t just $29 anymore. Here’s a handy calculator from eCommerce-Platforms.com that can help you see it for yourself.

The second drawback around “costs as you grow” is that when you need to upgrade your store infrastructure resources to handle the volume of sales you’re getting, there’s a couple of small steps up on the Shopify plans, but after their $249/mo plan, you’ll have to upgrade to their enterprise plan, which is $2,499/mo. That’s a huge price increase which again, cuts into your margins and bottom line.

Who starts up a CBD brand thinking they are going to just stay small?

Why Open Source eCommerce Platforms

I’m a huge advocate for open source platforms like WordPress and WooCommerce for plenty of reasons. The most important for CBD brands is that you won’t have to pay additional transaction fees for selling your products. Whatever you negotiate with your merchant processor is all you’ll pay. The second most important factor is that you own your data. Let’s say you have a WordPress/WooCommerce CBD store at GoDaddy and you’re not happy with the performance or support you’re getting from them. Since WordPress/WooCommerce is Open Source, you can easily migrate your store to a different host quickly with the same look and feel. When you’re using a SaaS eCommerce platform, that look and feel of the site is their data, not yours. So if you’re not happy for the same reasons, you just can’t pickup your store and take it somewhere else. You’ll have to re-platform and that can get pricey if you want to have the same look and feel recreated on an Open Source platform because you’ll likely have to hire a web developer for it.

Need Help Navigating the CBD landscape?

Contact me and I’d be happy to talk you through it. I promise that I won’t try to sell you anything. I’m just here to help!

Selling CBD Oil online just got more difficult again. Right before the start of CBD Expo Midwest, Elavon told their merchant brokers that they are getting out of the CBD business and brands who were currently using them had 45 days to find a new home.

Disruption with Elavon – US Bank Pulling Out

Elavon – US Bank was a great thing to happen to CBD brands. They were driving down the transaction prices to somewhere in the 2% range with no reserve. This basically meant that CBD brands could sell their products without being considered high risk.

When I was first getting involved in the CBD industry in mid-2018, I couldn’t find a merchant partner who could get below 6% per transaction. So being able to process at less than 3% was great.

Now that they’ve pulled out, it’s caused a big disruption in the space. Currently, there are about two banks that are taking in CBD brands but they are prioritizing those who are selling more than $100k/month and their rates are going up. If you’re a startup in the CBD industry right now, you’re probably looking at around 5% transaction fee along with a reserve.

The Future of CBD Merchant Processing

While there’s going to be a bit of a pain to sell online and be costlier, it’s only temporary. Once the dust settles, I expect there to be another bank or banks that will coming along and there will be another “race to the bottom” for rates.

So if you’re a startup, it’s probably going to take you a little longer to get approved for a merchant account. You’re looking at 3-6 weeks as long as you have all your papers in order and submit them as soon as they ask for certain documentation.

Being able to sell CBD online is a huge competitive advantage. So although it’s a bit more expensive to sell online, as well as difficulty. You can set yourself apart by actually being able to.

If you want to sell CBD online, it’s going to be a bit more complicated than setting up an eCommerce store and posting your products within an hour.

While popular eCommerce platforms like Shopify and BigCommerce make it easy to spin up a store, selling CBD oil, vapes, and other products put you in a “high risk” category with merchant processors and others.

What does that that mean exactly? Well, although the farm bill passed legalizing industrial hemp production, it did not make CBD oil legal. It’s something that will have to go through the FDA, and there isn’t a clear signal of how they are going to weigh on it. That’s just one of the “risk” factors that merchant processors and banks look at.

But all is not lost, there are plenty of CBD brands selling their products online today and CBD oil and products with less than 0.03% THC are legal to ship across all 50 states. Confusing right? But how do you get started?

Hurdle 1: Get a Business Bank Account

While that doesn’t seem like a hard thing to do, a number of brands I’ve worked with have trouble with this first step. My advice here is to try your smaller local/regional banks and credit unions.

They are more likely to work with you than a large bank that has shareholders and board of directors to answer to. One bank in particular, SunTrust Bank, is well-known in the industry to be CBD-friendly.

If they ask you what your business is, the best thing is to do is just tell them the truth. Don’t hide behind “health and wellness”, be upfront so you’re not surprised later if they shut down your bank account when they find out.

Hurdle 2: Get a Merchant Account

This may sound a little confusing, but in simple terms, you’re going to need a merchant account and bank to process your online credit card transactions.

Here’s why it may make a little sense, if you were planning to use Shopify for example, they have Shopify Payments or Stripe to process online payments. Those two are not CBD-friendly and if you try to fly under the radar, they will find you. Not just with Shopify, but any other major merchant processor like Square, Braintree, etc.

What’s even more scary is that I know some brick-and-mortar CBD brands that are using these major processors and are flying under the radar by not using “CBD” and other terms in their product descriptions. This is EXTREMELY risky, if they were to find out, they’ll shut you down without any warning.

Could you handle that kind of disruption to your business? Also, say you have a competitor who wants to “take you out”? They could call up Square for example and tell them your store is selling CBD products on their platform and they’ll shut you down in a second.

Finding the right merchant partner is difficult. I have a handful of fully-vetted CBD-friendly merchants who can help you. Head over to the Contact Me so I can talk with you and understand what you want to do and sell and I’ll make the introduction.

Hurdle 3: Find a CBD-friendly eCommerce Platform

Finding a hosting provider or eCommerce platform to host is pretty simple, however, finding one that is ok with you selling CBD oil and products is a little tricky. Make sure you read the terms of service and acceptable use policy to see if there’s any restrictions around it. The last thing you want to do is spend hours building your store, getting your products ready to launch, and then get told by the platform or host that you can’t sell those products and have to move.

Another big decision you’ll have to make is whether to go with a templated/proprietary eCommerce platform or open-source platform to build your store. I’ll go into details in another post as to why, because this is one of the most critical decisions your future self wished you had spent more time on.

Now Go Sell CBD Online!

So now you’ve got your business bank account, your merchant account, which will probably take between 3-6 weeks right now, and your eCommerce platform, you’re ready to go! Now it’s time to bring traffic to your online store. But now you’re faced with some more hurdles, as in, you’re not able to do paid advertising on Google or the major social media platforms. Stay tuned for my future posts on how to drive traffic to your online store without paid advertising.