The CBD sector is one of the fastest-growing and most demanding industries worldwide. Projections indicate that the CBD market will clock $20 billion in sales by 2024. The surface has only been scratched on the earning potential of CBD, but the hemp business presents notable and unique challenges. Understanding these factors will help drive your CBD business toward tremendous growth and reduce costly downtime.
Considering Compliance Implications on Insurance Coverage
CBD producers and distributors carry a lot of the same insurance risks as any other business, including property damage, customer lawsuits, and liability concerns. But they also face a whole host of industry-specific risks that create compliance challenges that can jeopardize a CBD business’s ability to protect itself.
In order to maintain insurance coverage, CBD businesses must remain in compliance with all state and federal regulations throughout manufacturing, distribution, and sale—despite the fact that the rules are often contradictory and always changing. Every step of the process brings insurance concerns unique to CBD, from cultivation to harvest, documentation and testing, derivation and production, licensing, labeling, sales, and more. Insurance issues may also result in a loss of capital, as many investors will require proof that a CBD business is adequately insured and has consistently met compliance requirements to avoid jeopardizing their investments.
To successfully navigate these considerations and lessen potential exposure, it’s essential that CBD businesses retain insurance professionals with proven expertise in serving this industry.
Marketing and Labeling Within Regulations
Another area of compliance that is particularly fraught with complexity for CBD-related enterprises is how products are packaged and advertised. When it comes to labeling, each state carries its own requirements governing supplements including ingredient listings and specific words that cannot be included. Complex inclusions and exclusions can lead to product packaging that’s legal in one state but banned from shelves in another.
Accurately communicating product benefits is another area where CBD can attract warning letters and enforcement actions. The FDA explicitly prohibits language that positions CBD as a safe and effective treatment or cure for diseases or conditions that have not been studied or proven in clinical trials. Even loose claims that CBD can provide general health benefits can raise red flags for regulatory bodies.
Web and social media content is another area where business owners—or the people they hire to write content and manage social accounts—can find themselves in trouble and out of compliance accidentally. Using problematic hashtags, liking or sharing content that includes disease keywords, or alluding to health benefits can attract warning letters and run the risk of being banned from social media altogether.
While educating marketing managers and packaging designers is a good first step to achieving communication compliance, hemp companies are better off hiring professionals with a deep portfolio representing the supplement industry whenever possible.
Ensuring Adequate Redundancy with Stable Bank Contracts
Hemp banking presents numerous challenges that may be detrimental to your CBD business and make partnering with banks while in the CBD business difficult. For example, laws differ in every state. This means that the differences between federal and state laws can also be a risk to your business and to the financial institution.
Banking institutions require high-risk assessments to ensure you’re dealing with legalized products. Once legality is determined, there’s still considerable stigma and risk-aversion to hemp-related businesses. Stability of services is critically important.
Staying in Compliance with Industry-Specific Support
Numerous laws have been implemented to govern the sale and consumption of CBD products, as well as the payment processing requirements surrounding those transactions. CBD regulations are quickly evolving, and business operators must keep in touch with these changes.
When you’re operating in a high-risk space like CBD and hemp, it’s important to ensure that your operational partners are familiar with the specific compliance needs (and subsequent hurdles) for your sector including relevant certifications and regulatory training. Otherwise, you could end up facing serious penalties or struggling to manage compliance requirements as laws continue to change.
Mitigating Fraud and Chargebacks Plus Utilizing Real-Time Reporting
Mitigating fraudulent chargebacks involves a set of industry best practices that help safeguard all the stakeholders in the system. This is due to increased defrauders initiating malicious transactions or stealing information.
CBD businesses are considered particularly high risk because of special compliance needs, and online and international transactions only add to that. There is also an ever-evolving set of fraud schemes affecting the CBD industry specifically, and it’s important for sellers to be aware of what they are and how they work. While many are intentional, others are less malicious and often tied to the growing popularity of CBD among teenagers. Take friendly fraud, in which a minor uses a parent’s credit card to purchase CBD products without permission. If the parent notices the unauthorized charge, disputes often result in chargebacks to the merchant. Underaged buyers are often at the root of reseller fraud as well, which involves using stolen credit cards to purchase CBD products and capitalizing on the products’ high resale value by selling them to peers.
Reduce Risks with the Right Partners
Valmar Merchant Services acts as the backbone of carefully curated teams, in partnership with CBD-specific insurance and marketing advisors, all working together to keep your business in compliance and thriving. We give our customers a level of comfort, clarity, and peace of mind unrivaled in payment processing—even the “high-risk” ones our competitors won’t touch—with no downtime or disruptions. Our experts have certifications in industry-specific verticals such as CBD and hemp, as well as risk and compliance, and in the overall payment space—and we’re constantly sharpening our skills. If you have more questions, contact us—we’re here to help!