On Monday/, Friends NYC, Emma Kadar-Penner and Mary Meyer filed a complaint in the Eastern District of New York against PayPal Holdings Inc. for allegedly CBD Payment Gateways & PayPal Issues Over the past few months, a number of CBD brands and online stores have had their PayPal removed, leading them to ask me questions about why this has
PayPal Sued for Freezing Account of CBD Products Seller
On Monday/, Friends NYC, Emma Kadar-Penner and Mary Meyer filed a complaint in the Eastern District of New York against PayPal Holdings Inc. for allegedly locking their business’ account and withholding money from them, allegedly because they sold CBD products.
According to the filing, the plaintiffs opened a PayPal account in 2012, which they used as a third party vendor to collect payment for the sale of their products, which included home goods, gifts, and clothing. According to the complaint, Friends NYC expanded their product line and began to include CBD products that contained oil with 0-3% THC.
The plaintiffs alleged that on December 2, 2020, PayPal sent them a message stating that “both their business and personal accounts were locked, that Plaintiffs were permanently barred from transacting any business sales with [PayPal].” Furthermore, a hold of $9,000 was placed on their account. PayPal supposedly told them they would need 6 months to investigate, but they “were given no information as to the cause for a 6 month period.”
According to the 2018 Hemp Farm Act, “no State … shall prohibit the transportation or shipment of hemp or hemp products produced in accordance with subtitle G of the Agricultural Marketing Act of 1946,” and cannabis and low derivations of THC (such as CBD products) were removed from the definition of marijuana in the Controlled Substances Act, making it legal to transport and sell in New York.
To make matters worse, the plaintiffs claimed that they were never given any updates and were charged $3,958.01 as “damages” on May 20th, 2021. On June 11th, PayPal permanently locked their account for “sale of narcotics.” As a result, the plaintiffs are suing on the counts of breach of contract, interference of possession of bank accounts and deprivation of property without due process.
Friends NYC are seeking 9% interest for the $9000 hold on their account, damages in the amount of $3958.01 plus interest, punitive damages, attorney’s fees and costs of no less than $100,000 and other relief.
CBD Payment Gateways & PayPal Issues
Over the past few months, a number of CBD brands and online stores have had their PayPal removed, leading them to ask me questions about why this has happened, what the PayPal policy is around the sale of CBD and what they can do to fix the situation. So, let’s step back and look at the PayPal policy first.
I contacted PayPal directly, speaking to Claudia from their Press Office, asking for advice and what message they would like to send to any brands wanting to sell CBD. They sent the following response:
“As reflected in our Acceptable Use Policy, PayPal currently does not permit the use of our payments platform for the sale of products containing Cannabidiol (CBD)”.
But I had an issue with this. You see, if you were to go onto Holland & Barrett, Boots or Lloyds Pharmacy, you will find you can purchase CBD oil using PayPal. It would appear one set of rules is being applied to them which doesn’t meet their Acceptable Use Policy. I enquired about this matter, but the response I got was:
“PayPal has no further comment to add on this.”
It would appear this isn’t the first time they have been asked this and the solution is to ignore the question, quite frustratingly.
It should also be stated, to those saying this is unfair, that PayPal isn’t a regulated bank and actually have every right to do this (even if we all find it very frustrating). In their actual policies, it states that they can freeze your funds for up to 180 days if they feel you are breaking their acceptable use policy, meaning any money you have in the account could be held for an extensive period of time, which could be devastating to many brands cashflow situations.
So what about other payment gateways that you could use?
This is unfortunately another roadblock, as Stripe have stated the following:
“We aren’t able to support businesses selling CBD products at this time”.
While some brands allow other forms of hemp products to be sold, a representative from Stripe has stated “we impose a blanket ban on the sale of any products related to marijuana, including hemp and CBD oil.”
Even when asking around products that contained zero THC, the answer was a no.
However, there was a positive note at the end. They had this policy because at the time it was set, CBD was a schedule 1 drug, whereas now they know it isn’t, they will undoubtedly change the rule at some point in the future. Without the threat of them receiving large fines, the door is ajar, we just need someone to push hard enough.
Who Says Yes?
I’m sure you must be scratching your head wondering what options you have left! Well I’ve listed below all the different CBD Payment Gateway options for you to consider and tried to list all of the associated costs.
They claim to have a 100% approval rate, which is relieving for many brands that work in a supposed ‘high risk’ area such as CBD. The brand has a strong reputation for working with brands within gambling and adult entertainment, as well as CBD.
The payment gateway solution has PCI-DSS level 1 security in place, while they accept over 100 currencies in 196 countries.
Direct Pay Net
Launched in 2009, this company is a full merchant service solution provider, while they offer their services to CBD brands.
They will require a history of financials, proof of company ownership, licensing for any regulated products and website compliance.
One great option is MWB Solutions, which has an e-commerce gateway which works with various platforms such as WordPress, Shopify, WooCommerce, Magento, Joomla and Drupal. They also have a PoS and credit card terminals.
Speaking to their owner Warren, they stated:
“We do process payments for CBD based products, as long as it contains less than 0.2% THC and the application is quite thorough.”
As of October 2019, Square have also started opening up payment processing for CBD products, following an announcement at a conference. They do state that there is a very strict level of due diligence taken on the companies that are selling, but that they are relaxing their rules, charging CBD sellers 3.9% in the US and an extra 10 cents per transaction for swipe, tap and dip payments.
Lumi-Pay offer a one-click solution, integrating with the main content management systems such as WordPress, Shopify, Magento and Joomla. The brand focuses on the UK and countries within the EU, while they’re open to working with high-risk industries such as CBD.
So in conclusion, you will miss out on a fair amount of earnings as a number of people want to do payments via PayPal, but it looks like PayPal are shooting themselves in the foot and missing out on a large amount of revenue, as companies will be looking to alternative solutions for their e-commerce payment gateways.