Part 2 of 4: You Have to First Be Illegal to Become Legal
The acronym I have established to sum up what we have gone through in trying to operate Shea Med as a legal business is CAS (Corrupt Ass System). For the sake of not getting in trouble or being blackmailed later on, we will not use actual names of any payment gateways, banks, or platforms involved in our story.
We had a great amount of customers interested in purchasing our Better Butter online, but we knew it would be safer to separate Shea Med from Kyra’s Shea Medleys because we did not want to get kicked off any platforms for selling products with CBD in them. Well, why would websites kick us off? Great question. Although they are not marijuana, CBD products are still considered “high-risk” products in the business industry. WHY?
It is not because CBD products pose an actual risk or threat to customers who purchase them, but because of the following reasons:
1) The banks believe that they are the highest risk of “chargebacks”. In other words, customers disputing payments to their credit card companies.
2) Businesses who sell these products would not get a “guarantee” on the purchases. In other words, no assurance of the funds received.
3) At the time, the debates around CBD being classified as a drug or not (it’s not) scared the hell out of the powers of this CAS (you know who those powers are).
Banks and their private investors in cases like this ultimately have the final say on everything that a business can or cannot do because they house or control the most important part: the money. You also have to give them every piece of information about you and your assets. We would need to be very careful and smart about any step taken moving forward in this CAS.
OUR FIRST ATTEMPT TO OBTAIN A LEGAL PAYMENT GATEWAY
In 2018, we asked a few different website platforms which payment gateways they recommended for “high-risk” products. Of the two companies we were given, we reached out to both and only received a response from one. The first conversation went like this:
SHEA MED: Hi, your company was recommended to me for your support of CBD products. We sell beauty products with CBD in them and would like to know how we can incorporate your payment gateway system onto our e-commerce store.
GATEWAY COMPANY: That is great! [Fill in the introductory hooplah] Now, we require you to have already made 3 months in sales of your CBD products on your website.
SHEA MED: Wait, I don’t understand. We have cash transactions from our customers that we can show you, but how would we obtain online sales of our Better Butter without a payment gateway?
GATEWAY COMPANY: This is what is required to have a chance for the banks to approve you. They need to know that there is some demand for your product.
SHEA MED: Okay. Are you saying that I have to sneak to make illegal online sales for 3 months before I can get approved for a legal payment gateway?
GATEWAY COMPANY: Yes.
This was strike one for us and blatant representation of the CAS, but we decided to play the game anyway. If this is what it takes to establish our small business amongst the big ones out there, then so be it! We will find a way to make these 3 months of online sales without getting caught. We actually achieved this goal in what we thought was a clever way. Instead of adding the product directly to the website, we stopped accepting cash and started sending invoices for the Better Butter to our repeat customers through our site instead so that the purchases would show up in our online sales.
THE SECOND PHONE CALL
We called the payment gateway company again in hopes of moving on to the next step:
SHEA MED: We were able to get the 3 months in sales like you asked and I have direct spreadsheet downloads and screenshots of my website’s sales of our Better Butter to prove it. What do we do next?
PAYMENT GATEWAY: That is great! May I know how much in sales you made over the last 3 months?
SHEA MED: Thank you and certainly. We made $5,000.
PAYMENT GATEWAY: Hmmmm. You would have actually needed to make about $1,000,000 in sales. [Again, this shows the CAS at every damn step]. At the moment, banks will now only take CBD businesses in the million dollar plus bracket seriously. It is less risky for them.
SHEA MED: Let me get this straight. We needed to have made a million dollars in illegal sales to be approved to have your credit card payment gateway on our site to process legal sales? Why wasn’t this mentioned three months ago?
PAYMENT GATEWAY: It is a new rule by the banks. We can approve you to accept bank transactions on your website, but not credit card payments. The customers would have to enter their bank account and routing numbers when making the purchase.
SHEA MED: What? Our customers are not paying their electric bill or their rent, they are purchasing beauty products! Why would anyone take the time to pull up their bank account details to buy beauty products? Why can’t they use their debit card that is linked to their bank account?
PAYMENT GATEWAY: The system will only accept bank account numbers and routing numbers. Most people who buy CBD products already know that they have to purchase in this way anyway so you shouldn’t have a problem.
SHEA MED: I don’t think you really understand our target audience here. We are selling beauty products. But okay, how much would it be if we considered this other payment system for now?
PAYMENT GATEWAY: There is a one-time $600 set-up fee to start using the gateway then $300 a month or 8% of sales (whichever is greater) plus $0.42 per transaction.
I am sure you can imagine the curse words that came out of my mouth. We were heated! As a small business with very small, self-funded, start-up capital, this is highway robbery. Again, CAS (Corrupt Ass System). Asking customers to pay with their bank account and routing numbers already adds extra unfavorable steps to the checkout process. We felt asking our particular customer base to do that would scar their trust in us and create a lot of skepticism, especially amongst new customers. Ultimately, we said “NO” and decided we would have to figure out another way. We were back to square one.
This is Part 2 of 4 of our "Behind Shea Med" blog post series. Part 3 coming soon! Read Part 1 again.