As one wall crumbles it leaves a slew of new hurdles in its wake.

In this article:

Is CBD legal? Depends on who you talk to…

What exactly did the 2018 Farm Bill really do?

What does it really mean for CBD to be legal? Legalization means oversight and regulation.

Why is it hard to get payment processing for a legal substance? How does the crossover from federal to state avenues affect the industry?


First, and foremost, CBD now resides in legal ambiguity.

When the Farm Bill passed in December 2018 it created widespread, and sometimes wildly inaccurate, misconceptions around hemp CBD oil, its legality, what can be done with it as well as how and where it can be sold. It is generally viewed that the Farm Bill legalized CBD by legalizing Hemp and removing Hemp and Hemp derived compounds from the list of Controlled Substances, creating a frenzy of entrepreneurs ready to dive in and throw CBD into every product and it’s brother in a mad rush to be the first the capture the lion’s share of the market. Tsk, Tsk. We should know that nothing is that simple in America.

So what did the Farm Bill actually do for Hemp and its derivatives?

  1. The Farm Bill removed industrial hemp from the List of Controlled Substances and designated it, and its derivatives, as an agricultural product. This removal from the controlled substance list thereby shifted the definition of hemp and CBD derived from hemp so that it is no longer an illegal drug, but an agricultural commodity.
  2. But, this also put oversight in the hands of the U.S. Dept. of Agriculture, who is responsible for establishing federal regulations as well as reviewing each states hemp rules.
  3. Language in the Bill dictates that individual states will have the authority to establish regulations for the production and sale of hemp, including its derivatives such as CBD oil.
  4. States, however, must abide by the regulations set forth by the Food and Drug Administration (under the Department of Health and Human Services). The FDA  “protects the public health by assuring the safety, effectiveness, and security…of our nation’s food supply, cosmetics, dietary supplements” well as many other products.

While this IS a landmark bill, it did not set forth any parameters for the production and sale of the end products. Those tasks were ultimately lain on the shoulders of the states under the guidance of the USDA and the FDA.

In a statement issued immediately following the signing of the 2018 Farm Bill into law by the President the FDA was quick to point out that they “retain the right..’ to regulate any products containing CBD compounds, including those derived from hemp, and reminded that it is within their right to take action against a business who makes any unsubstantiated claims to its therapeutic potential or attempts to introduce cannabidiol (CBD) products into interstate commerce.

Essentially, the Farm Bill created a trickle down effect for government entities. Once the Bill was signed into law effectively making Industrial Hemp and hemp CBD federally legal, corresponding government entities had to step up and decide what obligations they had in creating pathways for its production and sale.  

In the most basic terms the effect of the Farm Bill was to take hemp derived CBD and move it from the oversight of the DOJ and put it under USDA and, by default, the FDA. As noted in an article in the Marijuana Moment the FDA promised to take steps to create “pathways for the lawful marketing” of hemp-derived cannabis products, but that for now it remains “unlawful…to introduce food containing added CBD or THC into interstate commerce.”

While industrial Hemp and its derivatives are no longer considered a drug under the controlled substances act, so therefore legal (in the eyes of the Feds), there is no regulatory framework for producing and selling it, in addition, it and its derivatives can still be considered illegal on a state level or even municipal level.

Public perception that it is legal to do whatever you want with hemp CBD will drive further regulation.

People assume that CBD is legal so there is no problem just jumping on the bandwagon and creating a product and selling it. But many forget that most products on the market in America, both edible and topical, are produced and sold under clear regulation. We have to remember that CBD is not just one product or a product that exists in just one market. CBD  in general has already taken many forms and crossed into many avenues from cosmetics and topicals to food and beverages. Our cosmetics, beer, pet food, even bottled water (water is legal) must meet regulatory standards. There is no reason to assume that the FDA should allow for CBD products to not also be required to have standards designed to protect the public set in place prior to entering the market for sale. The FDA, due to outdated restrictions, still sees CBD, regardless of source, as illegal and adding it to any food, dietary supplement or health product without first getting FDA approval or selling it across state lines would be illegal.

Until the USDA and FDA create an accepted regulatory framework it will still be considered illegal to introduce the substance into food or dietary supplements. But this isn’t the only hurdle complicating the situation. Hemp CBD legality is further complicated by the recent approval of the popular seizure drug Epidiolex.

FDA and the Pharmaceutical drugs further complicate legal CBD use.

Simply stated, the FDA views CBD (a compound) as a “drug ingredient” in an FDA approved drug.  In June 2018 the FDA approved the very first and only CBD-based anti-seizure drug, Epidiolex, which as they say contains a “purified form of CBD”. This creates another legal grey area for the compound. According to the FDA, once a compound is considered an active ingredient in an FDA approved drug it can no longer be used in anything without FDA approval, especially anything that claims to have therapeutic effects.

In a statement made shortly after the President signed the 2018 Farm Bill into law, FDA Commissioner Scott Gottleib reminded the public “it’s unlawful … to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are hemp-derived,” and went on to point out “It’s illegal to introduce drug ingredients like these into the food supply, or to market them as dietary supplements. This is a requirement that we apply across the board to food products that contain substances that are active ingredients in any drug,”. While Epidiolex contains marijuana derived CBD, it should be noted that their stance is that there is no differentiation in the CBD as an ingredient based on the source of the CBD.

Federal vs State Law -Is CBD legal?

Depends on where you live. The Farm Bill allows for state governments to come up with their own plans for hemp production and regulation. Just as some states decided to legalize cannabis even though it was still illegal federally, there are states that have laws stating that CBD is illegal despite its legal designation federally. Under State’s Rights, each state has the right to set the rules around both the production and sale of the resulting products from the hemp crop in their state.

Many states already have laws in place with regards to CBD that have yet to be updated since the Farm Bill passed in December. Many of these laws were originally created as a way to govern the use of CBD oil under limited medical marijuana laws where CBD oil was the only approved “drug” for medicinal use.  These laws were put into place without making a distinction for CBD as to where it is derived from, marijuana or hemp. Ronie Schmelz, a California attorney with Tucker Ellis Schmelz warns “particularly given the stated position of the FDA that it is unlawful to introduce food and dietary supplements containing CBD or THC into interstate commerce, regardless of whether they are hemp-derived. Retailers also need to consider whether there are state or local ordinances that restrict the sales of such products.”

Many of these state laws are now vague, outdated and in desperate need of updating. For instance, in the state of Texas CBD is illegal. In fact it is only considered legal, under their extremely restrictive medicinal CBD law, as a medical treatment for people who suffer from and have been diagnosed with a specific type of epilepsy.  Even then, they also must have tried two different FDA approved pharmaceutical drugs without relief and have been recommended for the use of CBD only by one of the doctors that is listed on the States list of approved physicians. So, it is still very difficult for a patient to qualify for treatment with CBD without risking prosection.

In addition to these outdated state laws, the statements made by Gottlieb prompted some states to adopt new, more strict regulations around CBD sales.

New York City  recently became the country’s first major city to enforce the use and sale of CBD in food and beverages by prohibiting both bars and restaurants from adding the compound to their products.

California, while normally being thought of as a progressive forerunner in the marijuana movement, is actually taking a much more calculated approach to CBD products. Last year the Dept. of Public Health decided to prohibit the production and sale of hemp derived CBD food products stating that hemp derived “CBD products are not an approved food, food ingredient, food additive, or dietary supplement”. However, retailers who are already licensed under the state’s existing medicinal and recreational marijuana laws and regulations can still sell edible products containing hemp CBD (with less than 0.3% THC).

And in February,  Maine’s Department of Health and Human Services also came to the determination that hemp derived products such as CBD are not approved by the FDA to be used as a food additive and thereby ordered all edible CBD products removed from store shelves.

The important point to keep in mind here is that regulatorily speaking, there is a big difference between marijuana derived CBD, regardless of THC content, and hemp CBD. Many states already have a working regulatory framework for CBD products under their recreational or medical cannabis laws. Due to the Farm Bill, states and tribes are now tasked with creating plans for implementing regulatory schemes and submitting them to the USDA for approval. In the event that this does not happen, the USDA retains the jurisdiction to implement its own plan.

Accepting Payments and Acquiring Payment Processing for CBD companies.

I’m sure by now you are beginning to see why there are roadblocks when offering banking and payment processing services for CBD businesses that are generally considered legal by the Federal Government and most of its citizens but still considered illegal by many states and even individual municipalities. This leaves federally backed banks in a legal grey area. Elavon, the 3rd largest acquiring bank in the country, just shut down their CBD merchant program, apparently due to extreme pressure from the federal agencies above. This action has left thousands of legitimate CBD companies with only 45 days to find another option or find themselves without a way to accept payments. Clearly, this doesn’t have as much to do with it being legal as it does with it being unregulated.

One of the major hurdles lies with following the regulation within each individual state, and sometimes even each municipality within a state, and their particular laws surrounding CBD. This ambiguity in the laws is what creates friction for banks and card processors. They have to abide by state and municipal laws because those laws supersede the federal laws in this case. They also must abide by the conflicting federal agency’s stances. Banks always consider risk when choosing to take on a merchant and provide them with a merchant account for accepting payments because ultimately the bank can be held liable for violating laws because they are facilitating the sales.  Products bought online and shipped across state laws can cause a lot of problems if they are trying to abide by each state and municipality’s laws.

Not only do we have the view of the FDA that the compound (CBD) is technically illegal to add into a dietary supplement or food but also to introduce into interstate commerce. Banks also have to consider the fact that the laws vary from state to state and how they would facilitate transactions that may initiate in a legal state and end in an illegal state and vice versa.

So, you can see that it is less about the legality of hemp derived CBD, and more about the lack of a regulatory framework that the powers that be can stand behind. Despite the grey area surrounding the law, one can still procure payment processing in the industry.

If you are a CBD business it is important to work with a company that holds its clients businesses first with legitimacy, credibility, and transparency. All of our agents are ETA Certified Payment Professionals who are not only committed acquiring the education and expertise to recommend the best and most appropriate solution for your business but also to abide by the ETA’s Code of Conduct for professionalism and integrity.

We have many options for businesses to accept payments in the CBD industry. A savvy business owner will understand the importance of diversity with their payment methods, and make sure they are equipped to accept ACH or Echecks as well as debit and credit card payments for their CBD sales. While the shutdown of Elavon’s CBD merchant program hit hard, they are not the only bank willing to work with the industry. To learn more about how you can obtain a CBD merchant account to accept credit cards in your CBD business give Bankcard Brokers a call and let one of our ETA-Certified Payments Professionals recommend the best and most appropriate solution or solutions for your business. Give us a call and experience the “Bankcard Brokers Difference.”