Back in March, I wrote an article called “Does CBD Have A Future In MLM?”. In it, I covered what Cannabidiol (CBD) is, its history and what the Direct Sales or Multi-Level Marketing industry might need and expect (especially in software) as it gears up to participate in this soon-to-be, 20-Plus Billion-dollar industry. This is a follow-up to that article.
Since that time, Xennsoft has launched three network marketing companies (one Binary and two Uni-Level Hybrids) and is in the process of launching two more.
Here’s What We’ve Seen and Learned.
Merchant Accounts
From years of experience, we know that most people starting an MLM company don’t understand and at the very least, underestimate the importance of finding and working closely with the right merchant processor and more importantly, bank. Typically, most banks, and therefore Processors, won’t deal with MLM companies. Adding CBD to the mix limits the available pool of banks and processors even more. In the short three months that we have launched or attempted to launch companies that sell CBD;
- Company #1 has still to acquire a working merchant account. After two months of being rejected by the very processor that told them, ‘No problem, we’ll have you set up in no time”, company #1 finally tock our advice and switched to one of our recommended processors. They are still going through underwriting.
- Company #2 has launched, but had exorbitant reserves added to their account three weeks after their launch. According to their bank, “to cover the high-risk involved with selling CBD”.
- Company #3 had their account frozen by the bank and it took three weeks for the bank, processor and the client to work out a processing reserve and return policy compromise.
When possible, always read the fine print, it hardly ever matches what is verbally promised. Work directly with the processor and always find out who the underwriting bank is going to be. Your processor may promise you the world, but the bank makes all the rules and holds all the keys to your account.
Side Note: We’re still trying to get each Company to open a secondary account – just in case!
Licensing
Unlike what most people think, the 2108 Farm Bill ruling didn’t change everything. What it did do, was remove the classification of Cannabidiol and Hemp related products from their “Class 1” status as regulated substances. Something that most people don’t know, and something we have had to point out to each client getting into CBD, is that the monitoring of companies wanting to sell CBD related products now falls squarely on the back of each State. For example, in Utah, before selling CBD (in any form) you must first fill out a lengthy Use Report (Ruling R68-26-1) and pay $200 for each product you wish to sell. It’s now up to the State to license and monitor companies wishing to sell CBD.
Self-Regulation and Compliance
For CBD in the US right now, it’s the Wild West. We’re seeing companies in this space make illegal and unsubstantiated claims almost daily. This must stop! Just this last week the FDA, announced that they have sent cease and desist letters to a number of companies in the Direct Sales industry and that they will be monitoring closely, what companies and their Distributors are saying, posting and tweeting. The day (at least for this product) of the FDA not actively and aggressively monitoring the industry is over. The DSA has even gotten in one the act, organizing a first-ever, self-regulating council to, in essence, be a whistle-blower on non-compliant companies within industry. They know they must play nice with the FDA, or their status as an industry moderator may be in jeopardy
Listen to your Software Provider
As we build web sites for our clients. We strongly recommend they avoid making product claims and place the official FDA Disclaimer on each page promoting their products.
We are pointing clients to CBD-friendly credit card processors and warning them not to take the word of the agent or ISO as gospel. That they need to work directly with the processor and underwriting bank and to get everything in writing. If they don’t, it will come back to haunt them.
We also strongly suggest that, if they don’t retain one, they at least talk to an attorney about selling CBD. Even though they will warn, scare and leave you in doubt, before moving forward, it’s still a good idea to hear the pros and cons of diving into such an endeavor. Remember, everyone told Columbus he was a fool, but he still sailed into history.
Finally, listen to and follow-through on your software providers suggestions, knowledge and years of experience. Unlike product vendors, suppliers and even employees, your software provider has years of experience and typically touches every aspect of a Direct Sales companies business. From inventory to Distributors, commissions to replicated web sites and social media, your software provider will integrate with every aspect of your business and has done so with hundreds before you. Their reputation and even their own survival are on the line too. So, listen to them and take their advice when and where you can. After all, you can always verify what they are saying with an attorney… at a mere $350 an hour.
Sources: https://en.wikipedia.org/wiki/Tetrahydrocannabinol, https://en.wikipedia.org/wiki/Cannabinoid, Hemp: https://en.wikipedia.org/wiki/Hemp, https://en.wikipedia.org/wiki/Cannabinoid#Phytocannabinoids, Farm Bureau Statement on 2018 Farm Bill 2h018 Farm Bill explained: https://www.everycrsreport.com/reports/R45197.html
