A Straightforward Guide to Ecommerce Regulations in the US Cannabis Industry

Published:

1/16/2024

Updated:

1/16/2024

When it comes to ecommerce regulation on cannabis, clarity is key. You want to sell cannabis products online, but what does the law allow? Our guide cuts to the heart of U.S. ecommerce regulations, helping you understand federal restrictions, state-by-state variations, and ecommerce strategies that align with the law. Whether dealing with THC, CBD, or hemp-derived products, this article illuminates the path to lawful online sales, ensuring your business maneuvers within the legal framework from payment processing to product delivery.

Key Takeaways

Navigating cannabis ecommerce requires understanding complex federal and state-specific regulations to legally sell and ship cannabis products within permitted states.
Hemp-derived products with less than 0.3% THC have looser federal restrictions, but CBD legality varies by state; THC product sales are typically limited and more regulated.
Cannabis businesses face significant payment processing challenges due to federal restrictions, with some turning to cash-only operations or alternative cashless payment solutions.

The Complex Legal Framework of Cannabis Ecommerce

Cannabis ecommerce operates within a maze of both federal and state cannabis laws. Despite medical cannabis being legally permitted in 38 states and recreational cannabis in 24, the sale and shipment of recreational cannabis products online face legal hurdles. Ecommerce retailers attempting to sell cannabis online must navigate intricate federal laws and limit their sales to customers within their state of operation. These websites must strictly follow specific legal requirements that apply to the fulfillment of orders, adhering to both federal and local laws. Navigating this complex landscape of regulations is a challenge for those in the cannabis ecommerce industry.

Federal Laws and Regulations

At the federal level, the Food, Drug, and Cosmetic Act (FDCA) prohibits the online sale of cannabis products in interstate commerce. However, there’s a silver lining for businesses dealing in CBD and hemp-derived products. These products, as long as they contain less than 0.3% THC, are classified as hemp and considered legal to produce and sell at the federal level. (Note: any cannabis products over the 0.3% THC limit are legally considered to be marijuana and therefore classified as schedule 1 drug by the DEA, making it federally illegal).

State Laws and Regulations

The cannabis ecommerce terrain gets even trickier at the state level. Regulations regarding online sales of cannabis vary significantly across states. Here are some examples:

California allows direct delivery of cannabis products to consumers without a physical storefront, but there are regulations such as the recording of each retail sale made via delivery in the California Cannabis Track and Trace system (CCTT).
Colorado permits online orders and payment for cannabis products but customers are still required to go to the physical store to pick up their order.
While you can place online orders for marijuana in Washington, customers are mandated to pick up and pay for your products at state-licensed retail stores.

Violating these state regulations could lead to hefty fines or even imprisonment. This highlights the importance for ecommerce businesses to keep abreast of the laws in their operating states.

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Selling Cannabis Products Online: What's Allowed?

Now, it’s time to tackle the biggest question - which cannabis products can be sold online? The process of cannabis ecommerce involves listing dispensary inventory and merchandise on various online platforms such as online stores, public marketplaces, or mobile apps. This allows customers to easily access and purchase cannabis products online. Although certain cannabis products are permissible for online sales, sellers are obliged to abide by federal and state regulations. However, the sale of THC products online is generally not permitted, with some states allowing limited in-state retail sales.

CBD Products

For businesses dealing in CBD products, the legal landscape is slightly more favorable. At the federal level, CBD products must contain less than 0.3% THC and comply with the 2018 Farm Bill stipulations, which mandates the CBD to be derived from legally grown industrial hemp. However, sellers must ensure that any health claims associated with their products comply with FDA regulations.

Furthermore, it’s worth noting that marijuana-derived CBD is currently illegal in South Dakota, Idaho, and Nebraska.

Hemp-Derived Products

Hemp-derived products, on the other hand, have a more lenient legal status. They can be lawfully sold and transported across state lines, provided they contain less than 0.3% THC. Nonetheless, state laws remain a significant factor.

For example, in California hemp-derived CBD edibles are not legal but cannabis-derived CBD edibles are. Conversely, in Kentucky, hemp-derived CBD oil is the only legal variety in the state. While CBD products are fully legal to sell in many US states, numerous others considered it conditionally legal based on age, medical condition, and THC content. Be sure to check out Forbes’s handy state-by-state CBD legalization guide if you want to know the status of particular states.

THC Products

The sale of THC products online is a bit more intricate. Generally, THC products are not allowed for online sales, but an increasing number of states such as Michigan, Colorado, California, Maine, Nevada, and Oregon permit limited in-state retail sales. These sales are subject to restrictions on shipping products through the mail and to out-of-state customers, and there may also be dispensary purchasing limits.

Additionally, there is a legal distinction between medical and recreational THC products. Typically, medical THC products can only be sold to individuals with a valid medical marijuana card, while recreational THC products can be sold to anyone of legal age in states where recreational use is permitted.

It’s important to remember that cannabis laws change regularly, and new states may have legalized online sales since the writing of this article (we try to keep all of our content up to date wherever possible). Additionally, each state may have its own specific regulations and restrictions regarding online cannabis sales, so it's essential to check with local authorities or consult the state's official cannabis regulatory agency for the most up-to-date information on online cannabis sales in a particular state.

Navigating Payment Processing Challenges

Dealing with payment processing challenges in cannabis ecommerce has proven to be a pain in the ass for many in this industry. Like any other legal business in the USA, cannabis companies are just looking for a simple and secure way to get paid for their goods and services while paying their business costs and taxes.

Understanding why payment processing is such a headache in the cannabis industry is important to working towards the solutions, which we will discuss after.

What are the Payment Processing Challenges in the US Cannabis Industry?

Payment processing challenges in the US cannabis industry primarily stem from the complex legal and regulatory landscape surrounding cannabis at the federal and state levels. Several factors contribute to these challenges:

Federal Illegality: Cannabis remains illegal at the federal level in the United States. This means that financial institutions, including banks and credit card companies, are subject to federal regulations. Handling transactions related to cannabis can be considered money laundering under federal law, which deters many financial institutions from working with cannabis businesses.

Banking Restrictions: Due to federal illegality, most banks are reluctant to provide services to cannabis companies. This forces many cannabis businesses to operate on a cash-only basis, which poses significant security risks and logistical challenges.

Payment Card Networks: Major payment card networks like Visa and Mastercard are subject to federal regulations and have policies against processing cannabis-related transactions. As a result, credit card payments for cannabis purchases are generally not accepted.

Payment Processors: Some payment processors offer solutions for cannabis businesses, but they often charge high fees and require extensive due diligence to ensure compliance with state laws. These additional costs can impact the profitability of cannabis companies.

Lack of Access to Traditional Financial Services: Cannabis businesses face difficulty accessing basic financial services such as loans, lines of credit, and merchant accounts. This hinders their ability to grow and operate efficiently.

Risk Aversion: Many financial institutions are risk-averse and prefer not to get involved in an industry with legal uncertainties. The fear of potential legal repercussions, including federal penalties, drives this risk aversion.

Taxation Issues: Cannabis businesses often deal with complex tax regulations. The inability to access traditional financial services complicates the payment of state and federal taxes.

Payment Processing Solutions: While some specialized payment processing solutions cater to the cannabis industry, these services can be expensive, and their availability varies by state. Additionally, not all cannabis businesses can meet the strict criteria set by these processors.

To address these challenges, some states have introduced legislation to facilitate access to financial services for cannabis companies. Additionally, there have been ongoing efforts at the federal level to reform cannabis banking laws, such as the SAFE Banking Act, which aims to provide protections for financial institutions that work with state-legal cannabis businesses.

What is the Secure and Fair Enforcement (SAFE) Banking Act?

The Secure and Fair Enforcement (SAFE) Banking Act is a piece of federal legislation in the United States that addresses the banking and financial challenges faced by cannabis-related businesses operating legally under state law.

Here are the key points of the SAFE Banking Act:

Purpose: The primary goal of the SAFE Banking Act is to provide a safe harbor for financial institutions, such as banks and credit unions, that choose to provide services to cannabis-related businesses. It seeks to clarify the legal status of such transactions at the federal level.

Protection for Financial Institutions: The bill offers legal protections to financial institutions that work with cannabis-related businesses by preventing federal regulators from taking adverse actions against them solely because of their involvement with the cannabis industry.

Prohibition on Federal Interference: The act aims to prevent federal authorities, such as the Department of Justice and the Drug Enforcement Administration (DEA), from taking enforcement actions against financial institutions solely based on their transactions with cannabis-related businesses operating in compliance with state laws.

Requirements for Cannabis Businesses: While offering protections to financial institutions, the SAFE Banking Act also requires cannabis-related businesses to adhere to certain conditions and regulations at the state level, ensuring they are operating legally within their respective states.

Access to Banking Services: By providing legal protections, the bill aims to make it easier for cannabis businesses to access basic banking services, such as checking accounts, savings accounts, and loans. Currently, many cannabis businesses operate primarily on a cash basis due to the reluctance of banks to serve them.

Enhanced Safety: The legislation seeks to improve safety in the cannabis industry by reducing the reliance on cash transactions, which can be a target for theft and criminal activity.

It’s also worth noting the limitations of this bill and what is not in its scope:

Limitations: It's important to note that the SAFE Banking Act does not address broader issues related to cannabis legalization or decriminalization at the federal level. It specifically focuses on the banking and financial aspects of the cannabis industry.
State Autonomy: The act respects the authority of individual states to regulate cannabis within their borders and does not impose federal legalization or prohibition of cannabis. It does not alter the legal status of cannabis at the state level.
Continued Regulatory Oversight: The legislation does not eliminate regulatory oversight or compliance requirements for cannabis businesses. They must still adhere to state regulations and taxation policies.

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What is the Current Status of the SAFE Banking Act?

As of January 2024, the SAFE Banking Act is still pending in the Senate Committee on Banking, Housing, and Urban Affairs. This committee is still to vote on whether to report this bill to the full Senate for consideration, where it will then need to be approved by the House of Representatives, and then signed off by the President to finally become law. It is not known when or if this bill will become law, and it’s looking especially unlikely given that 2024 is a US election year. However, this bill may become unnecessary if the DEA accepts the HHS recommendation that cannabis is rescheduled from Schedule 1 to Schedule 3 on a federal level. According to many experts, this is looking increasingly likely and will be the fastest way to alleviate many of the restrictions to the sale of cannabis products, not least with ecommerce cannabis.

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How to Navigate US Ecommerce Regulations and Restrictions

While the US cannabis industry holds its breath regarding the passing of the SAFE Banking Act and, more importantly, the rescheduling of cannabis, there are still many ways for cannabis companies to safely navigate the restrictions and regulations we have outlined.

Here is a summary of what every cannabis business needs to be considering, if you aren’t already:

1. Choose the Right E-commerce Platform:

Research and select an e-commerce platform that offers features tailored to the cannabis industry's unique needs. Look for platforms with compliance tools, age verification options, and customization capabilities.
Platforms like Shopify, WooCommerce, BigCommerce, and others offer specialized solutions for cannabis businesses, making them a good starting point.

(Look out for our upcoming guide on the best ecommerce platforms for the cannabis industry).

2. Payment Processing Platform:

Explore payment processing platforms that are compatible with the cannabis industry's legal and regulatory landscape. Solutions such as Simplifya, NaturePay, and eMerchant Broker (EMB) are designed to address these challenges.
Ensure that your chosen payment processor complies with state and federal regulations, as well as offering secure and reliable transaction processing.

(Look out for our upcoming guide on the best payment processing platforms for the cannabis industry).

3. Compliance is Key:

Prioritize compliance with state-specific cannabis regulations. Understand the legal requirements for your target market and stay updated on changes in regulations.
Invest in compliance software and tools such as Cova and Dutchie, and regularly review and adapt your business practices to remain in line with evolving laws.

4. Digital Marketing Expertise:

Consider working with a digital marketing agency that specializes in the cannabis industry. Cannabis-focused marketing agencies understand the unique challenges and restrictions, helping you craft compliant and effective marketing strategies.
Leverage SEO, content marketing, social media engagement, email marketing, influencer collaborations, and customer reviews while ensuring all marketing materials comply with cannabis regulations.

(Take a look at the digital marketing services we provide at Latched that have been specifically tailored for cannabis products and services).

5. State-specific Strategies:

Tailor your e-commerce and marketing strategies to the specific state or states where you operate. Understand the nuances of each market's regulations, taxation, and consumer preferences.
Implement age verification processes and other compliance measures that may be required by local authorities.

6. Consult Legal Experts:

Seek legal counsel from professionals with expertise in cannabis laws and e-commerce regulations. They can provide valuable guidance on staying compliant and avoiding legal pitfalls.
Regularly consult with legal experts to stay informed about changes in regulations that may impact your business.

7. Prioritize Security:

Invest in robust security measures to protect customer data and transactions. Ensure that your e-commerce platform uses SSL encryption and adheres to industry best practices for data protection.
Conduct regular security audits to identify and address potential vulnerabilities.

8. Build Trust and Credibility:

Focus on building trust with your customers. Encourage positive reviews and testimonials, showcase your compliance efforts, and provide transparent information about your products.
Emphasize your commitment to quality and compliance on your website and in the media to differentiate your brand in the competitive cannabis market.

Navigating e-commerce regulations and restrictions in the US cannabis industry requires a combination of careful planning, compliance efforts, digital marketing expertise, and legal support. By choosing the right e-commerce and payment processing platforms, staying compliant, and working with industry-specific professionals, you can create a successful online presence while adhering to the complex regulatory landscape.

If you would like to discuss the challenges of cannabis ecommerce further or how working with a marketing partner might help your business, book a call with one of our team today. As experts in the cannabis space, we can assess your needs and objectives to help you decide on the best strategy for your business.

Frequently Asked Questions

Is it legal to sell cannabis products online in the United States?

The legality of selling recreational cannabis products online varies by state. For example, it's legal to sell cannabis online in states such as California but illegal in others such as Texas, where it’s only possible for medical purposes. At the federal level, cannabis remains illegal.

What are the key compliance requirements for e-commerce platforms selling cannabis products?

Key compliance requirements for ecommerce platforms selling cannabis products include verifying the age of buyers, categorizing products accurately, and following state-specific cannabis regulations.

How do payment processing challenges affect online sales of cannabis products?

Payment processing challenges arise due to federal restrictions, causing many cannabis businesses to operate on a cash-only basis, which can be inconvenient and risky for both businesses and customers.

What are the tax implications for online cannabis product sales?

Tax implications involve collecting sales tax, navigating complex state and federal tax laws, and addressing industry-specific tax challenges, impacting the financial aspects of cannabis e-commerce.

Who regulates cannabis in the US?

The Drug Enforcement Administration (DEA) is the federal agency responsible for regulating cannabis in the USA, while state agencies also play a role in cannabis regulation.

What are the federal regulations governing the online sale of cannabis products?

The online sale of cannabis products is prohibited by federal law under the Food, Drug and Cosmetic Act, but many states now permit cannabis delivery services within their borders and in accordance with certain restrictions around age, potency, and payment methods.

A Straightforward Guide to Ecommerce Regulations in the US Cannabis Industry

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