Ever-changing regulations, litigation, and questions over enforcement have made it very difficult to obtain an e-cigarette merchant account, which are necessary if you want to accept and process credit card payments. Banks have classified them as “high-risk” because of these issues.
Though all of these factors make it difficult, you can still obtain a e-cigarette merchant account if you keep track of what’s happening in the industry and take steps to minimize your risk.
Get to Know the Laws and Possible Outcomes
In late-January 2018, Vape shops in five U.S. states, filed federal lawsuits, challenging a Food and Drug Administration rule that allows the agency to regulate e-cigarettes the same way they do cigarettes.
The shops located in Texas, Minnesota, Michigan, California, and North Dakota argued the 2016 FDA regulation, often called the “Deeming Rule” because it deems e-cigarettes to be tobacco products, is unconstitutional. In the suit, the shops claim the rule violates the U.S. Constitution’s free speech protections by requiring vape retailers to get the FDA’s approval before marketing information about their products health effects.
Vape retailers have opposed federal regulations, citing they will destroy small businesses.
In 2009, Congress signed the Family Smoking Prevention and Tobacco Control Act of 2009 into law, giving the FDA the power to regulate the tobacco industry. The 2016 rule extended its reach to include e-cigarettes, cigars, pipe tobacco, and hookahs, as well as cigarettes and smokeless tobacco. Originally, beginning in August, 2018, retailers would have been prevented them from selling or distributing Electronic Nicotine Device Systems (ENDS), such as e-cigarettes, vape pens, e-hookahs, e-cigars, personal vaporizers, and electronic pipes unless they received government approval, listed their ingredients, and placed health warnings on packages and in advertisements. In July 2017, the Trump administration successfully delayed the enforcement of the FDA’s rule. Any deadlines were postponed as part of a broad plan to reduce tobacco deaths in the United States. When the FDA commissioner announced the delay, it also encouraged e-cigarette businesses to talk to the agency about gaining approval for their products as smoking cessation aids, if that is what they are intended to do.
With all of the uncertainty surrounding regulations, it is still possible to obtain an e-cigarette merchant account. Merchants services providers have many strategies they can use to minimize the risk associated with e-cigarette businesses. In addition to charging higher fees for each transaction, merchants can begin saving money. Many merchant account providers will offer merchant accounts to businesses that will create and maintain either a rolling or capped reserve. The reserve covers any potential defaults on the merchant’s part.
With a rolling reserve, a fixed percentage of successful transactions are held in an account to pay for fraud or chargebacks. A capped reserve takes a percentage of successful transaction until a specified, agreed upon amount is reached. Once the amount is reached, the merchant no longer has to put money in the reserve. Reserves work best in situations where merchants are making more than $10,000 in profits per month.
Find a High-Risk Merchant Account Specialist
When you are a high-risk merchant, you want to go with an account provider that has the expertise and skills to handle the challenges that these businesses face.
Since they are familiar with the obstacles that come with e-cigarette businesses, they are more likely to help you get approved. There are plenty of high-risk providers and processors out there, and with most of them accept to pay higher fees and limitations, such as monthly processing volume caps, just make sure you do your research and check out customer complaints before you move forward and sign a contract.
The Last Word
As the litigation and law changes continue, the e-cigarette industry will remain a high-risk in the eyes of traditional lenders. However, there are many merchant services providers out there that also know there is a market for these products and that helping you sell them is good for them, too. Just don’t settle for something that is less than right for your business. Look around and weigh your options.
Despite the challenges and likely higher rates, obtaining an e-cigarette merchant is worth it to have the ability to accept and process credit card transactions. It will have a positive impact on your business and profit margins.
eMerchantBroker.com (EMB) is a high-risk merchant account provider that has helped many businesses find e-cigarette merchant accounts with reasonable terms that allow them to grow and expand in the future.