Square (NYSE:SQ) is one of the leading payment services providers in the world, and it’s constantly looking for opportunities to expand. For instance, the tech company is trying to transform Cash App — its person-to-person payment app — into a proxy for a bank account. Square also recently entered the e-commerce segment by offering merchants the option to sell their products through customized digital storefronts.
But perhaps one of the more intriguing moves Square made recently is to allow sellers of cannabidiol (CBD) products to have payment processing capabilities.
A prime time to step in
CBD is a chemical cousin of THC, the psychoactive ingredient in marijuana that gives users a high. The legal landscape surrounding CBD and related items is still very much a work in progress, and companies selling CBD products have to deal with complex technical and regulatory details.
Image source: Getty Images.
That explains why Square had decided to stay away from the industry so far, but with hemp-based CBD becoming legal at the federal level last year, and with Canada legalizing recreational uses of marijuana, now may be as good a time as ever for it to officially jump in. It will charge between 3.9% and 4.8% with an additional per-transaction fee ranging between $0.10 and $0.30 per transaction to CBD sellers depending on the how the payment is processed (in-person or online).
How big an opportunity is this?
While estimates for the growth of the CBD business vary, it is expected to enjoy blistering growth in the years ahead. The number of companies looking to profit from this opportunity has ballooned in recent years, making Square’s potential customer base enormous. It probably won’t be the only payment processing provider looking to enter the CBD space. But it wields a powerful edge over its competitors.
Square’s combination of hardware devices and software programs greatly simplifies the process of running a business. Beyond offering innovative payment processing options to merchants, Square allows its customers to have access to analytical, payroll, and inventory tools, and much more. That’s arguably Square’s greatest strength: the ability to build lasting relationships with merchants by offering an ecosystem of services that goes beyond its core payment processing. During its fourth-quarter 2018 conference call, CEO Jack Dorsey referred to this as its “core differentiator.”
“We are an ecosystem of financial tools for both individuals and sellers, and we continue to prove the power and the uniqueness of that as time goes on,” Dorsey said.
Square’s ecosystem could appeal to CBD sellers, just like it has to companies in other industries, and the company may eventually grab a notable share of the payment processing market (and related services) in the marijuana industry.
Yet another growth driver for Square
It might take a while before this move has a material impact on Square’s bottom line. The CBD industry is still in its early stages, and legal kinks are still being worked out. But this opportunity represents yet another way for Square to improve its already strong position in the payments industry.
Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Square and recommends the following options: short January 2020 $70 puts on Square. The Motley Fool has a disclosure policy.”>