For CBD merchants, the excitement of building a thriving e-commerce business often collides with a harsh reality: fraudsters love high-risk industries.
Chargebacks, stolen payment details, and sophisticated scams can drain revenue, strain relationships with payment processors, and even lead to frozen funds or account termination.
This guide breaks down the most common fraud schemes targeting CBD businesses, actionable strategies to detect suspicious transactions early, and proven tools to protect your revenue while staying compliant.
Common Fraud Schemes Affecting CBD Businesses
For CBD merchants, the most common types of fraud are:
Friendly Fraud
A customer legitimately purchases CBD products but later disputes the charge with their bank, claiming the transaction was unauthorized or the product was defective. This accounts for up to 80% of chargebacks in high-risk industries.
Identity Theft
Criminals use stolen credit card details to place large orders for high-value CBD items (e.g., bulk oils or premium edibles) and resell them on black markets.
Synthetic Identity Fraud
Fraudsters combine real and fake personal information (e.g., a legitimate Social Security number with a fake address) to create “new” identities and bypass basic verification checks.
How to Spot Fraudulent Transactions Early
Catching fraud before it becomes a chargeback requires a mix of technology and vigilance. Watch for these red flags:
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Unusual purchase patterns: Multiple orders from the same IP address but different credit cards, or a sudden spike in high-value orders from new customers.
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Mismatched billing/shipping details: Orders shipped to addresses far from the billing location (e.g., a New York billing address with shipping to California).
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High-risk geolocation: Transactions originating from regions with elevated fraud rates or countries where CBD is illegal.
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Rushed orders: Fraudsters often select express shipping to receive goods before the chargeback process begins.
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Failed CVV/AVS checks: Repeated attempts with incorrect Card Verification Value (CVV) or Address Verification System (AVS) data.
Pro Tip: Use real-time transaction monitoring tools to flag anomalies. For example, a $300 order for CBD gummies from a device never used before, paired with an IP address in a high-fraud region, should trigger an automatic review.
Best Practices to Prevent CBD Payment Fraud
Implement 3D Secure
Upgrade to 3D Secure 2.0, which assesses transaction risk in real time. Low-risk orders (like repeat customers using trusted devices) process seamlessly, while high-risk transactions require additional verification (like biometric scans or one-time passcodes).
Enforce strict age verification
Use AI-powered tools to cross-check customer data against public records, ensuring buyers meet the minimum age requirement (typically 21+).
Adopt Multi-Layered Fraud Detection
Combine machine learning with rules-based filters to block suspicious activity. For example:
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Block transactions from proxy servers or VPNs.
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Limit order quantities for new accounts.
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Flag orders shipping to restricted states.
Integrate Chargeback Alerts
Partner with services like Ethoca or Verifi to receive real-time dispute notifications. This gives you a 72-hour window to refund suspicious transactions before they become chargebacks.
Maintain Clear Records
Document every transaction with timestamps, customer consent forms, and delivery confirmations. This evidence is critical for winning chargeback disputes.
Monitor Velocity Patterns
Track how frequently customers make purchases across different time intervals. Sudden spikes in ordering behavior from a single customer or IP address often indicate fraudulent activity. Set automatic flags for unusual patterns, such as multiple orders within minutes or rapid increases in order value.
Implement Address Verification Service (AVS)
Require complete matching between the billing address provided during checkout and the address on file with the card issuer. Partial matches or mismatches should trigger additional verification steps, especially for high-value orders or first-time customers purchasing CBD products.
Protect Your CBD Business Before Fraud Strikes
The longer you wait to strengthen your defenses, the higher the cost: lost revenue, strained processor relationships, and operational chaos.
By combining advanced fraud detection tools with proactive monitoring, CBD merchants can filter out bad actors while creating a frictionless experience for loyal customers.
Ready to Secure Your CBD Transactions?
FastoSafe offers a tailored fraud prevention solution designed for the unique risks facing CBD businesses. With real-time monitoring, AI-driven insights, and chargeback alerts, you can focus on growing your business, not fighting fraud.
Get in touch to see how FastoSafe can reduce your chargeback rate and keep your payment processing secure.
