HALF a dozen CBD companies are engaged in a dispute with a payments provider which they have accused of withholding tens of thousands of pounds of their money.
BusinessCann has now spoken to six separate CBD companies trading in the UK that have all suggested Zotto is routinely sending less money into their bank accounts than they are owed, leading a number of companies to submit complaints to the FCA and Financial Ombudsman.
Zotto says it has acted ‘in line with legal requirements’, and suggested the issue has arisen from regular audits of these companies it conducts to ensure products ‘they are selling remain legally compliant’.
While many of the companies involved were found to be fully compliant, others appeared to be selling products which could not be found on the FSA’s Novel Foods public list.
A Pattern of Withholding Funds
According to the companies that BusinessCann has spoken to so far, Zotto is understood to be withholding at least £65k worth of funds from CBD companies, though this figure could be much higher.
Nearly all of the companies reported a similar pattern of activity. Initially, bar some technical difficulties, each said that Zotto’s service was without issue until around April this year.
The companies then report noticing that the ‘settlements’ they received from Zotto were no longer matching what Zotto was receiving.
Payment gateways such as Zotto process payments in two general steps, authorisation and payment settlement, seeing them act as a ‘middle-man’ between banks.
The authorisation process involves the verification of things like cardholder details and ensuring sufficient funds are available to make the transaction. If these are cleared, a payment initiation is then made.
The issuing bank will then transfer the funds to the payment processor, which will then pass these funds along to the acquiring bank and subsequently into the merchant’s bank account.
Scottish CBD retailer CBDiablo’s Co-Owner Ian McLaren told BusinessCann: “We started to notice that we were starting to get less settlements, and more money was accruing in the bank account, so they’re just taking in all this money.”
He continued that the settlements have ‘slowly got less and less’ despite promises from the company that it would send over the full amounts, dropping from around £1,000 each payment to roughly £170 two times a week.
After ‘months’ of promises from Zotto that it was ‘going to increase payments’ came to nothing, CBDiablo cut the company off as a payment gateway. CBDiablo now says it is ‘being held to ransom’ and has been informed the only way to get its accrued funds back is to turn the gateway back on.
Jas Nottay, Director of the Cannabis Trades Association and Managing Director of Hope CBD, says his company is now owed around £10k by Zotto.
“Alongside several other companies, Hope CBD have been in discussions with Zotto about retrieving their funds. Due to Zotto’s ‘policies’, Hope CBD were forced to accept a settlement term of £140 per week until the balance had been remitted entirely. Never mind the fact that the account balance is increasing daily due to continued sales.
“As Managing Director of Hope CBD, I find it highly disturbing that there are companies operating in this manner towards what is already a very delicate industry. It is within Hope CBD’s interest to now instruct a legal team to take action against Zotto.”
CBD Jenny, which was recently forced to close down, cited Zotto directly as a reason for its collapse in a recent LinkedIn post, and has confirmed to BusinessCann that it is still awaiting payment.
Dan Collins, Director of another Scottish CBD retailer, The Hemp Community, similarly informed us that after an initial trouble-free period using Zotto, he began to notice revenue from his business’s ecommerce site ‘pooling in the account’, and that the ‘weekly settlements being sent out were not matching’ the increase in revenue the company was experiencing.
Repeated contact with Zotto’s customer service team via various means once again saw the payment provider promise to look into and rectify the issue, but ultimately fail to transfer the funds.
Mr Collins has now stopped using Zotto as a provider, and after continued efforts to contact the company to retrieve his missing funds, says he is ‘relatively convinced at this point that it’s just a scam’.
Another CBD retailer, who asked to remain anonymous, said they have also been ‘battling Zotto’ since around April this year.
While they have managed to secure two one-off payments of £4k, Zotto is reportedly holding on to around £16k of their money.
‘Zero Tolerance Approach’
In response, Zotto’s CEO Faridoon Qazi told BusinessCann in a statement: “Zotto is a regulated FCA company, and even more, actively driven to be an honest and transparent company working closely with our customers to achieve success. We take our regulatory obligations very seriously and settle all merchants in line with legal requirements and will not compromise or overlook any misdoings because of undue pressure, including contacting the local press.
“We are open to working with merchants within the CBD industry, but all such merchants are clearly informed of the rules they must follow if they are to comply with our contractual provisions and applicable laws.
“As a company that takes its regulatory obligations very seriously, we routinely audit our merchants to ensure that the products they are selling remain legally compliant. We have a zero tolerance approach to any merchants found to be falling short of this criterion and they are duly offboarded and invited to seek payments services of another provider who is willing to defy applicable laws. Our approach to these matters is the cause of why the FOS has invariably ruled in our favour in such disputes.
“To clarify, any businesses within this industry who value and are seeking the partnership of an honest, transparent, innovative and first-rate payments provider absolutely remain welcome to seek our Services. If, on the other hand, you are seeking for a service provider to facilitate your nefarious activities, please be informed that we have a dedicated compliance team which will not hesitate to take the appropriate action.”
BusinessCann has asked for further clarification from Zotto on what these ‘nefarious activities’ were, and whether these withheld funds were directly linked to the aforementioned ‘audits’, but at the time of writing has not received a response.
The FCA confirmed to BusinessCann that ‘there are reasons for which payment service providers may legitimately withhold funds… e.g. if it is questioning the source of the funds’, though it said it could not provide specific information on the CBD sector.
In an email exchange between Zotto and one CBD company, seen by BusinessCann, Zotto suggests that it had recently carried out an audit of ‘all of its CBD customers and funds were held’, after one of its clients was found to be selling legally questionable goods.
However, after receiving written confirmation from Mr Qazi that there was ‘no issue’ following the audit, funds have reportedly still not been returned. Furthermore, all of the companies BusinessCann has spoken to say there has never been any mention from Zotto of questions surrounding the status or legality of the products they are selling.