The CBD industry is experiencing booming growth. Here is how to start a CBD business and enter the industry. Wondering how to start a CBD or cannabis business? Find out how to take advantage of CBD business opportunities in the booming CBD industry. Considering starting a CBD business? Learn everything you need to know to launch a successful online CBD store.
How to Start a CBD Business
The CBD sector of the cannabis and hemp industry is one of the fastest growing segments of the space. Here’s how you could start a CBD business and get involved.
- Cannabidiol (CBD), a compound found in hemp and cannabis plants, is becoming increasingly popular as a dietary supplement.
- The CBD industry is projected to hit $20 billion in sales by 2024.
- Hemp and hemp CBD are federally legal following the signing of the 2018 Farm Bill.
- The industry still faces challenges in advertising, banking and insurance.
Still relatively new to the mainstream, cannabidiol, more commonly known as CBD, is becoming a household name. The purported therapeutic and health benefits of CBD, one of many compounds found in cannabis and hemp plants, has created a buzz. CBD oil has entered the marketplace in the form of tinctures, infused edibles, topicals and more. The growth of CBD oil products has been so immense, in fact, that industry analyst BDS Analytics predicts the U.S. CBD market will reach $20 billion in sales by 2024.
The potential of the CBD industry has prompted many people to explore how they can launch a CBD business. The industry is not without its challenges, though, especially surrounding the evolving legal landscape, but the opportunity is significant.
If you’re considering getting involved in the CBD industry, you first need to understand more about cannabinoids and the products that utilize them.
What is CBD?
CBD is one of more than 100 cannabinoids, which are compounds found throughout the cannabis and hemp plants. The most famous cannabinoid is undoubtedly tetrahydrocannabinol (THC), which is responsible for the intoxication associated with the consumption of cannabis. CBD, however, does not produce an intoxicating effect; instead, it offers potential therapeutic and health benefits, though research into its potential medical applications is ongoing.
CBD products are generally created in several steps. First, the raw material needs to be cultivated and harvested. For example, if you plan on using industrial hemp to create your CBD products, you will either need to cultivate or purchase a large amount of the plant. From there, CBD oil is extracted from the plant using a variety of methods. Again, you can do this yourself or outsource the process to an extraction company. Once you have extracted the CBD oil, it can be sold as a concentrate or used to infuse a variety of products. Some of the most common CBD products on the market today include sublingual tinctures, infused edibles and topicals, like gels or creams.
Hemp CBD vs. cannabis CBD
CBD is found in both cannabis and hemp plants. CBD oil can be extracted from either plant and used to create CBD oil products. However, there is a key difference between hemp CBD oil and CBD products derived from cannabis: THC.
Industrial hemp contains less than 0.3% THC, and as such, it is considered legal under federal law to cultivate, harvest and process into finished products. Cannabis, on the other hand, contains more than 0.3% THC (often much higher levels) and remains federally illegal.
Hemp and cannabis are closely related; in fact, industrial hemp is actually Cannabis sativa L. The difference in name is mostly a function of a legal definition, which sets the threshold for THC content. The flowers of a hemp plant contain little to no THC, while the flowers of a cannabis plant (commonly referred to as marijuana) contain much higher levels of THC.
The federal government considers marijuana a Schedule I drug under the Controlled Substances Act, making it illegal for interstate commerce, even as dozens of states legalize it for adult use. Industrial hemp, on the other hand, was recently removed from the Controlled Substances Act altogether, opening the way for its cultivation and harvest in the U.S. for the first time since 1937.
Did you know? The key difference between hemp CBD oil and CBD products derived from cannabis is THC.
Full-spectrum CBD vs. CBD isolate
If you’ve done any research into the CBD market already, you’ve likely encountered the terms “full-spectrum” or “isolate.” Depending on the extraction methods used, the CBD oil obtained from the plant might contain other cannabinoids and compounds found in the source plant. This is what is known as full-spectrum CBD. Full-spectrum CBD not only contains other cannabinoids found in the source material, but compounds known as terpenes, which are responsible for creating the flavor profile, aroma and specific effects of the plant.
CBD isolate, as the name suggests, is a concentrate that only contains CBD and no other cannabinoids or terpenes. While the purity of CBD isolate might sound desirable, there is some evidence to suggest that full-spectrum CBD promotes an “entourage effect;” that is, the compounds in a full-spectrum hemp extract work together to promote more significant effects. The entourage effect is still under investigation by researchers studying CBD and other cannabinoids.
The CBD industry is projected to grow immensely
Industry analyst BDS Analytics predicts the U.S. CBD market will reach $20 billion in sales by 2024. This would be a major surge from $1.9 billion in 2018 (a 49% annual growth rate).
Needless to say, society is growing more open-minded and accepting of CBD. Many individuals are turning to it for pain relief, stress management, better sleep, and more; and many gas stations, restaurants, and local CVS stores now sell it.
Some trends the CBD market might experience in 2020 are increased potency of products, more brick-and-mortar CBD shops, more pharmaceutical CBD products, and more access to products online through CBD websites and e-commerce shops. In fact, CBD online sales currently account for 60% of the sales channels.
The CBD industry is introducing new products all the time. If you’re looking to start a CBD business, you will have a wide range of product types to consider selling. Here are the most popular types of CBD on the market right now:
- Sublingual tinctures: A sublingual tincture is CBD oil that generally comes in a small bottle with a dropper. Sublingual products are ingested by placing them under your tongue and allowing the oil to absorb.
- CBD edibles: CBD edibles are a rapidly growing sector of the industry, including baked goods, candies and foods. CBD edibles have faced significant regulatory scrutiny from the U.S. Food and Drug Administration (FDA) but remain as commonly found products.
- Vape concentrates: Vaporizer concentrates, such as CBD oils and waxes, are another common product. These can be used with an electronic device to vaporize and inhale the CBD product.
- CBD topicals: CBD topicals include gels, creams and sprays for aches and pains. These products are placed directly on the skin to target a localized region of the body.
- Capsules and pills: Many patients who experience seizures or digestive issues take CBD capsules or pills to treat their conditions.
Additionally, CBD isn’t just for humans. Animals also experience calming effects when given small doses, and many businesses offer CBD products for pets, like dogs or cats.
How to start a CBD business
There are countless unique opportunities for new businesses to sell CBD. Starting a CBD business includes all the hard work and effort of launching any other company in addition to the uncertainty of a shifting regulatory landscape (and all the issues that accompany it). However, in a fledgling industry projected to undergo explosive growth, the heavy lifting today might be well worth it tomorrow.
Cory Slovik, owner of Core Roots CBD, started his company after experiencing firsthand what he said were the healing properties of the cannabinoid.
“I used to be a pro snowboarder … and I was always sore, my muscles were constantly in agonizing pain. I tried CBD, and it helped me tremendously,” said Slovik. “Then, years later, cannabis … started coming to the forefront, and there was research and data backing up everything I felt on the mountain.”
Slovik soon launched Core Roots CBD, seeing a business opportunity and a way to help other people treat their pain. He said starting a CBD company is like any other business, plus a bunch of added steps.
“It’s like any other business; there are steps and procedures you need to go through like getting insurance and writing a business plan,” Slovik said. “But in this space, you have got to double- and triple-check everything, know your market and jump through regulatory hoops.”
[If you’re looking for more details on how to start a business and all the steps you need to take, see our step-by-step guide to get started.]
Understand your legal obligations
Just because the 2018 Farm Bill federally legalized industrial hemp and, by extension, hemp extract, like CBD oils, doesn’t mean there aren’t significant regulatory considerations surrounding the industrial hemp industry.
The 2018 Farm Bill essentially removed CBD from the federal Controlled Substances Act and the oversight of the Drug Enforcement Agency. Instead, it placed governance of the hemp industry and CBD oil in the hands of the FDA.
Currently, the FDA is still devising regulations, leaving the CBD industry in a sort of gray area. So far, the federal agency has signaled that marketing CBD as having health benefits will not be tolerated. It has also initiated a crackdown against CBD-infused foods and beverages in some instances.
Further complicating the regulatory landscape is the 2017 approval of the CBD-based pharmaceutical Epidolex, an epilepsy medication that was approved by the FDA. Since CBD is a main ingredient in an FDA-approved drug, using it in food products without FDA approval could be illegal. Clearer guidance is sorely needed for CBD businesses to operate in compliance with federal regulations.
“I think the FDA does have to step in, and they will,” said Slovik. “I expect a lot of changes to labels; we’re seeing a lot of businesses out there now using the term ‘hemp extract’ instead of CBD, or they’re not thinking of health benefits so much. Many companies are doing different things, but no one really knows [what the regulations will be] until it happens.”
Understanding your legal obligations and playing it safe is key in a highly scrutinized industry. While CBD businesses everywhere await clearer regulatory guidance, it is important not to craft your marketing strategy around the supposed benefits of CBD. It’s also important to stay apprised of new developments as the FDA moves forward on crafting new regulations.
Market and sell your products
Marketing and selling CBD products is tricky. While the passage of the 2018 Farm Bill liberalized the industry a little bit (CVS and Walgreen’s now carry CBD products, for example), it is still difficult to sell CBD products on major online platforms like Amazon or eBay. Likewise, social media advertising is virtually nonexistent; paid ads for CBD products risk account suspensions or bans. All your growth must be driven through organic content that falls under the guidelines of each platform.
“In today’s day and age, if someone is looking to sell a product, the normal avenues are Amazon, eBay, Alibaba or paid ads on social media,” Slovik said. “In this industry, it’s way, way, way different. You can’t do any of those things.”
To successfully advertise and sell your CBD products, you will have to be creative. Establishing your own e-commerce store or carrying your products in a brick-and-mortar location is a must. Marketing your product with an organic search strategy and customer loyalty programs is always safer than engaging in paid advertising. And, of course, every market is a bit different, so do your research and understand your local and state laws.
How to gain a competitive advantage
The key to gaining a competitive advantage with staying power in the CBD industry is to develop a high-quality product that will withstand the coming scrutiny of both regulators and educated consumers. If you want to differentiate yourself from other CBD businesses, it’s key to provide third-party lab testing results to validate the quality of your product, Slovik said.
“We want to be more transparent by putting QR codes on all our bottles so anyone in the store can use their phone to get lab results right then and there,” Slovik said.
In addition, Slovik said pursuing certifications like USDA organic, Good Manufacturing Practices and FDA facility registrations are important moves to instill confidence in consumers about the quality of the product they are buying.
Overall, Slovik said, the formula for success is simple, even if the process is complicated.
“I would recommend double-, triple-checking everything. Know there will be changes. Research as much as you can, and recognize what the future opportunities are by thinking outside the box,” he said.
Tip: If you want to differentiate yourself from other CBD businesses, it’s key to provide third-party lab testing results to validate the quality of your product.
Key challenges facing CBD businesses
The CBD and cannabis industry faces unique challenges that other industries don’t. Most of these challenges relate to the regulatory environment and, as federal agencies like the FDA detail specific rules and guidelines, things should stabilize. For now, though, if you want to start a CBD business, you should be aware of these major considerations:
- Banking: Access to reliable banking services can be complicated due to the fluctuating regulatory landscape. Many banks are hesitant to do business with CBD and cannabis companies, fearing significant risk or burdensome oversight. Frequently, CBD businesses are forced to switch banks or experience the abrupt closure of a merchant account, which can seriously disrupt operations.
- Insurance: Finding affordable insurance for a CBD business is another major challenge. Prices remain elevated despite the legalization of industrial hemp, Slovik said, as the industry takes time to catch up to the developments. Education remains a key obstacle.
- Payment processing: Similarly, payment processors present high fees and other challenges to CBD businesses. Slovik said Visa recently cut off all CBD businesses, leaving him capable of only accepting MasterCard and Discover for payments.
- Access to capital: Banks and other lenders are reluctant to fund CBD companies, viewing the industry as too risky without clear regulatory requirements. So far, the CBD industry has relied on bootstrapping, outside investors or alternative lenders to find the growth capital it needs.
Each of these challenges will likely be cleared up as more concrete regulation appears, but in the meantime, CBD businesses must remain adaptable and well-informed. Changes in the industry come on a day-to-day basis, so preparing backup plans ahead of time could save you a great deal of time and money should the worst come to pass.
CBD is a huge business opportunity, if it’s approached correctly
The growth opportunity in the CBD industry is unparalleled. The cannabis industry is one of the fastest growing in the nation, and CBD is one of the quickest growing sectors of that industry. Especially following the passage of the 2018 Farm Bill, hemp CBD products are proliferating at a fast rate. If you want to start a CBD business, you’re not alone.
“This industry has been more or less illegal for the past century,” said Slovik. “At this point, there’s major, major momentum. Many people are trying to break in, so don’t follow the herd. You want to be a leader.”
A combination of due diligence and creativity will set your business up for success in the CBD industry. Now is the time to get in on the ground floor and build a company that will last, but differentiate yourself with a quality product that stands out from the crowd.
Additional reporting by Sammi Caramela. Source interviews were conducted for a previous version of this article.
How to Start a CBD Business: Navigating the CBD Industry
If you’re wondering how to start a CBD business, you’re not alone. The CBD industry has exploded in growth in recent years, sparking interest in entrepreneurs to get into the CBD business. Truthfully, the cannabis market is growing fast and strong. Given this, now is a great time to start a CBD business. In this article, we’ll discuss what CBD is and take you through a step-by-step approach to breaking out in the industry and making the most of CBD business opportunities. Read on to discover how to start a CBD business online.
How to Get Into the CBD Business
According to BDSA, the market for CBD is expected to grow to $20 billion in sales by 2024. That makes it one of fastest growing segments in the cannabis and hemp industry. To get into CBD business opportunities, you must first learn about cannabinoids. Understanding what they are and how they’re used in products will help you sell them better to your customers. Then, you must consider all of the business aspects that go into running a successful CBD business.
What exactly is CBD?
CBD is one of the compounds found In cannabis and hemp plants. These compounds are named cannabinoids and there are a lot of them, more than 100 cannabinoids in fact. Tetrahydrocannabinol (THC) is the best known cannabinoid due to its intoxicating effects. CBD, however, does not have this psychoactive effect and offers multitudes of potentially therapeutic and health benefits. Research into its medical applications is still ongoing. To create CBD products, there are several steps that must happen. We’ll discuss this later on.
How it differs from hemp or cannabis
As you now know, CBD is one of the compounds in hemp and cannabis plants. You can extract CBD oil from these plants to create CBD oil products. The difference is hemp has less than 0.3% THC, so it’s legal to cultivate, harvest, and process it to make products in the U.S. Cannabis has more than 0.3% THC and is illegal on a federal level.
What Projections Say About New CBD Business Opportunities
The CBD industry has been growing in popularity since 2016. The number of US CBD consumers went from 2.6% to 4.8% in 2018. Many consider this the breakout year for CBD. Whether it be due to the pandemic and people working from home or simply entrepreneurs trying to get a piece of the pie, the CBD industry is hot.
Despite the modern CBD industry being relatively young, it’s a highly profitable space. Grand View Research found that the industry as a whole was valued at $4.6 billion in 2018, and it’s only gone up from there. With loosening restrictions and new forms of consumption that CBD businesses can expand into, the industry has had a compound annual growth rate of about 22.2%. These figures just go to show how now is an ideal time to start a CBD business. But where should you start?
How to Start a CBD Business in 2021
With stats like the ones above, it’s no wonder that people are getting into the CBD and cannabis business. You can start your business in the CBD industry in just ten steps.
Step 1: Discover your target audience
It’s unfeasible to reach every demographic, so you’ll need to determine who you’re going to cater your products to. That way you can build your brand around their needs. Your target market will determine everything from your product’s packaging to the content you incorporate into your marketing campaigns.
Ask yourself some of the questions below to help determine your target market analysis:
- What do they do?
- Where do they shop?
- What do they care about?
- What products are they interested in?
Step 2: Read up on all local and federal regulations for CBD businesses
The commercial production of hemp in the U.S. became legal with the passing of the Farm Bill in 2018. This has enabled the sale of products that contain hemp-derived CBD and allow people to grow industrial hemp.
There are some restrictions, too. For example, the hemp used to produce CBD must contain 0.3% THC or less. Unfortunately, state laws are different. So be sure that you have a clear understanding of the federal and state-level regulations that may affect your CBD product sales.
Do you need a license to sell CBD?
Some states require you to have a special business license to sell CBD. If you plan to purchase your product from wholesalers, check your state laws regarding resale licenses and permits. These laws are different everywhere, so you’ll want to find out whether you need a resale license and how to get one.
Below are the most common states to sell CBD in and their regulation status:
- Selling CBD in Florida. There are currently no set limits on the amount of CBD products a business can sell in Florida. While marijuana is legal for medicinal purposes, CBD products must not exceed the 0.3% THC federal allotment.
- Selling CBD in Texas. Currently, Texas’s Department of State Health Services is forming a registration process for retailers who specifically sell consumable CBD products. However, retailers must keep their suppliers in check as it is a felony to sell CBD products with more than 0.3% THC to the general public.
- Selling CBD in California. CBD and marijuana are both legal to sell in California for recreational purposes. When selling CBD products, retailers must ensure they follow the labeling requirements imposed by the California Department of Public Health.
- Selling CBD in Oregon. Much like California, selling CBD in Oregon is legal and follows federal law about the amount of THC allowed. There are no licenses required for retailers but there are certain labeling requirements mandated by the Oregon Department of Agriculture.
Step 3: Form your business plan
A business plan is a formal document that details a business’s objectives and how it plans to achieve its goals. Think of it as a roadmap that tells you how to handle aspects like marketing, operations, and financials. Writing a business plan can help you strategize, secure funding, and set yourself up for long-term success. Having a formal plan is especially important in the cannabis business because investors are looking for legitimate organizations.
What types of CBD products will you be selling?
In your business plan, you will also define what products you will be selling. There are a variety of different CBD products. For example, you may get into the CBD oil business and focus narrowly on those products. Other CBD products include:
- Tinctures and sprays
- Pills and capsules
- CBD vapes and cartridges
- Topicals and patches
- CBD edibles
Step 4: Register your CBD business
In order to sell CBD in a store or online, you will need to legally register your business. LLCs are a popular structure for small businesses but consider the other business types. You must also request an EIN/TIN with the IRS for your new business. Once you have your business license, you can begin sourcing and selling your products.
Step 5: Secure reliable merchant services
To sell CBD online, you need to have a payment processor that allows you to accept different payment methods. It’s important to choose a merchant service provider that not only accepts CBD merchants, but also understands the industry. You’ll want to find a processor that meets your business’s unique needs.
Step 6: Find your CBD supplier
There are two routes that you can take with your CBD or cannabis business. The first is to create your own CBD products. This gives you more autonomy and you’ll have more control over creating brand loyalty.
The second option is to partner with an existing brand or dropshipper. This is an ideal path if you want to start a CBD business without having too many upfront costs. You can purchase products in bulk without having the need to have inventory on hand. If you take this route, be sure to do your diligence by searching for a reputable brand to partner with.
Step 7: Establish your pricing strategy
To create a pricing strategy, you must know how much your costs are for operating your business. A few questions that are important to consider are:
- How much can you charge for your products?
- What are your ongoing expenses?
- How much profit do you intend to make on each product?
- How can you become more profitable?
Step 8: Solidify your shipping and handling strategy
Shipping and handling are very important to an eCommerce business. You always want to ensure that you are meeting your customer’s expectations. Here are a few questions to ask yourself when strategizing your shipping policy:
- What should be the threshold for free shipping?
- Should I offer a variable fee? Destination-based or weight-based shipping fees can reduce logistics costs.
- What is a feasible delivery timeline?
- What logistics carrier should I work with?
Based on these answers, you can then select supporting shipping and fulfillment software. This enables you to set shipping rates, print labels, auto-send updates to customers, and manage logistics.
Step 9: Market your CBD business
Once you have a thorough plan for your operations, you can then focus on acquiring customers. Just because you have a website and CBD is popular doesn’t mean that shoppers will come running. You need a solid marketing plan, one that draws the right audience to your offerings.
Unfortunately, CBD products are often misunderstood. However, this allows room to build your customer base by educating interested buyers with accurate information. This can include content on different product types, potential benefits, and the hemp industry as a whole. Publishing regular, informational content will also help you with search engine results. Learn and leverage the latest in SEO to help you find potential customers for your CBD business.
Stand out from the crowd of other CBD businesses
With more and more business owners joining the industry every day, it becomes that much harder to stay competitive and top-of-mind for your audience. But by differentiating yourself from the competition, you make your products more memorable for your current and potential customers. With that in mind, do some deep diving to find what sets you apart from your competition.
- Does your manufacturing process result in a product that’s more effective?
- Are you backed by industry experts or influencers?
- Do you serve a niche audience?
- Does your branding or online marketing efforts leave a lasting impression on viewers?
Discover what you bring to the table and double down on it. It will help you determine the steps toward growing your CBD business and set a precedent for your consumers.
Diversify marketing channels to grow your CBD business
Just because you will be doubling down on traditional marketing efforts does not mean that the other avenues aren’t important. Social media marketing has become increasingly important to a younger audience as well as influencer and affiliate marketing. Industry trade shows are also great opportunities to find your next supplier, seller, or customer.
from influencer marketing is just as good, if not better than other marketing channels. , which speaks to how effective they are in generating revenue. that fill the top of the funnel for many smaller businesses.
Influencer and affiliate marketing
Influencer and affiliate marketing are especially attractive because they unlock access to a broader customer base that you didn’t have before. And after you design the initial campaigns, they involve very little work on your end, outside of periodically checking in with your influencers and affiliates. They do much of the heavy lifting, as they’re the ones responsible for creating the content ideas to promote your products.
Trade shows and conferences
Trade shows are unique in that they give you face-to-face interaction with businesses and customers in your industry that you may never see when running an eCommerce business. You can get feedback directly from them in a way you can’t do online. This leads to innovation and product improvement in the long run. But even more so than generating customers, you will have direct access to suppliers, sellers, marketers, and industry experts. Taking advantage of what they bring to the table will put you in a better place to grow your CBD business.
Step 10: Protect yourself from industry risks
The CBD industry is a risky one. The landscape of legislation and the adoption of CBD in everyday life have both been tough factors to contend with. There are just so many variables to keep track of.
Regulations and laws change almost daily, and it’s up to you, the business owner, to ensure that your company is up to date. It isn’t an easy task. Make sure you’re aware of the business legal requirements you need to start or uphold your company’s status as legitimate.
With so much riding on how the laws progress, the amount of capital you have, and the ability to secure emergency funds for your CBD business should be your priority. Also, consider securing backups for each of your vendors and create plans of action for potential future scenarios. In addition to this, certain types of products, such as CBD beverages and other ingestibles, are treated differently than lotions and creams. Purely due to how these items are used, can mean the difference between high risk and low risk.
As your company grows, you’ll want to consider adding a financial advisor and lawyer to your team. They can help you detect changes, act upon legislation, and mitigate issues before they happen.
Staying up to date with CBD legality reduces your risk
A deep knowledge of the industry will help you mitigate risks as you grow your business in CBD.
Although hemp-derived CBD is legal on the federal level, it’s ultimately up to each state to determine its legality. Staying updated on the latest news in your industry will help you to pivot quickly if needed. This puts you ahead of those who aren’t well prepared and allows you to seize opportunities when they’re available.
Subscribe to industry blogs and publications, follow experts on platforms like LinkedIn and Twitter and network with people in different parts of your industry.
If you’re the owner of a small CBD business, for instance, stay in contact with growers and legal experts — people outside of your immediate sphere of knowledge. You expose yourself to different viewpoints on an issue, and you may even discover something your less-connected peers missed, giving you an advantage in this highly competitive market.
Your payment processor can help you overcome risk hurdles
Considering all of the volatility in the market and laws, many CBD businesses have struggled to find and hold onto a CBD merchant account for their business. The reason for this stems from the fact that most banks don’t like that the industry is entrenched in legality changes. But in order for you to stay in business, this is an essential piece of the puzzle.
So how can your payment processor help?
Well, some credit card processing companies can get you set up with a traditional merchant account for CBD. These come with more stipulations and adherence guidelines than other industries, but at least you will be able to process debit and credit cards online and in-person if need be. And while this is the best option for many businesses, it can change.
In the event that banks are unable to support CBD businesses, your processor can keep you online with check processing solutions. It’s not the most convenient answer, but at least your business will be able to accept customer payments while things get sorted out.
Start Your CBD Business Today
It takes a lot of hard work and determination to grow a successful CBD small business. From finding a supplier to securing high risk merchant services, you may feel a little overwhelmed. However, don’t let that stop you from pursuing your aspirations of starting your CBD business. Every day regulations and local legislation are making it increasingly easier for businesses to offer safe and reliable CBD products to consumers. On top of that, consumer trends keep pointing to the expansion of this lucrative industry. Fortunately, by following these tips on starting and growing your business in CBD, you’ll be on the short track to success in the years to come.
Bronte is a designer and marketer based in Los Angeles, CA. She has been creating and promoting content for over 3 years, covering a range of topics in the payment processing industry. Bronte is currently the Director of Marketing at PaymentCloud, a merchant services provider that offers hard-to-place solutions for business owners across the nation.
How to Start a CBD Business: The Ultimate Guide to Getting a Green Light
Nearly four thousand years ago a Chinese Emperor Shen Nung, also known as the Father of Traditional Chinese Medicine, wrote in his The Great Herbal book that hemp can have theoretical powers for gout issues, rheumatism and absentmindedness among a variety of other ailments.
Fast-forward to present digital-ridden days: you can now purchase a growing lineup of CBD goods both online and in-person, at convenience stores and in luxury celebrity-owned boutiques, all across the US and abroad too.
But, despite a long history of usage and current popularity, CBD and the hemp plant it’s derived from remain largely misunderstood.
So What is CBD?
Cannabidiol, or CBD for short, is a ‘wallflower’ cousin of the more reactive delta-8-tetrahydrocannabinol (THC). These two compounds are found in the Cannabis plant, along with some 100 other types of cannabinoids.
Unlike marijuana, CBD is obtained from industrial hemp — an MJ plant variety that must contain less than 0.3% of THC on a dry weight basis to be cultivated under a USDA-approved license. Meaning that it does not cause the feeling of ‘high’, but instead is said to carry a number of wellness and therapeutic benefits.
CBD Industry by the Numbers
Partially due to the advertised health benefits, partially because of the close affiliation with the cannabis plant, consumer interest around CBD products has been on a steady rise since 2016.
2018, specifically, was named as the “breakout year” for CBD by EAZE, a San Francisco-based cannabis delivery platform.
In 2018, the number of US CBD consumers doubled, from 2.6% to 4.8% with *drumroll*…Baby Boomers leading the pack.
EAZE data suggests that female Boomers were among the most likely CBD users, opting for these products to deal with anxiety, sleep issues and pain relief.
A survey by Consumer Review further states more than a quarter of people in the U.S. say they’ve tried CBD at least once in the past two years.
That makes sense as CBD oil is now infused in loads of products across the board, especially in the wellness, food, beverage and beauty industries. From tinctures and topicals to gummies and even lattes, consumers now have a bevy of CBD products to explore.
So what makes them tick the most? According to Brightfield Group, regular CBD users prefer to use vaping products, followed by the use of high-CBD flower :
Growing interest? Checked. Overall consumer awareness? Rising! What about market growth prospects? Well, these seem to be solid too.
By 2025, the retail market for CBD products in the US is expected to hit $16 billion, up from $2 billion in 2018.
Compound the above with the fact that, among those who are familiar with CBD, 80% support its usage (even if they are not personally using it) and it becomes clear that CBD is a very promising niche for starting an online business.
9 Steps for Starting a CBD Business Online
Hyped products often have a short shelf life. But Inferring from above, the interest in CBD is here to stay.
So if are interested in exploring this high-growth niche, here are the main steps for starting an online CBD business:
- Identify your CBD niche and products.
- Understand the laws and regulations around CBD.
- Generate a thorough CBD business plan.
- Get your business documents in order.
- Find your CBD supplier.
- Discover the perfect ecommerce platform.
- Build up your site.
- Determine shipping and payment terms.
- Market your business.
Identify Your CBD Niche and Products
A quick sweep through the (digital) shelves of any wellness store will prove that you can now buy CBD-anything. Creams and ointments, human and pet chewies, hemp clothes and accessories — when the consumer interest is high, loads of entrepreneurs try to capitalize on the hype.
What should you sell then: the trendy stuff or the “classics”? Well, that’s for you to decide. When assessing the overall market prospects, look into the general niches first. Here are the most popular ones:
- CBD-infused foods/beverages.
- Supplements/wellness products.
- CBD-based cosmetics.
- CBD pet products.
Next, you should zoom in on your product types. Most of these differ, based on the CBD consumption method:
- Drops and sprays: The key ingredient in both is CBD oil, decarboxylated from hemp/hemp flowers and mixed with a carrier oil. Drops and sprays can also include flavoring agents and other compounds that make them more pleasant to ingest.
- Pills and capsules: Wrapping a dose of cannabinoid in gelatin or soft gel capsule makes it more digestible. Also, since many people take CBD as an alternative to over-the-counter medicine, this form may seem more familiar and thus appealing, to them.
- CBD vapes and cartridges: Inhalation products tend to be popular among recreational MJ users and people who enjoy the social aspect of vaping. Also, this method is often preferred by consumers using CBD for pain relief as it gets absorbed faster to the blood system through inhalations.
- Tinctures: Just like medicinal tinctures, CBD-based ones are made by combining cannabinoids with alcohol or another strong solvent. Sometimes CBD tinctures also contain extra herbs. While most don’t have great flavor, tinctures are popular with people who want to feel the effects of CBD quickly.
- Topicals and patches: Best suited for targeted action such as joint, back, or menstrual pain, topical ointments and CBD patches appeal to consumers who don’t like hemp flavor or prefer external applications for other reasons.
- CBD edibles: Gummies, candy, chocolate, honey sticks, there’s a huge variety of munchable CBD products on the market. Most of them make hemp look less ‘medicinal’ and more of a wellness treat. In 2019, 3 out of 4 chefs identified CBD-infused food as a hot trend.
Understand the Laws and Regulations Around CBD
The Farm Bill , passed at the end of 2018, legalized the commercial production of hemp in the United States . Specifically, you can grow industrial hemp and then legally sell products containing hemp-derived CBD across the country.
But there are some restrictions too:
- The hemp you are using to produce CBD cannot contain more than 0.3% of THC . Any cannabis plant with a higher concentration of THC is automatically considered a marijuana plant and stronger regulations kick in.
- CBD, produced from marijuana plants, is legal in 15 states for recreational cannabis usage and in 36 states for medical use.
Now when it comes to cannabinoid as a substance, the regulatory matter gets complicated. To date, FDA has approved only one CBD-based prescription drug, Epidiolex. Meaning that no other CBD brand can make health claims regarding their CBD products. Also, the FDA prohibits adding cannabinoids into food, or marketing anything with it as dietary supplements.
Wait, but what about an array of edible CBD products that are on the shelves? Are they illegal? It’s a gray area.
Because the stance on CBD legality status isn’t consistent across federal and state regulators. As PBS writes :
Federal provisions have a blindspot whereby a store can sell as much CBD as it wants, as long it doesn’t make any health claims about its products, put it in food nor add it to dietary supplements.
While FDA doesn’t allow CBD in food, they are not taking any action against CBD sellers either, except for issuing warning letters for falsely-advertised health claims.
1. Selling federally.
Federal laws allow legal CBD sales nationwide. So long as your products contain less than 0.3% THC, you are good to go to market.
2. Selling statewide.
Statewide laws differ. In general, all states should allow sales of hemp-sources CBD with the right THC threshold. But specific favorable or not-so regulations may kick-in in states where recreational marijuana usage isn’t legal. So it’s best to cross-check with a local legal specialist if there are any restrictions regarding CBD product sales in your state.
Create a Thorough CBD Business Plan
Jumping into a business without a solid business plan is like driving without a rearview mirror: you can do it, but you may miss a huge obstacle heading your way.
When it comes to the CBD niche, your business plan is also your navigator for staying atop of changing regulatory policies, conflicting operational priorities and new business opportunities, fueled by the market demand. Plus, it’s the document your financial supporters and other stakeholders will want to see.
Here’s what should go into your business plan for ecommerce CBD operations:
- Start with market analysis: The goal of a market analysis is to supply you with sufficient information about your industry size, customers, competitors and other market variables. So that you could make more informed decisions regarding your product positioning, pricing and overall go-to-market strategy.
- Pick your brand name and confirm product range: Explain how your brand name, along with other brand assets, differentiates you from the competition. Recap which CBD niche you plan to target and why. briefly describe your product range, focusing on the product quality and competitive parameters.
- Determine your financing: Estimate how much cash you’ll need to launch your operations. Break them down as one-time pre-launch investments (e.g commerce website development , inventory purchase, product design/branding) and ongoing monthly costs ( e.g. inventory restock, handling/packaging, shipping, marketing, taxes, etc.). Always add extra padding for ‘unplanned’ expenses because these will surely happen. Then look into how much time and how many sales you’ll need to make to break even monthly. If you are self-financing, estimate how much of a runway you’ll end up having. If you are planning to secure investment later on, prepare more figures describing your anticipated expenses vs profits, plus set targets for CPA (cost per acquisition), AOV( Average order value), sales conversion rates, customer retention rate, customer lifetime value (CLV).
- Include a realistic marketing plan: A marketing plan details your strategy for growing awareness around your CBD brand, acquiring new customers and fostering repeat purchases. It’s a cornerstone document that should be a) data-backed b) realistic c) channel-specific. Yes, writing a solid marketing plan will take a ton of time and research. But this early investment pays off in terms of reduced budget waster and better marketing results later down the road.
You can also learn more about business plan writing for ecommerce from our previous guide!
Get Your Business Documents in Order
To sell CBD online you need to obtain two types of licenses:
- A regular business license: get incorporated and register a business with your state to start operations. Also, request an EIN/TIN for your newly created company from the IRS.
- Reseller license: If you plan to purchase CBD from wholesalers, you may also need to get a Reseller’s license (certificate) from your state. This document is hugely important because it allows you to buy products wholesale without paying sales tax. The license also lets you collect sales tax from your customers afterward.
Find Your CBD Supplier
Arguably, the most important step of your ecommerce operations is finding a reliable CBD supplier. There are a few reasons for that.
First, if you are selling nationwide, you need to ensure that you are selling CBD, derived from hemp plants, not marijuana ones. The latter contains a higher THC dosage, making them legal only in a handful of states. The wrinkle, however, is that there’s no affordable testing for determining the levels of THC in the plant. This can make purchasing raw materials from a farmer challenging if neither you nor they have the capabilities to test the crop.
Reputable wholesalers, on the other hand, typically do lab testing and can provide certificates of analysis (COA), detailing the product content. Not being able to provide one is a major red flag.
(Sample certificate of analysis of a CBD product. Source: Alphagreen )
Apart from the general product contents, you should also ask to see the results of:
- Pesticide testing (you’ll want to have a ‘clean’ product).
- Microbiological testing (showing there’s no bacteria or mold inside the sample).
- Residual solvents testing (prompts if there any stray chemicals remaining from the extraction process).
Secondly, your product quality will impact customer satisfaction and your CBD brand reputation. After all, 24% of CBD users named the ability of the product to generate the “desired effect” as their primary purchase driver. When your product fails to deliver on the ‘effects’ promise due to poor content, you’d struggle to win repeat business. Other buying priorities include ingredients quality, price, concentration and consumption method (e.g. oil, edible, vape).
Considering that CBD production remains underregulated, many ‘fake’ products end up on the shelves: ones containing no cannabidiol inside.
Such sham brands and manufacturers, speculating on the CBD sweeping popularity, are making it harder for the honest CBD companies to break into the industry. As The New York Times feature on the origins of CDB popularity sums it up:
“As a result, the compound is often caricatured as snake oil, a scam, even as promising research into the full potential of CBD is starting to pick up.”
As a new CBD brand, you don’t want to end up on the sham side. Again, this is another reason why you should do careful due diligence when assessing different CBD manufacturers. Beyond requesting or performing an independent certification of analysis, also evaluate a potential wholesaler based on the following criteria:
- Hemp sourcing method and origin.
- Extraction method.
- Reviews from other entrepreneurs.
- Extra services (e.g. labeling, dropshipping).
Discover the Perfect Ecommerce Platform
Apart from finding a trustworthy CBD supplier, you’ll also need to identify the (best) ecommerce platform for your operations. Just like quality products, your tech infrastructure will positively contribute to your customers’ satisfaction with your brand.
But, not every ecommerce platform allows creating an online CDB store due to opaque regulatory status. Still, you have some really good options!
BigCommerce offers a bevy of B2C and B2B ecommerce features for CBD retailers , wholesalers and manufacturers. From drag-and-drop page builders to limitless customization opportunities to 0% transaction fees and 99.9% uptime, we provide global CBD businesses an integrated ecommerce solution they need to start their operations fast and scale without constraints.
Shopify only allows US-based merchants based in certain states to sell CBD or hemp-derived goods on their platform. If you are eligible, you gain access to a nice set of core commerce features for launching your digital operations including design templates, integrated shipping, marketing tools and payment processing. But the proprietary Shopify Payment method isn’t available for CBD products. So you’ll need to get approved by a third-party payment processor .
Shift4Shop is another ecommerce platform that allows hosting digital CBD and vape-related businesses . They offer similar ecommerce solutions — shopping cart software, embedded ‘buy’ button and full-scale ecommerce website builder, featuring themes, unlimited bandwidth, payment processor support and more. However, their website backend comes with a bit of a learning curve, so Shift4Shop may not be the optimal choice for non-coding beginners.
Build Up Your CBD Website
By opting for an ecommerce platform, over open-source ecommerce tools, or custom development, you reduce the website development timeline. Since the solution provider handles hosting, infrastructure and all that jazz, all you have to do to get your CBD operations off the ground is work on your store design and list products.
1. Customize your design.
Have you ever painted by numbers? Design experience on modern ecommerce platforms is pretty similar to that. Instead of starting with a blank canvas, you rely on a website theme — your set of pointers, pre-mapping the final store look.
You can still be creative though, changing colors, layouts, fonts and other visual elements or even adding new elements to your online store.
When it comes to CBD ecommerce store design make sure that:
Key product information has a prominent spot: Most of your customers will want to know the key product specs: dosage/strength, hemp origin, extraction method, and possible benefits. Make sure all of this information is displayed in a digestible manner for each type of product. CBDistillery goes straight to business and highlights product ingredients and suggested use:
2. Add products and descriptions.
In the CBD space, your product descriptions should be more than just convincing. They also need to be:
- Accurate and fact-based.
- Devoid of any health claims.
- Cliche- and jargon-free.
When it comes to CBD marketing , FDA does not allow businesses to suggest that any of their CBD products can “diagnose,” “cure,” “treat,” or “prevent” any type of medical condition. Even if it’s tempting, don’t go making any big claims.
What you can do though is reference actual medical research done around CBD usage. Also, you can leverage the voice of customer data — public/private reviews, first-hand accounts/stories, general feedback — in your product listings.
Lastly, don’t write overly complex product descriptions. Not every store visitor will be a CBD connoisseur, familiar with the industry lingo. So while you should always provide ‘technical’ product information, avoid niche chemical terms, industry jargon and odd CBD pop culture references.
3. Shoot and upload product photos.
Ecommerce photos do two important things:
- Act as an extension of your brand.
- Help sway customers’ purchase decisions.
For example, 90% of Etsy shoppers said that product image quality is a purchase trigger for them.
If you have the budget, hire a professional photographer to shoot a series of product-only and lifestyle images for your brand. Those short on cash can also snap amazing ecommerce pictures on a budget .
Determine Shipping and Payment Terms
After you designed your store layout and organized your product catalog, you need to sort out how your products will reach their new owners.
1. Determine your shipping policy.
Shipping is important to ecommerce consumers. So you don’t want to let them down in that department. To work out the optimal shipping policy for your CBD business ask yourself these questions:
- What’s the threshold I set for ‘free shipping’? For 79% of US consumers “free shipping” is a strong prompt to buy online more. But do people get upset when there isn’t such an option? In general, yes, over a third of consumers will be upset if there’s no complimentary shipping for an order valued above £135 ($150). Determine a reasonable threshold for your brand based on anticipated average order value.
- Do you plan to offer a variable fee? Destination-based or weight-based shipping fees can help a smaller retailer reduce logistics costs. But they may alienate some customers too: 50% of abandonments happen when the shipping/tax costs are too high . The fix? Provide estimated shipping costs or a delivery calculator option pre-check out if you plan to use variable fees.
- What delivery timeline is feasible? Most people are spoiled by Amazon Prime next-day deliveries, but few smaller brands can pull off the same levels of service nation-wide. So choose your battles. Limit same-day delivery to your city/state only. Set the right expectations regarding priority/express delivery if you plan to offer such.
- Which logistics carrier works best? Not all carriers have straight policies regarding CBD shipments. Do your research carefully. For example, while UPS allows shipping hemp and CBD-infused products, they also state that “[we] reserve the right to dispose of any shipment containing Marijuana, Hemp or Hemp products tendered for shipment which Shippers are prohibited from shipping, which UPS is not authorized to accept, which UPS states that it will not accept, or which UPS has a right to refuse.” That’s not very reassuring.
2. Select an ecommerce shipping solution.
Your next step is to select supporting shipping and fulfillment software — a tool that will help you set shipping rates, manage logistics, print labels and auto-dispatch updates to customers. To minimize hassle and mistakes, your app should integrate directly into your ecommerce platform. You can discover different shipping and fulfillment apps on the BigCommerce marketplace . Don’t forget to check if your pick also iterates with the carrier you plan to use!
3. Choose a payment processor, fit for CBD.
CBD industry is deemed as “high risk” due to the ongoing regulatory debacle. Thus, many payment processors choose to exclude CBD sellers to minimize their operational risks. But you are not completely out of options. To accept payments from customers, you can work with a specialized payment processor who knows how to handle high-risk business.
BigCommerce, for example, lets CBD businesses choose among 65 payment gateways that can be used to do business in over 100 countries, using some 250 local payment methods. Get to know more about how payment processing works for CBD companies .
Market Your CBD Company
Now that you are up and operational, you need to focus on customer acquisition. While the CBD industry is trendy right now, shoppers won’t flock to you on autopilot. Unless you set yourself up with a solid marketing system.
1. Focus on content.
CBD products are still largely misunderstood often, due to shady marketing from other brands or bogus medical claims made by self-proclaimed gurus. Build your initial customer base by seeding accurate content. Educate the interested, but cautious, buyers about:
- Different product types.
- CBD extraction methods.
- Possible benefits and results.
- Potential side-effects.
- Correct usage/dosage.
- The hemp industry as a whole.
Invite industry experts and use claims from verified sources to create more comprehensive content than your competition. Focus both on your blog and social media especially, as that’s where most younger consumers go looking for both product inspiration and info.
2. Leverage SEO.
Publishing well-research content is key to dominating the search engine results. Especially with the latest Google update called ‘ passage indexing ’. By honing its AI algorithms, Google now indexes individual passages from a web page (rather than just the entire page) to help users find needle-in-a-haystack info.
So for instance, if I’m googling something like “What’s the best strength of CBD oil?”, I’m redirected to a highlighted result on the page:
For CBD businesses this SEO change is a great opportunity to attract top-of-the-funnel customers and convert them with educational content.
Since SEO-competition around CBD-related keywords is pretty intense, going after long-tail, less-searched keywords can help you build the initial traffic, while you work on further optimizations .
3. Partner with influencers.
Much of CBD’s current popularity comes as a direct result of patients’ advocacy and evangelism. First-hand stories from people, whom CBD helped cope with chronic pain and seizures, initially spurred the mass-interest in the plant both for therapeutic and wellness purposes.
Today, a ton of celebs are outspoken fans of the CBD. Some of them even launched their CBD businesses. So finding credible advocates for your brand shouldn’t be an issue. Just ensure that you are partnering with people who share your brand beliefs and can speak about CBD with authority. Also, don’t forget about mandatory FTS disclosures.
Lastly, keep close tabs on the latest FDA regulations (as these change as we speak) to make sure your communication stays in line with the requirements. Also, individual states have different regulations when it comes to CBD advertising. Be sure to verify local rules too.
4 Evergreen Issues CBD Businesses Are Facing
While entrepreneurs in the CBD industry can capitalize on the industry’s rapid boom, they should also brace themselves for a set of unique challenges. With a lack of FDA guidelines and differences in CBD regulations on the state level, running a CBD business can feel particularly gruesome at times. Especially when it comes to:
1. Banking and financing.
Sadly, CBD businesses are considered ‘high-risk’ by many financial service providers due to the aforementioned gaps in state laws and regulations. So prepare to do some walking and negotiating when opening a merchant account. Securing extra financing via business loans can be challenging too, again thanks to the bad rep the cannabis industry has among certain FIs. But don’t despair. There are some hemp-friendly banks and investors in the field too.
2. Payment processing.
Payment processors aren’t making life easier for CBD sellers either. Most wrongly stigmatize such companies, unlike BigCommerce. Since 2019, we are offering our customers access to an array of hemp-friendly payment processors, along with other essential tools for building an ecommerce store .
3. Business insurance.
Insurers are slow to act on the recent legalization of hemp and hemp-derived products. Just like conservative banks, they are often barring CBD companies altogether or burden them with crazy-high premiums. But having a solid insurance plan is crucial for your company’s liability. So don’t skim on getting a good plan from a CBD-friendly insurer .
4. Differentiation from the competition.
With a slew of businesses touting ‘cannabis’ as a customer attractor, it may be difficult to stand out even when you sell genuine, high-quality cannabis products. A 2017 Penn University study , found that 70% of cannabinoid products sold online had issues with labeling. Over 42% of CBD products were under-labeled, meaning that they contained more CBD than stated. Some 26% were over-labeled — they had a lower condensation of cannabinoid than stated.
Such happenings, along with misleading marketing and grossly overstated claims regarding CBD’s effectiveness are making new customers skeptical towards recent market entrants. Gain their trust by being positively different when it comes to:
- Transparency : From telling where your hemp plants grow to display proper certification of analysis, explain to your customers what they are about to purchase and munch.
- Accuracy : Avoid unverified scientific statements (even if they look promising for marketing). Check your sources, invite known experts to help you create content and educational brochures. Make honest, no-nonsense claims to set yourself apart from the sleazier types.
- Storytelling: Some of the most successful CBD businesses were launched by long-term CBD evangelists and regular folks, whose chronic health condition was majorly alleviated by CBD. Your unique story, cementing your brand mission and values, can help you build a stronger emotional connection with your target audience. For example, CBD for Life tells a story of how their founder concocted a CBD cream to help her alleviate the back pain.
3 Core Tips for Nurturing Your CBD Business
New ecommerce companies are very tender. If you want your CBD business to grow, evolve and always be ripe, here are three things you should consider doing.
1. Ask for help.
Between murky regulations and operational issues, new CBD business owners will have a lot of their platter. While everything is searchable on Google these days, you shouldn’t underestimate the value of a mentor aka someone who already walked the same walk before you.
“That’s the rub of excelling in the cannabis industry: there’s no model of excellence right now. It’s a fluid and shifting industry that didn’t really exist just a few years ago.”
That makes finding a good industry mentor somewhat challenging. Yet, not impossible. AngelList has 1,210 marijuana investors and that’s just one place. Non-profit organizations such as CBD Alliance , National Hemp Association and Vote Hemp are also great places to find new industry connections and support.
2. Have patience.
Fast traction is often viewed as a given in the ecommerce industry. You sure have heard literally overnight success stories where some “$500 Instagram ad drove $50,000 in sales in a day”.
In the CBD industry, paid ecommerce ads are not an option. Click-bait marketing can cause compliance issues, while content marketing and SEO both take time to work. So take a deep breath and prep several buckets of mental patients to methodically work through the different kinks of running CBD operations.
3. Understand the industry.
Despite (or because of) slow FDA response, the CBD industry keeps evolving in somewhat contradictory directions. While some states e.g. Texas removed the ban on selling edible CBD products in 2019. , others banned CBD-infused foods and beverages last year.
Subsequently, market trends and consumer trends change from week to week too. Especially, when some celebrity like Gwyneth Paltrow announces her involvement in a new CBD venture or throws a CBD-themed baby shower as Kim Kardashian did.
For sure, no CBD business can or should stay atop of all the latest trends and fads. But they do need to keep close tabs on emerging tendencies among their clients, changes in compliance requirements, along with other major industry happenings.
CBD is an interesting product to trade. On one hand, you can make a genuine difference by supplying your customers with life-improving goods. On the other, you also need to constantly educate the general public (along with some B2B partners and other stakeholders) about your products’ actual benefits, their legality status and lack of connection with THC-dominant marijuana.
That can be a tough battle. But well worth it when you look at the CBD industry sales prospects again. Grandview Research estimates that the CBD market will swell by a compound annual growth rate of 22.2% between 2019 and 2025.
And you can be part of that revenue pool too if you launch your online CBD business today!
This material does not constitute legal, professional or financial advice and BigCommerce disclaims any liability with respect to this material. Please consult your attorney or professional advisor on specific legal, professional or financial matters.
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