How to Launch a CBD Business
Cannabidiol (CBD), a compound present in hemp and cannabis plants, is gaining popularity as a dietary supplement.
The CBD industry is expected to reach $22.05 billion in sales by 2030. Hemp and hemp-derived CBD are now federally legal after the 2018 Farm Bill was signed into law.
This article is intended for entrepreneurs interested in starting their own CBD-based business. While CBD is relatively new to the mainstream, it’s becoming a household name due to its purported therapeutic and health benefits. CBD oil is available in various forms, including tinctures, edibles, topicals, and more. The potential of the CBD industry has led many individuals to consider launching their own CBD businesses, but navigating this space comes with challenges, particularly regarding the evolving legal landscape. In this article, we’ll explain the CBD industry and the steps you need to take when starting your own CBD business.
How to Begin a CBD Business
Starting a CBD business involves several crucial steps:
Narrow Your CBD Product Offerings: Decide on the types of CBD products you want to sell. You can offer multiple types, but having a clear understanding of your product range is essential for drafting a business plan and executing a marketing strategy.
Research the CBD Landscape: Keep an eye on local and state legislative developments related to CBD. Researching your target customers is also crucial for informing your marketing efforts. For instance, will you target athletes with muscle pain or pet owners looking to calm their animals?
Obtain Necessary Permits and Registration: Ensure you have any required business licenses to sell CBD products in your state. This step is separate from registering your business’s legal structure (e.g., LLC, sole proprietorship) for tax purposes.
Choose Your External Vendors: Decide whether you will make products in-house or source them externally. If you opt for external suppliers, you’ll need a wholesale supplier for CBD products, a reliable payment processor, and other vendors similar to those needed by traditional businesses.
Finalize Your Business Plan: Like any new business, you must work out the details. Determine your pricing, plan the logistics of shipping online products, and develop an initial marketing strategy before officially launching.
Why Start a CBD Business?
Launching a CBD business presents numerous opportunities. However, it requires hard work and effort, with an added layer of complexity due to the evolving regulatory environment. Nevertheless, in a nascent industry projected to experience explosive growth, the challenges today may prove worthwhile tomorrow.
Cory Slovik, owner of Core Roots CBD, founded his company after personally experiencing the healing properties of CBD. He emphasizes that starting a CBD business is similar to starting any other business but involves additional steps and regulatory hurdles.
“It’s just like any other business; there are steps and procedures to follow, such as getting insurance and writing a business plan,” Slovik noted. “But in this space, you have got to double- and triple-check everything, know your market, and jump through regulatory hoops.”
What Is CBD?
CBD is one of over 100 cannabinoids found in cannabis and hemp plants. The most well-known cannabinoid is tetrahydrocannabinol (THC), responsible for the intoxicating effects of cannabis. CBD, in contrast, does not produce intoxication but offers potential therapeutic and health benefits. Research into its medical applications is ongoing.
CBD products typically undergo the following stages:
Harvest Raw Material: The raw material, such as industrial hemp, must be cultivated and harvested in significant quantities.
Extract CBD Oil: CBD oil is extracted from the plant using various methods, which can be done in-house or outsourced to an extraction company.
Create the Product: After obtaining CBD oil, you can sell it as a concentrate or use it to make various products. Common CBD products include sublingual tinctures, edibles, and topicals like gels and creams.
Hemp CBD vs. Cannabis CBD
CBD is present in both cannabis and hemp plants, and CBD oil can be derived from either. However, a critical distinction lies in THC content:
Hemp: Industrial hemp contains less than 0.3 percent THC, making it legal under federal law for cultivation, harvesting, and processing into finished products.
Cannabis: Cannabis contains more than 0.3 percent THC (often much higher), and it remains federally illegal. While hemp and cannabis are closely related, the legal definition hinges on THC content. Hemp plants have minimal THC in their flowers, while cannabis (commonly known as marijuana) contains much higher levels. The federal government classifies marijuana as a Schedule I drug, making it illegal for interstate commerce, despite its legalization for adult use in many states. In contrast, industrial hemp was removed from the Controlled Substances Act, allowing its cultivation and harvest in the U.S. for the first time since 1937.
Full-Spectrum CBD vs. CBD Isolate
If you’ve delved into the CBD market, you’ve likely encountered terms like “full-spectrum” and “isolate.
Full-Spectrum CBD: Depending on the extraction method used, full-spectrum CBD oil may contain other cannabinoids and compounds from the source plant. It also includes terpenes, responsible for the plant’s flavor, aroma, and potential effects.
CBD Isolate: As the name suggests, CBD isolate contains only CBD without other cannabinoids or terpenes. Although CBD isolate offers high purity, some evidence suggests that full-spectrum CBD creates an “entourage effect,” where compounds in the hemp extract work together for more significant effects. Research into this effect continues.
Understand Your Legal Obligations When Starting a CBD Business
The 2018 Farm Bill removed CBD from the federal Controlled Substances Act and transferred oversight from the Drug Enforcement Administration to the FDA. However, the regulatory landscape for the CBD industry remains uncertain. The FDA is in the process of formulating regulations, indicating that marketing CBD as having health benefits is not tolerated. The FDA has also cracked down on CBD-infused foods and beverages in some cases.
Another complication arises from the FDA’s approval of Epidolex, a CBD-based epilepsy medication. Since CBD is a primary ingredient in an FDA-approved drug, using it in food products without FDA approval could be illegal.
Clearer guidance is essential for CBD businesses to operate in compliance with federal regulations. In 2023, the FDA announced the need for a new regulatory pathway for CBD products, acknowledging the limitations of existing frameworks. They plan to work with Congress to establish appropriate regulations.
It’s crucial to understand your legal obligations and exercise caution in this closely scrutinized industry. While awaiting clearer regulatory guidance, consider these steps:
– Avoid marketing your CBD products based on supposed health benefits.
– Stay updated on FDA developments regarding emerging regulations.
Marketing and Selling Your CBD Products
Marketing and selling CBD products can be challenging. Although the 2018 Farm Bill eased some industry restrictions, selling CBD on major online platforms like Amazon or eBay remains difficult. Social media advertising for CBD products is also restricted, as paid ads may lead to account suspensions or bans. To succeed in marketing and selling CBD, you must adopt creative strategies:
– Establish an e-commerce store or stock your CBD products in a physical retail location.
– Rely on organic search strategies and customer loyalty programs instead of paid advertising.
– Research and adhere to local and state laws since regulations vary by location.
How to Gain a Competitive Edge
To gain a lasting competitive advantage in the CBD industry, focus on developing high-quality products that can withstand scrutiny from regulators and informed consumers. Cory Slovik recommends providing third-party lab testing results through means like QR codes to validate product quality.
“We want to be more transparent by including QR codes on all of our bottles, so that anyone in the store can use their phone to get lab results right away.” there, Slovik shared.
Pursuing certifications like USDA Organic, Good Manufacturing Practices, and FDA facility registrations can instill consumer confidence in your product’s quality. In summary, Slovik suggests thorough research, anticipating changes, and exploring innovative opportunities to succeed in this industry.
Key Challenges Facing CBD Businesses
The CBD and cannabis industry encounters unique challenges, primarily related to the regulatory environment, which should stabilize with time. If you’re considering starting a CBD business, be aware of these significant considerations:
Banking: Accessing reliable banking services can be complicated due to the evolving regulatory landscape. Many banks are hesitant to work with CBD and cannabis companies due to perceived risks or regulatory burdens. Consequently, CBD businesses may need to change banks or face sudden merchant account closures.
Insurance: Finding affordable insurance for a CBD business remains challenging, despite the legalization of industrial hemp. Education is essential in addressing this obstacle.
Payment Processing: Some payment processors impose high fees and other challenges for CBD businesses. Visa, for instance, stopped working with all CBD businesses, leaving many to accept only Mastercard and Discover.
Access to Capital: Traditional banks and lenders are cautious about funding CBD companies due to perceived risks without clear regulatory requirements. CBD businesses have relied on bootstrapping, external investors, or alternative lenders for growth capital.
While these challenges may dissipate as regulations solidify, CBD businesses must remain adaptable and well-informed. The industry experiences daily changes, making contingency planning crucial to avoid potential disruptions.
The Bright Future of the CBD Industry
Industry analysts predict that the U.S. CBD market will reach $22.05 billion in sales by 2030, a significant surge from $7.7 billion in 2023. Society’s growing acceptance of CBD, driven by its potential benefits for pain relief, stress management, and improved sleep, is contributing to this growth. CBD products are increasingly available in gas stations, restaurants, and retail stores like CVS.
The CBD market is likely to witness the following trends in the near future:
– Increased product potency.
– Expanded availability of CBD products in major retail stores.
– More pharmaceutical CBD products.
– Enhanced accessibility to CBD products through online websites and e-commerce shops.
CBD Product Types to Consider : The CBD industry continually introduces new products. If you’re contemplating starting a CBD business, you have a wide array of product types to explore. Some popular CBD product types include:
Sublingual Tinctures:** These are CBD oils typically sold in small bottles with droppers for ingestion by placing them under the tongue.
CBD Edibles:** This rapidly growing sector includes baked goods, candies, and foods infused with CBD. However, CBD edibles face significant regulatory scrutiny from the FDA.
Vape Concentrates:** Vaporizer concentrates like CBD oils and waxes are common products, used with electronic devices for inhaling CBD.
CBD Topicals:** Gels, creams, and sprays infused with CBD are applied directly to the skin for localized relief.
Capsules and Pills:** CBD capsules or pills are taken by individuals experiencing seizures or digestive issues for treatment.
Additionally, CBD isn’t limited to humans; it also offers calming effects for animals like dogs and cats, with many businesses offering CBD products for pets.
Conclusion: Seizing the CBD Opportunity
The CBD market has tremendous development potential. While the regulatory environment is evolving, the cannabis industry is one of the fastest-growing in the nation, with CBD being one of its most rapidly expanding sectors. If you’re considering launching a CBD business, know that you’re not alone.
Cory Slovik emphasizes the significance of seizing this moment in history: “This industry has been more or less illegal for the past century. At this point, there’s major, major momentum. Many others are attempting to break in, so don’t follow the crowd. You want to be a leader.”
To succeed in the CBD industry, a combination of thorough research, creative thinking, and a commitment to quality is essential. Now is the time to enter this industry and build a business that can endure, provided you differentiate yourself with a standout product.