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.В
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.В
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.В
If you’re considering getting involved in the CBD industry, you first need to understand more about cannabinoids and the products that utilize them.В
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.В
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.В
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.В
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.В
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.
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.В
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.В
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.В
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:В
- 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.В
- 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.В
- 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.В
- 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.В
Additionally, CBD isnвЂ™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.В
Cory Slovik, owner of Core Roots CBD, started his company after experiencing firsthand what he said were the healing properties of the cannabinoid.В
“I used to be a pro snowboarder вЂ¦ 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 вЂ¦ started coming to the forefront, and there was research and data backing up everything I felt on the mountain.”В
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.В
“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.В
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.В
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.В
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.В
“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.”В
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.В
“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.”В
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.В
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.В
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.
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:В
- 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.В
- 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.В
- 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.В
- 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.В
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.В
“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.”В
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.В
Additional reporting by Sammi Caramela. Source interviews were conducted for a previous version of this article.
The CBD industry is experiencing booming growth. Here is how to start a CBD business and enter the industry.
How to Start a CBD Oil Business
While CBD oil is still relatively new to the mainstream, it is already becoming a household name, thanks to its health benefits.
A recent market research by BDS Analytics and ArcView projects that the United States’ CBD sales will surpass $20 billion by 2024. On another report, the annual growth rate of hemp-derived CBD products is forecasted at 55%.
Considering such CBD market analytics, aspiring entrepreneurs have an ample chance for making some green in the industry.
It’s also especially important to use a trustworthy provider like Zamnesia.com that carries the top CBD brands to ensure repeat business.
But how do you go about setting up a CBD business? This piece has everything you need to know, including information about legal compliance, challenges within the industry, and the average return on investment.
What is CBD?
Cannabidiol (CBD) is one ofthe over one hundred compounds (cannabinoids) found in the best hemp oil and cannabis plants. Unlike the famous cannabinoid known as tetrahydrocannabinol (THC), CBD does not have psychoactive effects. Instead, it is touted for its exceptional therapeutic and health benefits that have been proven through research.
CBD products are created through several steps. This starts with the cultivation and harvesting of the raw materials (hemp or cannabis). From there, CBD oil is extracted using an array of methods, including supercritical CBD extraction, steam distillation, or solvent extraction.
After extraction, CBD oil is sold as a concentrate or used to infuse a range of products. Some of the most prevalent CBD products in the market today are sublingual CBD oil tinctures, topicals, infused edibles, gels, creams, vapes, and pet treats.
Although CBD oil can be extracted from either hemp or cannabis, there is a crucial difference between oil extracted from the two plants: THC.
While CBD oil derived from cannabis is illegal at the federal level, hemp-derived CBD is legal. Industrial hemp contains less than 0.3 % THC and is considered legal to cultivate, harvest, and process under the federal law. On the other hand, cannabis contains over 0.3% THC and at times higher levels, which makes it illegal.
Cannabis and hemp are closely related. Actually, industrial hemp is Cannabis sativa L. The name difference is mostly a legal definition function that sets the THC content threshold. Hemp flowerscontain no THC, unlike those of cannabis. You can check this hemp oil vs CBD oil comparison guide for other details you must know and should understand.
How to Start a CBD Oil Business
As is the case with any other investment, starting a cannabis business will require much hard work and effort on your part. However, you will pay a higher price complying with the legal aspects of the business and need to brace yourself for the uncertainty of the industry’s shifting regulatory landscape.
Below are the steps you need to follow when starting a CBD oil business.
- Identify Your Niche
The hemp industry is broad and has tons of business opportunities. Determining your areas of interest would go a long way towards planning, legal compliance, and business execution.
One of the most rewarding fields in the industry is cultivation, which, according to a report by the University of Kentucky’s Department of Agricultural Economics, generates an average profit of $604 per acre. The Hemp Business Journal reports that when planted for CBD extraction, farmers can get more than $2,500 hemp farming profit per acre.
Other rewarding CBD oil business opportunities include:
- Hemp extraction
- Online and physical store retailing
- Marketing and consultancy
- Opening a hemp seed bank
- CBD events planning
- Hemp business funding
- Industry employment bureau
- And more!
- Legal Considerations
The success of your business will, to a large extent, depend on how familiar you are with hemp laws.The most crucial law to understand is that the federal government deems CBD products legal only when they are produced from hemp with no more than 0.3% THC.
The other issue is marketing.
Although CBD has plenty of health benefits, you will need FDA approval on your products for you to claim that they can prevent, treat, cure, or diagnose a disease. Only one CBD drug (Epidiolex) is FDA approved and making such claims on your products could lead you to trouble with the FDA.
Read all federal and state regulations before starting up a CBD business. Afterthis, you can get incorporation and business licenses, as well as employer and tax identification numbers.
To maneuver through this process more easily and have your contracts well drafted, it would be best to hire an attorney, especially if you are putting in a substantial amount of investment capital.
- Create a Business Execution Plan
Before investing or as you wait for license approval, come up with a comprehensive business plan to guide you throughout all your operations. Key factors to include are:
- The products and services you will be selling.Thesecould include health and wellness, personal care, beauty, or pet care products.
- Financing methods: Identify how much you need and make a plan on ways to raise resources for financing your startup.
- Marketing plan: Come up with ideal marketing strategies to drive awareness and sales of your new product or service.
- Sales forecasts: Review your expectations and research to come up with a realistic sales benchmark and a plan on what you will need to do to stay on track and meet this goal.
- Find the Right Supplier
If you are interested in processing, distributing, or reselling CBD oil, you will need to have someone to supply you with the raw materials or finished products. The same applies to cultivation and extraction, among other fields. Reputable hemp is available from Europe and America.
Factors to consider when looking for a hemp supplier include current good manufacturing practice and a Certificate of Analysis.
Make sure that you create your own brand, and sell from your own company. Build trust and credibility with your clients and work as hard as you can to get return business. This can be difficult as even trusted brands have a hard time in this niche, for example, CBD on amazon is fake.
- Build Your Brand, Market and Sell
Before and after you get everything ready, focus on creating a pool of customers you can rely on. This will require you to run aggressive marketing campaigns, optimize your website, and create a strong media presence.
Since most platforms do not allow CBD advertising, you will need to be creative to get results. Marketing CBD products through customer loyalty programs and organic search strategy is more engaging and safer than paid advertising.
Challenges Facing the CBD Business
Anyone looking to start a CBD business should familiarize themselves with the following challenges that are rampant in the industry:
With hemp’s fluctuating regulatory landscape, accessing reliable banking services when running a CBD oil business can be complicated. Most banks are hesitant to accommodate cannabis and CBD companies as they fear a huge risk of burdensome oversight.
CBD oil entrepreneurs find it challenging to find affordable insurance. Despite the legalization of hemp, insurance prices remain heightened for such investors.
- Payment Processing
Many payment processors present unreasonably high charges and other challenges to CBD oil businesses. Some like Visa have cut off CBD businesses, leaving entrepreneurs with limited options like Discover and MasterCard.
- Capital Access
Lenders, including banks, are reluctant to finance CBD companies as they view the industry as too risky due to the lack of clear regulatory requirements.
If you approach it correctly, CBD oil is a big business opportunity. All that you need to do to set up your business for success in the industry is combine creativity and due diligence.
How to Start a CBD Oil Business While CBD oil is still relatively new to the mainstream, it is already becoming a household name, thanks to its health benefits. A recent market research by BDS