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 Shop for CBD
Thousands of the cannabis products line store shelves, but determining what’s safe is up to you
As head farmer at Veritas Farms in Pueblo, Colo., Rianna Meyer has two big concerns when growing her 100,000 hemp plants, a form of cannabis closely related to marijuana.
One is making sure that plants don’t absorb any of the potentially harmful chemicals that might be in the soil. The other is how much of the plant’s two key compounds they contain: THC (tetrahydrocannabinol), which gets users high, and CBD (cannabidiol), which is gaining increasing attention for its potential health benefits.
As it turns out, those are also two of the most important factors that consumers should consider when choosing among the thousands of CBD products now being sold across the country.
And those choices are soon likely to become even more confusing: The CBD market is expected to multiply at least sevenfold by 2021, to $2.15 billion, up from $292 million in 2016, according to the Brightfield Group, a market research firm that specializes in cannabis. Even Coca-Cola says it’s “closely watching” the growing interest in CBD and its potential as an ingredient in some of the company’s beverages.
Such demand keeps Meyer—vice president for operations at Veritas Farms (pictured above) as well as a retired fire captain and an Air Force veteran—on alert. For one things, she says, “If cannabis plants are stressed out by the weather, they’ll create more THC.”
That’s important to farmers like Meyer, and to consumers. When a plant contains 0.3 percent or less THC, the federal government considers it “industrial hemp,” and by Colorado’s and most states’ reckoning, can legally be formulated into oils, tinctures, topicals, and capsules, and widely sold to consumers. But if a plant has THC levels above 0.3 percent, the federal government considers it marijuana, and even states where it is legal sharply limit where the products can be sold.
In addition to THC, Meyer and consumers also need to worry about whether CBD products have contaminants. That’s because cannabis plants readily absorb heavy metals, pesticides, and other potentially harmful chemicals that may be in the soil or water, says Kyle Boyar, a cannabis scientist at Medicinal Genomics, a company that develops tests that help labs comply with state rules. To protect against that risk, cannabis plants should be tested frequently while they are growing, and finished products should be tested, using validated methods, too, Boyar says.
However, though 47 states have now legalized CBD from hemp, marijuana, or both (see map, below), many don’t require any testing. And among those that do, the details vary considerably. As a result, consumers need to take matters into their own hands and often have to rely on CBD manufacturers to self-police.
Meyer, at Veritas Farms, says consumers should learn as much as they can about CBD products they buy, including where they are grown and whether they were tested for both CBD and THC levels, as well as contaminants. “We’re trying to grow a plant that’s healthy, and healthy for you,” she says.
Here’s a step-by-step guide to the factors to consider when shopping for a CBD product.
1. Decide Why You Want to Use CBD, and in What Form
Of course, the first thing to consider is why you want to take CBD. Though it’s being touted for numerous possible health benefits—and some preliminary research suggests it might help with everything from pain and anxiety to multiple sclerosis and opioid addiction—for now it’s clearly proved to help treat only two rare, but devastating, forms of epilepsy. (Read more about the safe use of CBD.)
And even less is known about which forms of CBD—pill, topical, or drop, for example—might be appropriate. Still, experts do have some advice.
For very quick relief of, say, muscle cramps or anxiety, inhaling CBD may be most effective, via either a vape pen (think e-cigarette) or cigarette-style. For effects within a few minutes, oil drops under the tongue may be useful. Topical lotions, rubbed onto the skin, vary from person to person—some may feel it right away, others not for several hours. On the other hand, CBD in food products is likely to take longer—30 minutes or more—to be absorbed into your system. Read more about the pros and cons of each form.
2. Consider How Much THC the Product Contains
This is important mainly if you want to avoid the head-high that comes with THC, something that is important to many people who are considering CBD. But knowing the THC level can be important for other reasons, too, including how effective a product might be, as well as where you can buy it.
Some research suggests that in some people, CBD may work better when it’s combined with at least a little THC, says Martin Lee, director of Project CBD, an advocacy group that supports CBD research and the author of “Smoke Signals: A Social History of Marijuana—Medical, Recreational, and Scientific” (Scribner, 2012). This is called the “entourage effect,” Lee says, the idea that the sum of the two chemicals, plus other related compounds in the plant, is greater than their individual parts.
To be sure, that notion is more theoretical than proven. And only a small amount of THC—as low as the 0.3 percent cutoff required for CBD products made from hemp—may be needed to enhance CBD’s therapeutic effect.
So if you want a product that probably has a little THC but not so much to get you high, look for one made from hemp. Such products have the added benefit of being widely available, including online and in retail stores. (Note that while Boyar and other experts say that CBD products should also include THC levels on their labels, many made from hemp don’t. For that, you need to check a product’s test results, if they are available; see number 4, below.)
Finding a CBD product that’s more than 0.3 percent THC could be tougher. For one thing, you’ll have to be in a state that has legalized marijuana, not just CBD. You’ll also need to go to a state-licensed dispensary to buy it and, in the 20 states that have legalized just the medical use of marijuana, you’ll also have to get a recommendation from a physician. In states that have legalized medical and recreational use—Alaska, California, Colorado, Oregon, Massachusetts, Nevada, and Washington—you don’t need to see a doctor first, but you do need to be over 21. (Maine and Vermont have legalized marijuana for recreational use but have yet to open recreational dispensaries.)
Dispensaries may sell a variety of “CBD-rich” products that are high in CBD and relatively low in THC, including oils, tinctures, topicals, and vaping liquids. They may even sell buds or flower from marijuana strains that have been bred to have very low levels of THC, says Michael Backes, author of “Cannabis Pharmacy: The Practical Guide to Medical Marijuana” (Black Dog & Leventhal, 2014). For example, the strain “AC/DC” can be just 0.5 percent THC, barely above the cutoff allowed for CBD from hemp and much lower than the 20 percent or higher THC concentration typical of most marijuana strains, Backes says.
Still, Lee cautions that some people are much more sensitive to the psychoactive effects of THC than others. So if you want to avoid the head-high, it’s better to stick with CBD from hemp.
3. For Products From Hemp, Find Where It Was Grown
Many CBD products sold online and in retail stores come from hemp, not marijuana. And the source of that hemp can be important.
Most hemp used in CBD products sold in the U.S. comes from Colorado or Oregon (which have long histories with cannabis) or Kentucky (which passed a law to support hemp growers in 2013), or is imported from overseas, says Colleen Lanier, executive director of the Hemp Industry Association.
Among those sources, Lanier considers Colorado to have the most robust hemp program. The state’s agricultural program performs spot-tests of hemp plants while they are still in the field to check THC levels and will investigate the potential use of any illegal pesticides based on complaints. (Note that the 2018 Farm Bill, now in Congress, may make it easier for farmers to grow hemp and expand the number of states where it is grown and tested.)
Products made with hemp grown overseas can be even more problematic, because they are not subject to any state or federal testing, say both Lanier and Boyar. “There needs to be testing results available to consumers,” Lanier says, “and manufacturers should follow the FDA’s guidance for good manufacturing practices.”
So for CBD products from hemp, check labels to see whether they say where it was grown, and look especially for those from Colorado. Not all products, however, include that information. So in a dispensary or a retail store, ask the staff whether they know where the hemp was grown. And for products purchased online, check the companies’ website to see whether it has that information, or contact the seller to ask the same question.
4. Ask for Test Results
Always also ask to see a product’s COA, or certificate of analysis. That document shows how a product performed on tests checking for CBD and THC levels, and the presence of contaminants.
For products made with CBD from hemp, even Colorado doesn’t require testing of the finished product. So any COA for those final products comes from testing the company arranged on its own. Though not all manufacturers take that step, many do, Lanier says. That includes even some companies that use imported hemp, such as CV Sciences, which makes Plus CBD Oil from hemp grown in Holland.
If an online manufacturer or a retail store doesn’t have the information, or refuses to share it, avoid the product and the retailer.
One state, Indiana, has made it easier for consumers to find these COAs. Since July, all hemp-derived CBD products sold in stores in Indiana must include a QR code on their label that lets consumers download a product’s COA to their phone. All CBD products sold at Indiana locations of Fresh Thyme Farmers Market, a Midwest regional chain, now carry those codes, says Jonathan Lawrence, director of vitamins and body care at the chain. “It’s important for any consumer to know what’s in their product and what they’re taking,” Lawrence says.
For even more assurance about a product’s quality, Boyar recommends checking the COA to see whether it says that the lab meets “ISO 17025” standards. That suggests the lab adheres to high scientific standards. Also look to see whether a company uses testing methods validated by one of three respected national standard-setting organizations: the Association of Official Agricultural Chemists (AOAC), the American Herbal Pharmacopoeia (AHP), or the U.S. Pharmacopeia (USP).
Unlike hemp-derived CBD products, those made from marijuana must undergo testing—at least in states that permit medical and recreational use of marijuana. In some of those states, dispensary staff are supposed to have the COAs available and be willing to share them with you. If they aren’t, or the COA is not available, go to another dispensary or choose another product.
In states that have only legalized the medical, not recreational, use of marijuana, testing is less consistent, Boyar says. Several states—including Connecticut, Delaware, Hawaii, Florida, Illinois, Maryland, Minnesota, New Hampshire, New Jersey, New Mexico, and New York—do require some testing of products, according to the National Cannabis Industry Association. But others don’t, including Arizona and Michigan.
5. Look for Products That List the CBD Amount
Look for products that show how much CBD (or cannabidiol, its full name) you get not just in the whole bottle but in each dose, says Lee, from Project CBD. Dosages, which are expressed in milligrams, or mgs, vary considerably depending on the form of the product, and experts often suggest starting with products that have relatively low doses. For example, with tinctures, consider a product that has just 10 mg per dose, says Mitch Earleywine, Ph.D., a professor of psychology at the University at Albany, State University of New York. (Read more about the safe use of CBD.)
On the other hand, take extra care with products that list only the amount of total “cannabinoids” they contain, not specifically how much CBD is in them. Those cannabinoids could include not just CBD and THC but dozens of other related compounds. Companies may take that labeling approach because they hope it will attract less scrutiny from the Food and Drug Administration, Lee says.
Some of those products, which don’t include the CBD amount on their label, market themselves as “whole plant” or “full spectrum” hemp products, or say they are rich in other compounds from the plant, such as various fatty acids. Though it’s possible that those other compounds provide additional health benefits, that’s still uncertain. In those cases, you could check the COA, if they have one, which should list how much CBD or THC they contain.
6. Know What Other Terms on the Label May Mean
CBD product labels sometimes say that they were produced with “CO2 extraction.” That can mean that the CBD and other ingredients were removed from the plant using high-pressure carbon dioxide gas, not chemical solvents. Depending on the type of CO2 extraction used, the technique might be able to extract not just CBD but other cannabinoids (see number 5) in the plant, Boyar says. However, that approach is not necessarily better, because it’s unclear whether those other compounds provide additional health benefits. And it may not be safer, either, because some forms of CO2 extraction still use solvents, Boyar says.
Some CBD products also describe themselves as including or coming from “hemp oil.” In some cases, manufacturers use that term to mean CBD oil, which is oil rich in CBD made mainly from the leaves, resin, or flowering tops of hemp plants. But “hemp oil” more often, and more properly, refers to oil made from the seeds of the plant, and contains only very small amounts of CBD, says Lanier at the Hemp Industries Association. That oil is often included in hemp-based soaps, cosmetics, and similar products.
7. Avoid Products That Make Sweeping Health Claims
Making health claims, even just the ability to treat relatively minor problems like migraines, is legal only for prescription drugs, which undergo extensive testing for effectiveness and safety. And the more dramatic the claim, such as the ability to cure cancer or heart disease, the more skeptical you should be. Since 2015, the FDA has cracked down on dozens of companies selling CBD products online for making unallowed health claims.
8. Watch Out for Vaping Products With Propylene Glycol
Vape pens produce little smoke and are easy to transport and use—plus they can easily go undetected. But the concentrated oils used in vape pens of CBD might contain a solvent called propylene glycol. When burned at high temperatures, propylene glycol can degrade into formaldehyde, a chemical that can irritate the nose and eyes and could increase the risk of asthma and cancer. To avoid this problem, consider CBD vape pens that advertise “solvent-free oils.”
What to look for when you shop for CBD products, including whether they comes from hemp or marijuana and how much THC they contain.