Have you ever wondered how to start a CBD business? Then this article is just for you!
CBD’s popularity has grown steadily over the last few years, making it a household name in the US.
As one of the compounds in hemp and cannabis plants, it is reported to provide both health and therapeutic benefits to its users.
Leveraging on its versatility, many manufacturers now produce it in different forms, which include oils, topicals, patches, capsules, tinctures, and infused edibles.
As more people discover the potential of Cannabidiol, questions on how to start a CBD business in its industry keep popping up.
Here’s our definitive guide that’ll teach you everything you need to know to make ground-breaking success as you sell CBD products.
But first, you need to understand what CBD is, its product types, and legislation.
What is CBD?
Cannabidiol is one of the cannabinoids found in hemp and cannabis plants. It is a non-intoxicating substance, unlike tetrahydrocannabinol (THC), the widely known compound in marijuana.
Although there is evidence to back the medical and therapeutic use of this substance, research into other potential applications is ongoing.
As a controversial topic, there have been several misunderstandings about CBD, which have led to legal issues for companies.
For example, some Cannabidiol products contain THC (Tetrahydrocannabinol), and sellers could face legal sanctions if the percentage of this intoxicant exceeds 0.3%.
What are the available CBD products, and how are they used?
Here are 7 products ideas if you are thinking of starting a CBD business soon:
- Tinctures: They are extracts made by soaking alcohol with Cannabidiol oil and other solvents. As highly concentrated products, these tinctures are taken by administering only a few drops under your tongue with a dropper. CBD tinctures appeal to people who want to feel the effects of Cannabidiol quickly.
- Edibles: These are foods like candies, chocolates, beverages, cookies, and even chewing gums that contain the substance. These foods appeal to people who want to feel the effects of CBD as a tasty treat. Although they are becoming increasingly popular among cannabidiol users, the US Food and Drug Administration has regulated their use and packaging requirements.
- Topicals: These are lotions, gels, salves, and creams that contain Cannabidiol. People rub CBD topicals on their skin, and they are alternatives to oral Cannabidiol products. To increase their efficacy, many topicals contain cooling-sensation ingredients like menthol.
- Patches: A CBD patch is another skin-absorbing product. It is used to relieve pains by administering a constant dosage for hours when attached to the skin during this period.
- Vaporizers and concentrates: Vaporizers are one of the most common products used by people who want to absorb the substance into their bloodstream quickly. Concentrates like oils and waxes can be vaped and inhaled.
- Capsules: CBD capsules are a fast and convenient way to take Cannabidiol. These products appeal the most to customers who take multivitamins or other medications that come in capsules. They work faster than tinctures in delivering the substance into the bloodstream.
- Isolates: Isolates are pure substances that have been extracted and refined into powdery form. CBD isolates are processed to remove all other compounds found in the source plant, and they can be added to foods, beverages, and water.
How to start a CBD business in 2020
Here are the steps to follow when you want to start your Cannabidiol business.
1) Name your business and get a logo for it
The first step to kickstart your CBD business is to give it a name that people will not forget in a hurry.
However, using controversial terms in your business’ name like marijuana, weed, or cannabis, may make people tread cautiously before doing business with you.
You can go to any search engine to get ideas for a catchy name to give your business. Whatever you come up with should be easy to spell and remember.
Once you have a business name, look it up to find out if it has been taken or not.
2) Form a legal entity and get all requirements
With a business name to work with, the next step is to form a legal entity, which helps to prevent personal liability if your business is sued.
Industrial hemp was legalized by the Farm Bill of 2018, which removed it from the control of the Drug Enforcement Agency and placed it in that of the Food and Drug Administration (FDA).
However, there are still a lot of regulations in the industry. Therefore, you must understand your legal obligations in this highly scrutinized industry.
If you intend to sell CBD products, then you must:
- Ensure you register for both state and federal taxes before you formally open your business.
- Make sure you abide by the federal, state, and local business licensing requirements before you start your Cannabidiol business. Also, get an EIN/TIN for your new company.
- Make sure you apply for a Certificate of Occupancy (CO) for the place where you’ll be using to manufacture the CBD products. Generally, if you will be leasing the spot, your landlord is responsible for getting a CO for the location. However, you’ll still need to follow up and ensure that the document is valid.
- Ensure your product dosage, company terms, and packaging are all transparent.
3) Develop a plan
As in any other business, the success or failure of your business depends on your plan.
A good plan keeps you on track and helps you discover the specifics of the business.
You’ve got to answer some questions like:
- How much does it cost to start a CBD business?
- Who are my target customers, and what are their interests?
- Do I need a website or social media pages?
Fortunately, we have researched these questions for you. Here are some of our findings:
How much does it cost to open a CBD business?
The cost that you incur is dependent on whether you grow your hemp yourself or not.
If you have a license to cultivate hemp in your home, then you can start selling CBD products online with only a few dollars.
After you start up your business, you need to keep in mind that other costs like staff salaries, insurance, and the cost of farming will arise.
You might also want to hire a lawyer because of how controversial CBD is in the US.
1) Who are my target customers?
Your target customer is anyone who uses CBD products for its therapeutic or health benefits.
The substance is used to cure lots of illnesses like seizures, multiple sclerosis, and anxiety.
Since it does not cause psychoactive changes to its users, Cannabidiol products can also be administered to children who have their doctor’s prescriptions to use it.
2) Do I need a website or social media page?
If you intend to sell your products online, then getting a website and opening social media pages for your new business is essential.
Apart from these questions, some other factors that you have to consider include in your plan are:
- Sales forecast: You’ll need to review your sales expectations and agree on a benchmark value of sales for your business. You might want to look at competitors in the industry to fix a level for your business.
- Financing Plan: You should have a plan in place to raise the finances for your startup.
3) Open a bank account
Having a dedicated account for your business is key to asset protection.
Apart from preventing personal liability, it also makes it easier to file taxes and keep accounts of cash flows to your business.
It is also recommended to get a business credit card for the account.
4) Identify and choose a Cannabidiol supplier
You need a CBD supplier irrespective of whether you’ll be reselling and distributing or making your products.
Getting the right one can make all the difference as they affect your customers’ satisfaction, the reputation of your business, and the quality of your products.
Therefore, you need to find out more about your options before going for one.
5) Establish a marketing strategy for your products
Although the Farm Bill has legalized CBD products, you’ll hardly see one on eBay or Amazon.
The same goes for paid adverts on social media pages; it’s a dangerous zone for businesses that sell Cannabidiol products. So, you’ll have to use other means to market your products.
Some businesses establish an e-commerce store, but the most popular strategy is to use digital marketing techniques to advertise. However, you shouldn’t restrict your business to only these two steps.
Build a list of the top 20 marketing strategies for your business. The chances are that before you get to the twentieth strategy, you’ll find the perfect one for you.
As every market is different, make sure you aren’t breaking any law with your CBD advertising strategies.
How to Select a CBD supplier
Here are 5 factors to consider when choosing a Cannabidiol supplier:
- Medical claims: Although research has shown that CBD products offer several benefits to people that use them, retailers, suppliers, and wholesalers are not permitted to make such claims as regards their product except it has been evaluated and certified by the FDA.So, be wary of suppliers that make medical claims about their supplies. They do not have the FDA’s backing, and you can face legal issues as an accomplice to such a supplier.
- Source of CBD: Another factor you need to consider before opting for a supplier is their hemp farming methods. Over the last decade, there has been an increase in the number of hemp-derived Cannabidiol in the US that many suppliers do not follow the best farming practices to produce. Therefore, you owe it to yourself to ensure that your supplier meets all the industry’s legal requirements.
- Pricing: Suppliers offer different prices for their CBD supplies, and you should always look to reduce costs in your business. Therefore, as long as you aren’t compromising on the quality of the supplies you need to make your products, always look for those who offer reasonable prices. However, be wary of those who sell at ridiculously low prices. This is a tell-tale sign that they are either cutting corners in providing high-quality supplies or producing inferior supplies.
- CoA (Certificate of Analysis): The CoA report reveals the level of THC and CBD in cannabis supplies. As this report is one of the key things the FDA looks at, you must have access to it before you purchase your Cannabidiol supplies. Furthermore, always check for the microbiological, pesticides, and residual solvent tests before you accept the supplies.
- Extra services: The quality of the supplies matters the most, but it wouldn’t hurt if a supplier had other services like private labeling and dropshipping.
How to Get the Upper Hand in the CBD business
The way to get a competitive advantage over other CBD businesses is to sell top-quality products, provide lab testing to validate your product’s quality, and employ the best marketing strategy.
It also helps if customers see your site as a go-to source for information about Cannabidiol.
But remember, you cannot put claims on your site.
What are the challenges you might face as a startup?
There are lots of opportunities for CBD businesses in this high-potential industry. However, this industry is not without challenges.
Here are three of these hiccups you might face as a Cannabidiol startup:
- Banking services: Most businesses find it difficult to get reliable banking services since banks think twice before they do business with CBD companies. Therefore, it might be a lot harder to get loans for your business than any other company. It is a tough situation, and Cannabidiol businesses now look at alternative lenders and outside investors for funds instead of getting them from banks. You might also be forced to switch banks one too many times, especially if your merchant account gets closed.
- Insurance services: Another challenge you might face in your Cannabidiol business is finding insurance for your company. Despite industrial hemp’s legalization in the US, premiums for CBD businesses remain elevated, and insurance companies cannot be strong-armed to reduce the prices.
- Payment Processing: Processing payments in CBD business costs a fortune, and several banks accept only MasterCard for payments.
Q1. How do you make a CBD business more profitable?
There are lots of products to select from, and business owners can provide many of them to increase profits.
Q2. What is the difference between full-spectrum CBD and CBD isolate?
The most significant difference between full-spectrum and isolate is the extraction method used and their respective components.
Full-spectrum CBD contains cannabinoids and other compounds like terpenes that are also gotten from Cannabis Sativa. Isolate CBD, on the other hand, contains no other cannabinoids than Cannabidiol.
Although isolate is deemed the purer concentrate of the two, full-spectrum has a stronger effect on humans when ingested due to the presence of other compounds.
Q3. Is the CBD in hemp the same as that in cannabis?
The CBD from hemp is the same as that of cannabis. However, since the compound is usually extracted as an oil, the CBD oil from cannabis may contain higher than the allowable percentage of THC. Therefore, we recommend you use Cannabidiol from hemp to make your products.
Q4. What skills or experiences will help build a successful CBD business?
Having some experience in the market helps, but it is not a requirement for starting a CBD business. Understanding the needs and fears of customers and addressing them is more important for business owners.
Q5. How is Cannabidiol extracted from Cannabis Sativa?
There are three ways to extract Cannabidiol from its source plant:
- Solvent extraction: This type of extraction involves the use of butane, propane, alcohol, or ethanol to extract CBD. It is one of the inexpensive options available but can also be dangerous due to the flammability of the solvents used. After the hemp flowers are soaked in a container filled with one of these solvents, the evaporation process leaves behind Cannabidiol in its oil form.
- Olive Oil extraction: This method is the oldest way people have used to extract Cannabidiol from Cannabis Sativa plants. The source plants are first decarboxylated for some time, after which they are combined with olive oil. CBD extracts that are gotten through this method must be kept in a dark and cool area.
- CO2 Extraction: The final and most popular way to extract CBD in companies around the world is by using carbon dioxide (CO2). The equipment to carry out this extraction is quite expensive, but the bright side is that the final product has very little contaminants.
Starting a CBD business is a great idea. For a booming industry with lots of opportunities for startups, picking a Cannabidiol product to sell might not be a problem for most entrepreneurs.
The tough part is breaking into the market despite all the limitations from banks, insurance companies, and even the regulatory bodies.
Don’t let the challenges of the industry dismay you. Use this article as your blueprint if you intend to start a CBD business anytime soon.
Give our CBD Advertising Agency a call and schedule your FREE consultation today!