How to Start a CBD Business

Still relatively new to the mainstream, cannabidiol, more commonly known as CBD, is already becoming a household name. The purported therapeutic and health benefits of CBD, one of many compounds found in cannabis and hemp plants, has created quite 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 ask how to start a CBD business. The industry is not without its challenges, especially surrounding the evolving legal landscape, but the opportunity is significant all the same. If you want to get involved in the CBD industry, you’ll first have to understand a bit about the cannabinoid and the products it goes into.

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 is often lauded as supposedly offering 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.

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. Because industrial hemp contains less than 0.3% THC, 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.

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 also 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.

Now that you know a bit more about CBD and how it is extracted from the hemp or cannabis plant, let’s take a look at some of the products currently on the market. The CBD industry is diverse and evolving, so you could likely find many more products infused with CBD oil beyond this list. However, these are among the most common types of products available today:

  • 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 but remain commonly found products on the market today.
  • 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.

There are many varieties of these products and others you can find out there, and as we learn more about CBD, the industry is coming up with 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.

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 go along with it). However, in a fledgling industry projected to undergo explosive growth, the heavy lifting today could be well worth it tomorrow.

Cory Slovik, the 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 were 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.”

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 Food and Drug Administration (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.

Marketing and selling CBD products can be 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, so 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 you’re local and state laws.

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 provide consumers with confidence in 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.

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 CBD businesses 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 also 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.

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.

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