Cannabis is a big business today. If you want to get into the CBD legal trade, here is our step-by-step guide to launching a cannabis business.
CBD aka Cannabidiol is a compound present in cannabis plants and hemp. Today, it is becoming increasingly popular as a dietary supplement. It is projected that by 2024 the CBD business will be worth $20 billion.
The federal government’s 2018 Farm Bill signed off on hemp and hemp CBD becoming legal. Despite this, the CBD industry still has to overcome hurdles with banking, insurance, and advertising.
While there is a reluctance to get involved in these sectors, CBD though relatively new in mainstream life is increasingly a household name. CBD’s claimed therapeutic and health benefits, one of several compounds contained by cannabis and hemp plants, has created quite a stir.
CBD oil products, such as tinctures, topicals, infused edibles, and so on, have entered the market. Sales growth has been so rapid that analysts, BDS Analytics are projecting sales of CBD products to hit $20 billion by the year 2024.
Numbers such as these have naturally spurred many people to investigate launching a CBD business. Despite the various challenges, not least the changing legal framework, the CBD industry represents a significant business opportunity nonetheless.
But before jumping into the CBD business, you have to understand cannabinoids and the products derived from it fully.
What Does CBD Stand For?
CBD (Cannabidiol) is one of 100 plus cannabinoids, compounds found naturally in cannabis and hemp bushes. The most notorious cannabinoid is, without a doubt, tetrahydrocannabinol (THC). This particular cannabinoid is the intoxicating compound that is typically associated with cannabis.
CBD oil-based products do not contain this compound. Instead, they use other naturally-occurring medicinal compounds that offer health and therapeutic benefits. However, research is continuing into the efficacy of CBD for a wide range of ailments and conditions.
Generally, the production of CBD products involves several steps. Firstly, cannabis or hemp plants must be grown and then harvested.
If you want to manufacture CBD products from industrial hemp, you will either have to grow it yourself or buy it in. The CBD oil can be extracted using a range of methods from the raw material. Again, this process can be outsourced to an extraction company, or you can do it in-house.
Once the CBD oil has been extracted, it can be retailed as a concentrate or infused into a wide range of products. The most popular CBD oil products being sold now are sublingual (under the tongue) tinctures, edibles, and topicals such as gels and creams.
Hemp vs. Cannabis CBD
CBD can be obtained from hemp and cannabis plants and used to create CBD oil products. But there is a crucial difference between hemp-based CBD oil and CBD oil from cannabis plants. And that is the THC concentration.
Industrial hemp contains less than 0.3% THC, the legal maximum to be licensed in federal law for cultivation and processing into finished products.
Cannabis, meanwhile, contains more, often much more, than 0.3% and is thus illegal in the eyes of the federal law.
Though cannabis and hemp are closely related; industrial hemp is Cannabis sativa, their distinction is in name only and, for the most part, a legal definition based around the 0.3% THC content threshold.
The hemp plants flowers contain almost trace amounts of THC. In contrast, the flowers of its cousin, the cannabis plant (marijuana), contain significantly higher THC.
Because of this THC variation, the federal government has designated marijuana as a Schedule 1 drug of the Controlled Substances Act. This designation makes marijuana illegal for interstate trade even though dozens of individual states have legalized marijuana for adult use.
On the other hand, industrial hemp’s Controlled Substances Act designation has been dropped, paving the way for industrial hemp to be grown and harvested in the USA. It was last legal to do so in 1937.
Full-spectrum Oil vs. Isolate
If you have already carried out CBD market research, you will be aware of the terms ‘full spectrum’ and ‘isolate.’ The full-spectrum is the extraction method that obtains CBD oil plus other cannabinoids and compounds found in the plant.
Full-spectrum not only captures an array of cannabinoids, but it also contains compounds referred to as terpenes. These terpene compounds are what give the CBD oil its specific flavor, aroma, and health benefits.
As its name suggests, CBD isolate contains only CBD. It is, therefore, a concentrate with no other cannabinoids or terpenes. While isolate may sound attractive, there is evidence hinting that the full-spectrum creates an ‘entourage effect.’
That means its various cannabinoids and terpenes work together to create more significant beneficial effects than might otherwise be possible. This ‘entourage effect‘ is a classic ‘larger than the sum of its parts’ impact still under active research by scientists studying CBD.
Which CBD Products Sell Best?
The market for CBD oil-based products is broad-based and evolving. The following list of products infused with CBD oil that we look at here is by no means exhaustive. Instead, it is the most popular you will find freely available today.
- Sublingual tinctures: Typically packaged in a small dropper bottle, sublingual tinctures are placed under the tongue. The oil is ingested that way.
- CBD edibles: One of the most burgeoning parts of the CBD industry, this product segment includes infused foods, candy, and baked goods. It should be noted that CBD edibles came under heavy scrutiny and oversight by the US Food and Drug Administration. Despite this, they are the most popular CBD products around.
- Vape concentrates: Latching onto the explosion in vaping, CBD vape products come in the form of oils and waxes. These products are custom made for use in e-cigarettes and electronic vaping devices, which enable the CBD product to be vaporized and inhaled.
- CBD topicals: Applied directly to the skin, CBD topicals target specific parts of the body. Topicals are usually in the form of sprays, creams, and gels to relieve aches and pains.
No doubt, you will find plenty of other kinds of CBD products out there as you explore the industry further. And new products are being launched constantly.
There are, therefore, no shortage of products to sell if you are looking into starting a CBD startup.
How to Create a CBD Business from Scratch
A CBD business, like any other business type, requires hard work and effort. However, with a CBD business, you are required to go that extra mile due to the evolving regulations and the challenges that they entail.
That said, the CBD industry is set for massive expansion shortly, so your efforts now will be well rewarded later.
One business person that can testify to CBD’s health and business benefits is Cory Slovik, founder of Core Roots CBD. He set up his company after discovering the healing qualities of CBD on the snow slopes.
A former pro snowboarder, Cory was always in pain with sore muscles. To alleviate the agony, he tried CBD and found it worked tremendously for him.
Years later, when cannabis became mainstream, he was delighted to see research and data to back up what he experienced while snowboarding.
With this hard evidence, Slovik shortly afterward created Core Roots CBD to help others deal with their aches. He has commented that setting up a CBD company is like launching any other business type, with only a few more extra steps.
Like other businesses, there are the standard processes of acquiring insurance and drafting a business plan, said Slovik. The difference, he emphasized, was that companies have to double and triple check every detail in the CBD space. They must know the market intimately and jump through a series of regulatory hoops first.
Understanding the Legal Restrictions and Federal Law
The federal government’s 2018 Farm Bill legalizing industrial hemp does not definitively frame the industrial hemp sector. Though it made hemp-extracted CBD oil lawful, it did not wholly remove the significant regulatory landscape surrounding industrial hemp.
Essentially, all the 2018 Farm Bill did was remove industrial hemp CBD from the federal government’s Controlled Substances Act and supervision by the DEA (Drug Enforcement Agency).
Regulation of the legalized hemp industry and its CBD oil production passed to the FDA (Food and Drug Administration).
Presently, the FDA is still refining the regulations, which, to an extent, leaves the hemp industry in legal limbo in some regards.
Until now, though, the FDA has been reluctant to allow CBD oil to be promoted as containing health benefits. There have also, in some cases, been crackdowns on CBD food and drink.
The waters have been further muddied by the 2017 approval by the FDA of Epidiolex, a CBD-based pharmaceutical for the treatment of epilepsy. The adoption did little to improve the regulatory framework since CBD is the main ingredient of Epidiolex.
It would appear, then, that using CBD in foods without FDA approval could well be unlawful. Transparent regulations are, therefore, long overdue to enable CBD businesses to function in a manner compliant with federal laws.
Commenting on the current regulations, Slovik called on the FDA to intervene. He expects more regulation of labeling and how CBD is marketed as many businesses are promoting ‘hemp extract’ rather than CBD’s health impacts.
Companies are going in different directions because no one is sure where future regulation will go.
It is fair to say that understanding the legal obligations placed upon businesses is crucial, and the only way to be safe in an industry that is highly scrutinized but poorly defined.
As CBD business across the US awaits regulations that are fit for purpose, it is essential in the meantime not to base marketing around the claimed benefits of CBD. It is also vital to keep abreast of new developments as the FDA inch forward with new regulations.
Marketing Your Own CBD Products
Marketing and retailing CBD products are not necessarily straightforward. The 2018 Farm Bill helped liberalize the industry to an extent (Walgreen’s and CVS now stock CBD products, for example). But there are still obstacles to selling online through significant platforms such as eBay and Amazon.
Social media ad campaigns are missing in action as paid advertising for CBD products could lead to accounts being deactivated or suspended. All sales growth, then, must, therefore, be organic and align with the terms and conditions of each platform.
As Slovik points out, eBay, Amazon, and Alibaba and paid ads on social media are all normal business avenues. But with the CBD industry, marketing is far removed from all of these things.
To successfully market and shift your CBD products, you will have to get creative in your thinking. Establishing an e-commerce store or in an offline bricks-and-mortar shop is a must.
Forget paid advertising and instead focus on an organic search engine strategy together with a customer loyalty program.
These, along with word-of-mouth, are way safer than paid advertising campaigns. As every state is different, be sure to study your state and local laws before marketing.
Gaining a Competitive Edge
The secret to obtaining a sustainable competitive advantage in the CBD business is to develop high-end products that will pass muster with regulators and discerning customers.
To set yourself apart in the CBD game, it is essential to disclose third-party laboratory results to validate your products, Slovik points out. He suggests adding QR codes on labels so customers with smartphones can quickly access the lab results.
Also, key moves to increase consumer confidence when purchasing is to pursue accreditation for USDA Organic and Good Manufacturing Practices and become a registered FDA facility.
Ultimately, Slovik believes the success formula is simple even though the process is complex. His top advice is to double and triple check every detail and recognize there will be constant changes.
He also advises potential entrants to the CBD industry to thoroughly research the sector, and pinpoint future business opportunities by being creative in their thinking.
Key Challenges CBD Companies Face
Unique challenges are facing the CBD sector that don’t exist in other business sectors. Most relate to regulatory oversight, but the landscape should somewhat stabilize as the rules governing CBD oil become more transparent and defined by the FDA and other federal agencies.
In the meantime, here are some significant considerations for any new CBD startup business:
- Banking: Obtaining banking services is not straightforward, mainly due to the volatile nature of regulations. Many banks are reluctant to deal with the CBD industry as they perceive significant risks involved or burdensome regulations. (It is not unknown for a CBD company to have to switch banks or have their merchant account closed down, with all the disruption that involves.)
- Insurance: Getting affordable insurance is another major headache for CBD businesses. Despite the legalization of the hemp industry, the insurance world is still playing catch up, remarks Slovik. The main obstacle is awareness.
- Payment processing: Payment processing companies like to charge higher fees and impose other restrictions on CBD companies. Slovik has complained that Visa once severed ties with all CBD ventures. His company was then only able to accept MasterCard and Discover payments.
- Access to capital: In the absence of a transparent regulatory regime, banks and other lending institutions are cautious about extending funds to the CBD sector. For the most part, the CBD sector has had to rely on alternative sources of capital.
Over time each of the challenges outlined will be resolved as regulation becomes refined. In the meantime, the CBD sector must remain agile and well-informed.
Changes impacting the CBD industry appear on an almost daily basis. Preparing fall back positions in advance could save a heap of time and money should the worst-case scenario materialize.
The CBD industry is a massive business opportunity if approached correctly. Growth within the cannabis industry is unprecedented. It is one of the most rapidly growing in the US, and CBD is one of the quickest segments within the cannabis industry.
Since the 2018 Farm Bill, hemp CBD products are sprouting at a phenomenal rate. You are not alone in wishing to launch a CBD business.
As Slovik makes clear, the cannabis industry in the US has been effectively illegal for the best part of a century.
Now, though, there is enormous momentum, and people wishing to break into the CBD industry must be a leader rather than a herd follower.
The keys to success in the CBD industry, then, are due diligence and being creative. Today is the time to get on board and create a sustainable company that differentiates itself with quality products that are distinctive from the rest of the pack.