Start a CBD Business
DP CBD: Colorado's Leading CBD Farmer
The CBD industry is a new and extremely dynamic market with a huge growth potential — it’s estimated to rise to more than $20 billion by 2024… so if you’re looking to get into the action, now is the perfect time to do so.
In this simple 10-step guide, we’ll walk you through the best approach to starting a profitable CBD Business and the challenges you might face along the way.
STEPS TO STARTING A CBD BUSINESS:
- Create a CBD business plan.
- CBD laws & regulations
- Pick your CBD niche/products.
- Required business documents
- Find a CBD supplier (DP CBD).
- Pick an e-commerce platform to sell.
- Build your website.
- Determine shipping and pricing.
- Market your business.
- Scale your business.
STEP 1: CREATE A CBD BUSINESS PLAN
Just like starting any other type of business, one of the first things you’ll want to do is draft up a CBD business plan. Jumping into any business without a solid business plan is like learning how to drive without a steering wheel – you could probably do it, but you’ll likely have a hard time paving the way.
Don’t let the idea of writing a business plan freak you out, simply think of it as writing a step-by-step guide for your business. By sketching out a draft of your business idea, it’ll help you navigate your way and stay on top of policies, laws, operational processes, networking and the opportunity to share your business plan with potential investors (it’s the document stakeholders will want to see).
Here are some items to think about and include in your business plan:
- Research market demand for different CBD product types.
- Determine your niche and product types.
- Find a supplier.
- Who is your target audience?
- Investigate available finance options.
- Choose a brand name and develop a brand identity.
- Create a marketing strategy.
If you have a hard time trying to draft a business plan, check out Cannabis Business Templates for pre-made business plans.
STEP 2: CBD LAWS & REGULATIONS
The Farm Bill was passed at the end of 2018 and legalized the commercial production of hemp in the United States. Meaning, you can grow industrialized hemp and legally sell products containing hemp-derived CBD across the country containing only 0.3% of THC or less.
With one specific constraint:
- The hemp you’re using to produce CBD cannot contain more than 0.3% of THC. Any cannabis plant with a higher concentration of THC is automatically considered a marijuana plant.
Currently, the FDA has approved of only one CBD-based prescription drug, Epidiolex… meaning no other CBD brand can state health claims regarding their CBD products. It’s important to note, the FDA also forbids adding cannabinoids into food, or marketing any CBD products as dietary or health supplements.
The CBD laws and regulations have a bit of a gray area when it comes to what you can and cannot do or sell… In short, PBS states: Federal provisions have a blindspot whereby a store can sell as much CBD as it wants, as long it doesn’t make any health claims about its products, put it in food nor add it to dietary supplements.
To sum it up:
1. Federal laws allow legal CBD sales nationwide as long as your products contain less than 0.3% THC, then you’re good to start selling on the market.
2. State laws differ – double check with a legal specialist if there are any restrictions regarding CBD product sales in your state.
STEP 3: PICK CBD NICHE/PRODUCTS
When researching the market, here are some of the most popular CBD niches:
- CBD-infused foods/beverages.
- Homeopathic/wellness products.
- CBD-based skincare & cosmetics.
- CBD pet products.
After determining the type of products you want in your line, the next step is to consider the method of consumption or use:
- Drops and sprays: The key ingredient in both is CBD oil, decarboxylated from hemp/hemp flowers and mixed with a carrier oil. Drops and sprays can also include flavoring agents and other compounds that make them more pleasant to ingest.
- Gels and capsules: Doses of cannabinoid wrapped in soft or gel capsule make it easily digestible. Many people take CBD as an alternative and natural source of medication.
- CBD vapes and cartridges: Inhalation products are popular among recreational marijuana users and people who enjoy the social aspect of vaping. This method is preferred by people using CBD for pain relief as it gets absorbed faster to the blood system through inhalations.
- Oil Tinctures: Are made by combining cannabinoids with alcohol or another strong solvent. Sometimes CBD tinctures contain other vitamins or herbs. Tinctures are popular choice for people who want to feel the effects of CBD quickly.
- Topicals and patches: These are best for targeted action such as joint, back or menstrual pain and topical ointments. CBD patches appeal to users who don’t like hemp flavor or prefer topical applications.
- CBD edibles: Gummies, candy, chocolate, snacks, pretty much a variety of edible CBD products on the market. Most of them make hemp look less ‘medicinal’ and more of a wellness treat.
STEP 4: REQUIRED BUSINESS DOCUMENTS
To start a legal CBD business and sell online you need to obtain two types of licenses:
- A regular business license: form a business structure and register your business with your secretary of state. Request an EIN or TIN for your newly formed business.
- Resellers license: If you plan to purchase CBD from wholesalers, you may also need to get a Reseller’s license (certificate) from your state. This is important because it allows you to buy products wholesale without paying sales tax. The license also lets you collect sales tax from your customers.
STEP 5: FIND A SUPPLIER (DP CBD).
One of the most important steps of your CBD business operations is finding a reliable CBD manufacturer. First, if you’re looking to sell CBD products nationwide, you need to be certain that you are selling CBD derived from hemp plants. Reputable CBD manufacturers, suppliers and wholesalers, typically do lab testing and can provide certificates of analysis (COA) detailing the product contents. If a CBD manufacturer cannot provide this type of document analysis, it’s a major red flag.
Aside from the general product contents, you should also ask to see the results of:
- Pesticide testing (you want a clean product)
- Microbiological testing (showing there’s no bacteria or mold).
- Residual solvents testing (shows if there are any stray chemicals remaining from the extraction process).
Secondly, your product quality will impact customer satisfaction and your brand reputation. If your product fails to deliver due to poor quality, you’d struggle to keep loyal customers and repeat business deals.
As a new CBD brand on the market, you don’t want to give your brand or product a bad look by overlooking the quality. All it takes is one bad product to ruin your brands reputation. That’s why it’s important to do careful due diligence when evaluating different CBD manufacturers for your business. After requesting a COA certificate, also consider a potential supplier based on the following criteria:
- Hemp sourcing method and origin
- Extraction method
- Extra services (e.g. turnkey system, labeling, dropshipping)
- Reviews from other entrepreneurs
STEP 6: PICK AN E-COMMERCE PLATFORM
Once you’ve found yourself a trustworthy CBD supplier, you’ll also need to pick the (best) ecommerce platform for your business. Just like quality products, your tech infrastructure will contribute to your customers’ satisfaction with your brand and overall shopping experience.
Here are the top two platforms to consider:
- WordPress – is an open source platform, meaning you have the freedom to design, use, modify, and build your website. From drag-and-drop page builders to limitless customization opportunities, WordPress provides global CBD businesses an integrated ecommerce solution they need to start their operations quickly and scale without many constraints.
- Shopify – only allows US-based merchants based in certain states to sell CBD or hemp-derived goods on their platform. If you are eligible, you gain access to a nice set of core commerce features for launching your digital operations including design templates, integrated shipping, marketing tools and payment processing. But the proprietary Shopify Payment method isn’t available for CBD products. So you’ll need to get approved by a third-party payment processor.
STEP 7: BUILD A WEBSITE
1. Website – If you have zero to little experience in building a profitable website your best option is to hire a professional to build your site for you to save you the time, hassle and unnecessary stress. This will allow you to focus on more important things, rather than learning how to do things that will slow you down from getting your business up and running.
DP CBD offers a full turnkey business model to help you jump-start your CBD business by designing you a fully functionally website, complimentary logo and product design and CBD marketing services.
2. Products and descriptions – When adding your product descriptions:
- Be accurate and fact-based
- Avoid making any health claims
When it comes to marketing your CBD products, FDA does not allow businesses to advocate that any of their CBD products can “diagnose,” “cure,” “treat,” or “prevent” any type of medical condition or be advertised as a dietary supplement. Even if it’s tempting, don’t go making any big claims. What you can do though is reference actual medical research done around CBD usage.
Keep your product descriptions short and simple. Not every store visitor will be a CBD expert and be familiar with the industry lingo. While you should always provide ‘technical’ product information, avoid jargon, niche, and complex chemical terms.
3. Product photos – E-commerce photos do two important things:
- Act as an extension of your brand.
- Help sway customers’ purchase decisions.
For example, 90% of Etsy shoppers reported that product image quality is a major purchase trigger for them.
If you’re on a budget shoot the product photos yourself with the help of YouTube or hire a professional photographer to shoot a series of product-only and lifestyle images for your brand.
STEP 8: DETERMINE PRICING & SHIPPING
After you created your store and prepared your product catalog, you need to sort out how your products will reach their new owners.
- Determine your shipping policy.
Shipping is important to ecommerce consumers. So you don’t want to let them down in that department. To work out the optimal shipping policy for your CBD business examine these questions:
- What delivery timeline is feasible? Most people are spoiled by Amazon Prime next-day deliveries, but few smaller brands can pull off the same levels of service nation-wide. So choose your battles. Limit same-day delivery to your city/state only. Set the right expectations regarding priority/express delivery if you plan to offer such.
- Which logistics carrier works best? Not all carriers have straight policies regarding CBD shipments. Do your research carefully. For example, while UPS allows shipping hemp and CBD-infused products, they also state that “[we] reserve the right to dispose of any shipment containing Marijuana, Hemp or Hemp products tendered for shipment which Shippers are prohibited from shipping, which UPS is not authorized to accept, which UPS states that it will not accept, or which UPS has a right to refuse.” That’s not very reassuring.
- Select an ecommerce shipping solution.
Your next step is to select supporting shipping and fulfillment software — a tool that will help you set shipping rates, manage logistics, print labels and auto-dispatch updates to customers. To minimize hassle and mistakes, your app should integrate directly into your ecommerce platform. You can discover different shipping and fulfillment apps on WordPress or Shopify.
- Choose a payment processor, fit for CBD.
The CBD industry is deemed as “high risk” due to the ongoing regulatory issues. Therefore, many payment processors choose to exclude CBD sellers to minimize their operational risks. Fortunately, there are a few options you can consider, to accept payments from customers, you can work with a specialized payment processor who knows how to handle high-risk business.
STEP 9: MARKET YOUR BRAND
Now that you’re up and operating, the next focus is customer acquisition. While the CBD industry is trendy right now, shoppers won’t flock to you unless you set yourself up with a solid marketing system.
- Focus on content.
CBD products are still largely misunderstood often, due to shady marketing from other brands or bogus medical claims made by self-proclaimed gurus. Build your initial customer base by seeding accurate content. Educate the interested, but cautious, buyers about:
- Different product types.
- CBD extraction methods.
- Possible benefits and results.
- Potential side-effects.
- Correct usage/dosage.
- The hemp industry as a whole.
In the CBD industry, paid ads are not an option and click-bait marketing can cause compliance issues with the FTC.
To build your brand awareness, implementing SEO and your social media accounts would be beneficial to getting your brand out there. Invite industry experts and use claims from verified sources to create more comprehensive content than your competition such as focusing on your blog and social media since, as that’s where most consumers go looking for both product inspiration and info.
The CBD industry is a huge business opportunity, if it’s approached correctly so take your time, do your due diligence and seek expert to stay on top of regulations and the newest trends in the market.