How to Start a CBD Business

How to Start a CBD Business | 10 Step Guide

When it comes to starting a CBD business, there's a lot of competition. Here's everything you need to know to stand out from the lot.

Paul James Updated on November 9, 2021

Cannabidiol (CBD) has been growing rapidly in popularity. With so much potential for providing people with all-natural health benefits, CBD oil and other products are popping up all over. And, with that, there are many entrepreneurs who have their eyes set on this industry.

CBD isn’t business as usual. The industry is continuously changing when it comes to consumer behavior and market regulations. Not to mention, being as these are cannabis products, it comes with difficulties you simply won’t find in other industries.

In order to provide entrepreneurs with a sense of what they’re getting into, we’ve developed this guide on how to start a CBD business.

For the sake of this guide, we talked to professionals who have first-hand experience developing their own CBD business. We invite you to follow along as we learn more about what it takes to sell CBD online.

1.) Understand Legality and Regulations

While CBD is legal, it currently isn’t approved by the Food & Drug Administration (FDA). Not to mention, it’s still considered a federally controlled substance if the hemp plant it came from contains over 0.3% tetrahydrocannabinol (THC).

With that said, there are some regulations you should make yourself aware of before you even consider starting a CBD business. These include:

  • Avoid Medical Claims – Because CBD isn’t approved by the FDA, any medical claim a company makes is considered fraudulent information. The difficulty here is there simply isn’t enough research confirming that CBD can help with any particular ailment.
  • CBD-Infused Drinks or Foods – The laws concerning these types of products are currently in limbo. While many brands have found success in selling CBD edibles and drinks online, some have run into legal trouble when trying to incorporate these products into a restaurant or bar. Under current regulations by the FDA, food manufacturers are banned from adding CBD to their products – however, there are exceptions made in certain states.
  • Obtain the Necessary Licenses and Permits – Each state has its own rules, regulations, and fees when it comes to licenses and permits for a CBD business. It’s important to familiarize yourself with these and obtain them as soon as possible in order to ensure your business isn’t shut down.
  • Understand that Misconceptions Still Exist – There remains a lack of public understanding when it comes to CBD and hemp. Unfortunately, being as it’s still confused for marijuana and THC, some people have found themselves in legal issues even when they followed the law. For example, some have been arrested on trafficking charges when they were simply trucking their products across state lines. Some have had their CBD stores raided by law enforcement. It’s important to understand that these misconceptions still exist and to prepare yourself in case they appear.
  • Know Your State’s Laws – While the 2018 Farm Bill federally legalized hemp, states still have a right to impose their own restrictions on CBD businesses. For example, it remains illegal to harvest hemp in Idaho. In order to ensure your business is up to code with your local regulations, it’s vital that you take the time to study your state’s laws.

 

One of the biggest challenges for CBD entrepreneurs is the fact that laws are constantly changing. Since this industry is so new, lawmakers are still trying to figure out what works and what doesn’t. With that said, it’s vital you keep up-to-date with new regulations.

Know Your CBD Laws

2.) What Are Your Finances?

One of the biggest challenges entrepreneurs face is they will need to provide most of the capital in order to start their business. Since CBD remains associated with a federally illegal controlled substance, the majority of banks will not give loans out to start-up CBD businesses.

Of course, some banks do give loans to CBD companies. If you don’t have the necessary capital but retain the right passion and drive, there is potential to still receive a loan from a bank. You’ll need to do a lot of research along with plenty of trial and error before finding the right bank for you.

The amount of capital you’ll need varies on which business model you choose (see more below). Most of those we talked to estimate that any start-up will want between $50,000 to $100,000 just to get their feet in the water.

“There are so many different kinds of CBD businesses,” Joe Pimental, co-founder of Luce Farm, discusses. “If you’re talking about a fully integrated business where you’re growing, extracting, manufacturing, marketing, and selling yourself – you need a lot of capital.”

 

This is the approach most people want to make when it comes to starting a CBD business. And, frankly, this is one of the better approaches as it’s been found that customers prefer companies that are fully invested in their products from seed-to-sale.

 

However, it may not be in your best interest to follow through to start a fully integrated business.

The CBD industry is a lot more diverse than initially meets the eye and, beyond merely selling CBD, there remains a lot of opportunities.

“What we’re learning more is to let people use their talents,” Pimental continues. “Are you a farmer? Are you a marketing person? Are you a lab tech? There are different branches that require different amounts of capital to grow.”

Some will find they’re able to grow the highest-quality organic hemp. Others will find they’re pros at lab-testing products efficiently. Before diving into a CBD business, it may help to consider your talents and how they can be applied in this ever-changing industry.

Still, if your interest is solely in selling CBD online, there are affordable opportunities. As Ken Lawson, CEO of FOCL, notes, “Given the availability of white label products now, I think you could start with a lot less [money] than even just a year or two ago.”

How much capital you have or can obtain will ultimately decide your business model. And while you’ll need a lot of this capital for sourcing ingredients, hemp, and developing your brand, many of those we talked to admitted a large chunk goes purely towards marketing.

Grow Your CBD Finances

3.) Business Model

There are currently four kinds of business models within the CBD industry. Each not only requires different capital but also a unique approach when getting started. These include:

  • Private Label – products that are manufactured by a third-party, but sold under your retailer’s brand name. In this model, you have complete say in the ingredients used, how it’s packaged, and what goes on the label. A good example is Costco’s private label brand, Kirkland.
  • White Label – a more generic product that is sold to multiple retailers under multiple different brand names. White label CBD products allow you to put your brand’s logo onto the product but give you little control overproduction. Not to mention, there are likely dozens of other CBD companies selling identical products under their brands.
  • Wholesale – when you purchase CBD products in large quantities and resell them through your retail location (whether in-person or online). Unlike a private or white label, you don’t have control over the branding.
  • Dropship – Similar to wholesale, you advertise other companies’ products through your own retail. The major difference is you don’t maintain an inventory of their products. Rather, you pass the sale along to the supplier and receive a cut of the profit. This is the most affordable for those looking to become a CBD seller online.

 

These are the primary business models most CBD brands start off with. Of course, you always have the option to start completely from scratch – farming the hemp, extracting the CBD, and selling products all on your own. However, most companies take one of the above-mentioned routes as it requires far less time and capital to get a business going.

joy organics logo

Featured Brand

If you’re looking for a high-quality CBD brand to develop a private or white label partnership with, look no further than Joy Organics.

4.) Sourcing Hemp and Other Ingredients

One of the most vital aspects of developing a CBD business is making sure your resources are of the safest and highest quality possible. Remember, customers are putting a lot of trust in you by ingesting your products. Providing them with low-quality and unsafe products completely goes against the ethics of this industry – to offer healthy, natural, and effective supplements that are free of toxic chemicals like pesticides and heavy metals.

In order to ensure this quality, there are some actions your company can take.

“We require testing from our vendors and then we re-test the product ourselves multiple times,” Lawson mentions.

 

Then there’s considering what the customer wants. A lot of entrepreneurs get caught up over what they want out of their CBD business, but the most successful put the customer needs first.

 

“Our number one goal is to bring products into the market that are in demand,” Todd Smith, co-founder of Joy Organics, discusses. “So, we look at Google Analytics to see what products people are shopping for. Then we’ve made those products better than our competitors have done.”

Obviously, this is easier said than executed. The CBD industry is just as competitive as any other industry and most companies out there are developing the standards; CBD oil, gummies, capsules, etc.

“When I say better,” Smith continues, “a lot of people don’t understand this, but there’s a big difference in biomass, in the extraction process, in the remediation processes of removing THC, in the minor cannabinoid profile that appears in your products”

Of course, there are key things your business will want to keep in mind in order to ensure everything runs smoothly once operations begin.

“You also have to know your supply chain is always going to be there,” Pimental notes. “Because you never know, one of your products could hit it and you’re going to have to make a lot of them.”

The way you source your ingredients may also be a reflection of your brand and the ethics behind your products.

“Less is more, in my opinion,” Pimental adds. “We’ve avoided making certain products because they need ingredients that aren’t good for the planet or people. For example, I could sell a million honey straws for five dollars apiece. But I’m not gonna introduce all that plastic to the planet.”

Source Your Hemp

5.) Define Your Brand

As we’ll continue to say, the CBD industry is just as competitive as any other industry. In order for your brand to stand out among the competition, you need to identify with your customers in a way no other brand does. Here are some questions to consider when defining your brand:

  • Why do you want to get into the CBD industry?
    If you’re just looking to make money, chances are you won’t get far. Most customers are here because they’re looking for a brand that genuinely cares about health, wellness, and helping people. Not only does this kind of philosophy need to reflect in your brand, but you also need to be active in it. For example, LolaHemp donates one CBD oil to an animal rescue organization for every four bottles sold.
  • What will your products offer that other companies don’t?
    As Todd Smith of Joy Organics mentioned earlier, it’s key to make your products better than the competition. Since CBD oils are the standard, chances are you’re going to develop one for your brand. If so, what kind of ingredients will you be using that differ from other products? What carrier oil will you use? What will the cannabinoid, terpene, flavonoid, and phytonutrient profile look like? How will your tincture affect people differently than your competition?
  • How will you stand out?
    You don’t want to be another generic CBD company on the market. You need a story that allows you to stand out. Charlotte’s Web may be the best example of this – their brand is named forCharlotte Figi, a girl who struggled with Dravet Syndrome and only found relief in CBD oil. A story like this is powerful and shows that your company 1.) offers products with significant power and 2.) is on a mission to help people feel better.
  • What kind of vibe are you trying to give off?
    Similar to our previous question, the vibe of your brand will greatly determine how you stand out. While there are a number of different routes to take in the cannabis space, many are finding success with modern, easy-going designs. The kind of designs your grandmother can look at and feel comfortable with. The more “weedy” your vibe is, the more likely you’re going to scare away customers who aren’t quite as open to this alternative form of wellness.
  • What is your niche market? (if applicable)
    Many companies are finding success in developing businesses around niche markets. For example, while Foria Wellness sells your standard CBD products, their product line centers around sexual wellness. . Some companies decide to market towards those who play sports and struggle with injuries CBD can help with. Others develop a CBD brand solely for the sake of pets.

 

As Brady Bell, CEO of Pure Spectrum, notes, “Find a ‘why,’ stay true to your ‘why,’ and don’t worry about growing too fast. If you put the customer first, don’t cut corners on the quality of the product, and stay focused you have a good chance to succeed.”

Pet CBD Niche

6.) Understand Your Competition

Within the past few years, a ton of CBD companies have hit the market – with some guesstimating there are as many as 3,000. All of whom are looking to do the exact same thing you are – bring CBD wellness to a large audience and build a successful company.

While many of these companies jumped on board during the “CBD hype” and will likely fall off as this industry settles down, there’s no denying the vigorous competition out there. Many companies have developed loyal customers and have cemented themselves as influences in this greenway industry.

As you go about designing your brand, it’s vital you understand this competition and what they’re doing to become successful.

You want to outsmart your competition. To make this happen, you must first make sure the foundation of your business can build the structure to do so. This takes us back to certain steps that should be taken, such as sourcing ingredients.

However, it also leads us into aspects of a company you want to outsource your competition with, such as customer service and education.

 

“We’re seeing an increase in average purchase amounts and a reduction of time between orders, especially among our growing base of returning customers,” Martin Sumichrast, member of the board of directors at cbdMD, tells us. “These numbers tell us that our regular customers use cbdMD products as a supplement in their daily lives, rather than using them situationally. There are a number of factors that affect these trends, but we believe our commitments to quality, safety, customer service, and education are the driving forces. We’re building trust with our customers, and they’re finding success with our products.”

How are you going to build trust with your customers? What steps will you take in order to ensure your products are just as safe and high-quality as your competitions?

7.) Develop a High-Quality Website

Since it’s likely you’re going to sell your CBD products online, it’s key to have a high-quality website that’s easy for users to navigate. In order to ensure you have a dominant presence on the web, here are some steps to consider:

  • What platform are you going to use?There are a number of website builders available that offer easy-to-use tools and pre-made templates, such as WordPress, SquareSpace, and Wix. hen it comes to creating an online store, Shopify and BigCommerce are the most popular. We suggest doing a bit of research into each of these platforms in order to find out which is right for you.
  • What makes a website attractive?When users log into your website, they don’t want to be bombarded with cluttered information and a complicated task menu. Opt for simple designs that are easy to navigate through. Not to mention, it’s practically a requirement at this point that your website is mobile-friendly. Varying estimates suggest between 40 and 70% of website traffic originates on mobile devices.
  • How are you going to educate viewers on CBD?Since this industry is still in its infancy, many people out there still don’t understand basic information concerning CBD (for example, the difference between hemp and marijuana). It’s important to provide all this information to your viewers as it allows them to understand exactly the kinds of products they’re purchasing. It can also help to have a blog you update regularly to keep people involved in your website (this can also help with marketing – see more below).
  • What kind of plugins are you going to incorporate?Once your website is up and running, you may want to consider certain plugins that can help with customer retention. A good example of this is an email newsletter pop-up. While it may be annoying at first glance, research has found that newsletter campaigns can have a return on investment (ROI) of 3,800%.

 

Just as with your brand, you’ll want your website to stand out among the competition. Take a visit to a few of their websites to get an idea of how they successfully navigate users from one tab to the next. Keep a close eye out for how they show off their brand and the ethics behind their company.

8.) How to Market Your CBD Business

Marketing in the CBD industry is quite unlike any other marketplace. Unfortunately, those simple pay-per-click Facebook advertisements won’t work here as CBD remains unapproved by the FDA. While marketing has become easier within the last few years, there are a number of challenges CBD companies still face.

The biggest is advertising through social media. As of this time, big names like Facebook only allow CBD topicals to be advertised. This is likely to change – just two years ago, no CBD products were allowed to be advertised on these sites.

However, in the meantime, the ban has forced CBD brands to get creative with their marketing.

A lot of companies take an education approach – flooding their website with information and blog articles concerning CBD. While this is highly beneficial to people who click on your website, it can also be beneficial to yourself. Blog writing gives you a chance to rank on Google and the more you learn about search engine optimization (SEO), the better chance you have.

 

“While we engage in traditional sales and marketing strategies,” Sumichrast notes, “they’re actually conduits for our true goal – awareness and education.”

Another effective strategy is affiliate marketing, which is when other companies earn a commission from advertising your products. There are different ways to go about affiliate marketing, but one of the most popular is discount offers and coupon codes.

Finally, since CBD is so new, a community surrounding the industry has slowly grown over the last decade or so. With that, there have been tons of events and conferences concerning CBD that brands can get involved in. One of the most popular is the National U.S. Hemp Growers Conference & Expo.

Chances are you’re going to need to explore each of these different avenues in order to properly market your CBD business.

“We get a little business from everything,” Smith mentions. “Not one thing is the way to go because, if that were the case, we’d be bigger than Charlotte’s Web. We’d be pouring money into that one area.”

Not to mention, there are other ways to market CBD online. For example, you can work around pay-per-click advertisements with Google and creative use of social media platforms.

9.) Set Your Sales Target and Keep Your Business in Check

In order for your business to be profitable, you need a sales target. How many products do you need to sell in order to make a profit by the end of the year?

To reach this target, there are a number of things you’re going to need to keep in mind. While we touched upon a few of them in our other steps, the majority of CBD businesses keep a close eye on the following:

  • Certificate of Analysis (CoA)
  • Changes in laws and regulations
  • Changes in the marketplace (i.e. customer behavior)
  • Content on your website
  • Customer service
  • Ingredient and hemp sourcing
  • Labeling on products
  • Marketing
  • Manufacturing
  • Pricing
  • Terms of service
  • Shipping and return policy

 

Each of these aspects of your business will cut into the budget. By calculating the cost of these necessities, you can get a clear sense of the sales target you’ll need to reach by the end of the year.

However, more importantly, these aspects will go on to define your business. For example, if you have solid customer service, this is something buyers will remember and potentially make them come back for more.

10.) Have More Than One Plan

The CBD industry offers unique challenges. . If you’re here to simply make a profit out of this emerging marketplace, chances are you won’t succeed. What makes this industry so different from others is it’s filled with a passion to provide people with all-natural wellness. A passion that’s often driven by the struggles we have with chronic illness, disease, and other health conditions.

Even if you have this passion, keep in mind that the CBD market is just as competitive as any other industry. And being as it’s so new, chances are you’re going to run into a ton of problems you never saw coming.

When you’re in the early stages of your CBD business, it may help to come up with three plans in order to always have something to fall back on. While these may vary from entrepreneur to entrepreneur, it may help to consider your Plan A, B, and C:

  • Plan A – The CBD business of your dreams. The very brand you’ve envisioned and set to make come true.
  • Plan B – Not quite the CBD business of your dreams, but close to it. A brand that definitely has the potential to become what you’ve envisioned with a little time and effort.
  • Plan C – A CBD business that you know you can make happen. Again, this will look different for everyone, but consider what is reality rather than your dream and make this your backup plan.

 

We wish all our readers the best of luck in this entrepreneurial endeavor and hope to one day come across your products on the shelves of our favorite stores!


Paul James

Paul James is a seasoned cannabis and CBD writer and expert. He is a mental health blogger who advocates CBD as a natural alternative to prescription medications. You can read more about this and other natural alternatives on his blog: https://bedlamite.co/."