Top 5 Mistakes to Avoid When Starting a CBD Business

Top 5 Mistakes to Avoid When Starting a CBD Business

Whether you are new to entrepreneurship or have been around the block, chances are you’ve considered starting a cannabidiol (CBD) business. And for good reason.

Paul James Updated on October 4, 2021

This is a booming market that’s been predicted to become a multi-billion dollar industry within the next few years. With so much research coming out concerning the hemp plant’s ability to act as a therapeutic agent, it’s no wonder so many consumers are gravitating towards this marketplace.

However, as with any industry, there are a number of difficulties entrepreneurs face when it comes to starting a business. Not to mention, CBD is quite unique as it remains an unregulated industry – leaving people like you with a lot of challenges you won’t find in other businesses.

For this reason, we’ve compiled a list of 5 mistakes entrepreneurs should avoid when starting a CBD business. In order to get some insight into these challenges, we spoke with industry leaders about their experiences and advice.

1.) Diving In Without a Plan

It’s obvious that when you start a business, you need a plan. We doubt anyone’s denying that. The reason we bring this up is that CBD requires a specific set of guidelines other industries don’t have to follow.

For example, CBD companies have a number of restrictions when it comes to social media marketing. These limitations aren’t always clear and often vary depending on the social media platform.

Being as the CBD industry is unregulated, the landscape for an entrepreneur is very nuanced. There are a number of protocols that must be followed, depending on the state you live in and its rules surrounding CBD. Then there are the limitations, from marketing to banking.

“One thing to avoid is not doing your research and learning the nuances of starting a CBD business,” Todd Smith, co-founder and chief partnership officer of Joy Organics, explains. He continues:

“Do your research. Read your articles. Make sure you understand what you’re doing in the CBD space before you get started so that you don’t get your bank account shut down, so you don’t get your merchant account shut down, so you don’t get put on the match list and blacklisted.”

By developing the right plan, you’re doing more than building a successful CBD business. You’re covering all your bases and protecting your business.

Plan to Be Transparent With Your Customers

Another good example is customer transparency. With a lack of regulations, CBD businesses have the freedom to concoct any sort of product they want. However, this is a market for “all-natural alternatives.” Most consumers aren’t interested in taking anything the market throws at them.

Not to mention, it can’t be forgotten that CBD comes from a form of cannabis. And, at the end of the day, there are plenty out there who are trying to avoid the psychoactive effects often associated with the cannabis plant.

In order to ensure customer safety, most companies offer third-party lab tests. These produce a Certificate of Analysis (CoA) that gives a lot of information concerning the CBD – from its cannabinoid profile to whether or not it contains contaminants.

Many companies use their CoA to be transparent with customers about what exactly they’re consuming. These brands also go the extra mile and supply a large sum of information concerning CBD on their websites.

“[We rely on] talking to as many people as we can just to get our name and brand out there,” Joe Pimentel, co-owner of Luce Farm, says “all with the premise of not just trying to sell our products, but also being a trusted resource that people can ask about CBD and how it’s grown.”

Because Luce Farm creates fully integrated, seed-to-shelf products, it’s easy to answer customer questions:

Whether it’s growing it, whether it’s drying it and curing it, whether it’s extracting it, whether it’s manufacturing and selling it. I think that’s the real thing – being able to market through transparency.”

Before starting a CBD business, consider how your company will be transparent with customers.

2.) Overcompensating and Sourcing Your Product Line

You want to sell as many CBD products as you can – this is a given. But that doesn’t mean you should develop a supply chain you aren’t ready to sell. Just like foods and dietary supplements, CBD has an expiration date. If you can’t commit to the supply chain you purchase, you’re going to have a lot of CBD going bad.

It’s difficult to estimate exactly how many sales you’ll make in the early stages. The market is oversaturated and consumers have a lot of options to choose from. While your goal is to drive them towards your company, it’s going to be a challenge in these early stages – especially since many consumers already have a favorite CBD company.

The biggest challenge with this is you also don’t want to undercompensate. The industry sometimes goes through periods where there’s a supply shortage on various accessories, such as droppers and bottles. If you have a product that’s killing it, you obviously don’t want to find yourself short on supply.

This challenge stems into your ingredient resourcing as well. If you decide to sell a CBD edible or topical, it’s granted you’re going to need a consistent supply chain of the ingredients required to make those products.

“You have to know that your supply chain is always gonna be there because you never know – one of your products could hit it and then you have to make a lot of them,” Pimentel recalls. “We ran into that problem with our hemp-infused honey. Finding a real consistent, high-quality, local honey was really challenging for us. So, I think you need to verify supply chains – make sure they can supply.”

Depending on the type of CBD business you decide to follow through with, you’ll want to be careful with where you get your supply from.

As Dareh Zadoorian, CEO of Cheef Botanicals, notes, you must avoid “false information from manufacturers and suppliers. Due diligence is key in vetting any copacker because there have been a lot of proven fraud companies who mislabel and improperly manufacture products for a quick financial gain.”

Know Your Supply Chain

Besides finding a consistent supply chain, it’s in your best interest to stock up on certain items (i.e. droppers, bottles, etc.) to ensure you always have them available.

3.) Lack of Marketing Creativity

As we’ve discussed, many CBD companies run into the difficulty of online marketing as social media tends to restrict CBD advertisements. There are some workarounds with this. For example, after years of banning CBD products outright Facebook now allows advertisements with direct links to CBD topicals. However, featuring ingestible CBD products or linking directly to them could still result in an ad being banned.

With this, companies have had to get creative with the way they market their CBD companies.

Likely, you’re going to find other forms of marketing that are much more beneficial, such as SEO (search engine optimization), email campaigns, and affiliations. Still, no matter how efficient you are with these strategies, it all comes down to your branding.

“Try to figure out how you’re going to be different or unique because the market is quite saturated,” says Ken Lawson, CEO of FOCL. To give you an idea of the competition, he estimates there are around 3,500 CBD companies already out there.

Most of that competition uses the above-mentioned marketing strategies. However, what makes one company stand out among the 3,500 is its branding. Take a company like LolaHemp as an example. Their focus is on CBD pet products and, therefore, much of their marketing goes towards pet owners.

Companies that offer your standard array of products may take another approach. For example, Luce Farm puts an emphasis on being a local brand using all-organic methods on a family-owned farm. They market primarily through farmers’ markets and word-of-mouth.

Then the he COVID-19 pandemic blocked Luce Farm from much of this local advertising. So, they’ve recently been working towards becoming more of a national brand. With that, Pimental notes that they’ve run into a few marketing companies that don’t have the same ethics as they do:

“You have these other CBD companies that are primarily brand and marketing companies and they really care about the bottom line. So, they may not be using the best ingredients. But they have major marketing dollars whereas we invest most of our money into quality rather than marketing, right? And they’re using those marketing dollars to educate the public on things that might not be true.”

Pimentel reminds us that resourcing your capital in the right areas is important. While you can throw a large percentage of it at marketing, it may be worth allocating that money towards sourcing high-quality ingredients. A premium CBD product is likely to speak for itself and, in turn, market through word-of-mouth.

4.) Building a Cheap Website

If you’re like most entrepreneurs in this industry, it’s likely most of your product sales are going to be online. With that, it’s vital you develop a website that’s attractive, trustworthy, and efficient.

Look at it this way – if you were to walk into a store and immediately found it to be disorganized, not well kept, and managed by poor employees, would you stick around? Likely not.

Consumers maintain the same attitude when shopping online. If your website doesn’t seem trustworthy – i.e. is cheaply produced – it’s likely consumers won’t want to buy from your brand.

Todd Smith estimates that you should spend around $5,000 in order to build a trusted website. While this figure can be argued, it’s likely around the price range you’ll need to get a web developer involved and the assets required for a website.

From there, you’re going to want to fill that website with information. A number of top-rated CBD companies develop blog pages where they discuss all things CBD – from the best types of products to the science behind cannabinoids.

While you can attempt to run and maintain this yourself, it’s likely you’re going to need to hire a freelance writer. However, the good news is a blog does two things to your website:

  1. It increases the trustworthiness of your products as it shows you know what you’re selling.
  2. It can help you outperform the competition through SEO marketing.
Building a Website

Your website will reflect your brand and products. Make sure to take the time, effort, and capital to build a high-quality one.

5.) Being Overconfident in Your Company

Confidence is good – it shows you know what you’re about and trust your company in developing high-quality material. However, overconfidence is dangerous. Especially in CBD.

With a lack of market regulations, it’s impossible to follow a step-by-step guide and be a successful CBD entrepreneur. Beyond the numerous difficulties that plague this industry – from banking to marketing – the majority of people must take the time to research and properly understand the endocannabinoid system and its relation to CBD.

While consumers know CBD makes them feel good, they don’t know why it makes them feel good. Or how CBD can potentially help them. Or what are the best products for their particular health condition. Since the market is so new, consumers are largely uneducated and it’s become a CBD business’s responsibility to educate them.

Not to mention, this doesn’t even consider the fact that we’re still learning so much about cannabidiol as more research comes out.

If you come into this industry with an overconfident attitude, you’re likely to ignore all the learning curves CBD requires. As Todd Smith notes:

“[People] should definitely avoid being cocky and thinking they know it all because they’ll quickly be humbled when they realize this is not like starting any other business. Things could be very different in two or three months [from this interview].”

Smith reminds us that lawmakers and the FDA are developing regulations for this industry. That the marketplace is constantly changing and entrepreneurs are required to respond with agility to obstacles in an evolving marketplace.

Final Word: A Business That Helps People

Just like any other business, getting in on the CBD industry isn’t going to be easy. However, it has its perks that other industries simply can’t relate to. Primarily, this ever-growing marketplace has so much potential to help other people.

Since you’re going to come across challenges that no other industry presents, it’s best to be prepared. Our list of what to avoid when starting a CBD business truly only scratches the surface. With few regulations and rules that differ from state to state, it’s impossible to warn you of all the difficulties you’re bound to come across.

Yet, if you can keep your head up and understand that these difficulties are on the horizon, you’ll be one step ahead of your competitors.

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:"