The cannabis industry is one of those few others that have the fastest upward growth trajectory in their possession. If you compare its growth with a decade behind, you will see a huge spike. However, not only the sales of hemp-derived products have increased, but the CBD market has kept expanding accordingly.
Most industries have experienced a sharp fall-down in their growth rate and sales during the ongoing COVID-19 pandemic. But the CBD market has seen the flip side of the situation. It has leapfrogged many other industries in the race of sustaining a healthy trade. Therefore, your idea to start a CBD business should come as no surprise.
Here are the key highlights of this post:
- CBD, a chemical compound derived from the cannabis plant is gaining popularity as a dietary supplement
- The sales of CBD items are predicted to rise to $20 billion by 2024
- The legalization of CBD oil and the cultivation of hemp started with the signing of the 2018 Farm Bill.
- Currently, entrepreneurs are facing challenges related to banking and advertising issues
- Starting a CBD business from scratch is very difficult for reasons like lack of regulation and start-up cost
- The CBD industry is a space of numerous opportunities for business owners. You can venture into the CBD market even without worrying about the money
Recently, CBD has become much more mainstream in the health and wellness community. Being relatively new, the impact it has created in a short time is remarkable. While the hemp plant contains more than 100 cannabinoids, the therapeutic benefits of CBD have created a buzz. These days, you can get an array of cannabidiol infused products, such as tinctures, gummies, edibles, topicals, beverages, and cosmetics.
Research surrounding this naturally occurring compound has risen exponentially. Increased research has paved the way for the surge in people’s interest in hemp-derived items. Besides, the market is expanding significantly with the arrival of new brands and products almost every day. According to the BDS Analytics prediction, sales of CBD items will hit $20 billion by 2024.
The lucrative potential of the CBD industry has encouraged entrepreneurs to explore ways of venturing into the CBD business. Just like any other area of business, the CBD industry comes with challenges, particularly regarding the evolving legal landscape. However, a proper approach can offer you endless opportunities.
If you consider diving into this nascent industry and start a CBD business, firstly, you need to learn more about this miraculous compound and the types of products made with it. You also need to have a better understanding of other cannabinoids and the products that utilize them.
CBD: What Is It?
The cannabis plant carries an array of chemical substances, also known as cannabinoids. Currently, cannabidiol is the most popular cannabinoid. It is widely known for its therapeutic benefits for an array of health complications. Unlike the famous cannabinoid THC, CBD is safe from psychoactive effects. This means, consuming CBD will not cause intoxication.
Creating CBD-infused products involves several steps. Firstly, you need hemp plants. If you think on a bigger scale, you can cultivate your own hemp. Also, you can buy it from cultivators. In the next step, cannabidiol is derived from the hemp plant. There are several methods you can use for the extraction. But the CO2 extraction is well-known for producing the purest CBD oil. Aside from creating CBD oil products, you also need to ensure a testing facility that meets the industry benchmark. After extraction, you can either directly sell the oil as a concentrate or create your own CBD infused products. You can choose to produce from a wide range of products including, tinctures, edibles, and topicals.
CBD Derived from Hemp Vs. Marijuana
Both the hemp and marijuana plant contain cannabidiol. So you can choose either hemp or marijuana to produce CBD oil. But the key distinction between these two plants is in the levels of THC they carry. While in industrial hemp, the amount of THC is less than 0.3%, marijuana may contain up to 20% THC. So, if you are going to start a CBD business, you must know the difference between these two plants.
Following the 2018 Farm bill, cannabis-derived products that contain THC lower than 0.3% are legal for public use. Furthermore, the cultivation of hemp is also legit. On the other hand, the higher amount of THC levels in marijuana plants makes its cultivation illegitimate. Although both of these plants come from the same plant family, using hemp to derive CBD can keep you on the safe side.
Marijuana is on the list of Schedule-1 drugs, accompanied by heroin, ecstasy, and LSD. According to the FDA drug policy, you can not use marijuana for commercial purposes. However, some states have legalized this plant for adult use. Recently, hemp has been removed from this list and legalized for cultivation, harvesting, and consumption for the first time since 1937.
CBD Extracts: Full-Spectrum Vs. CBD Isolate
On your way to researching the CBD market, you may have got acquainted with the terms: full-spectrum and isolate. Full-spectrum CBD and CBD isolate are two different types of extracts. The number of cannabinoids they contain makes the difference. Full-spectrum CBD oil carries other cannabinoids and cannabis compounds along with CBD. Cannabis compounds such as flavonoids and terpenes do not only enhance its benefits but also affect the taste of CBD oil. CBD with all other cannabinoids and cannabis compounds promotes “entourage effect.”
On the other hand, CBD isolate refers to a certain type of extract that contains only one cannabinoid, CBD. It means that all other cannabinoids and cannabis compounds were removed during the extraction process. However, according to research, CBD isolate is less beneficial than full-spectrum CBD oil. There are no enhanced benefits, no entourage effect. You just get what CBD offers.
Predictions for the CBD Industry
According to industry analysts, the growth of the CBD industry will explode in the future. Experts suggest the CBD industry will hit $24 billion by 2024 in terms of sales. This is going to be a huge surge in sales compared to 2018.
How people perceive this natural remedy is changing over time. Now, more people view CBD as a mainstream natural remedy. Individuals are using cannabidiol aside from the standard prescription medications. They are using it for pain relief, inflammatory disease, sleeping difficulties, and many more health conditions.
While about 60% of CBD sales come from online channels, in the future, they are going to be more prevalent in brick-and-mortar stores and pharmacies. The variety of CBD oil products is going to increase. It means you will get to know new types of products in the upcoming years. Therefore, if you start a CBD business you are going to get more product options to choose from.
Here are some of the popular CBD products available in the market right now:
- Tinctures: CBD oil tinctures come in a bottle with a dropper. You have to apply drops of CBD oil under the tongue. This method of taking CBD is also known as sublingual administration.
- CBD Edibles: CBD infused edibles are gaining popularity rapidly. Although CBD edibles underwent strict regulatory scrutiny from the FDA, its legality is still debatable.
- CBD Vape: CBD is also available as vaporizer concentrates. You can vape it as the conventional vaping method. All you have to do is use a vaping device and CBD vape concentrates, such as waxes and oils.
- CBD Topicals: All types of CBD infused gels, creams, lotions, and sprays are called CBD topicals. These products are for external use only. People are using CBD topicals to help treat their skin conditions and localized pain.
- Capsules: People taking CBD for seizures and digestive complications usually use this form of CBD. Besides, CBD capsules are well-known for long-lasting effects.
Ways You Can Start a CBD Business
As we have already mentioned, the CBD industry is a place of countless opportunities. No matter the capital you have, you still have chances to enter this market. Starting a CBD venture is no different than launching other businesses. You have to struggle and put your best into the start-up to overcome the barriers. However, the evolving regulation surrounding this compound and hemp-derived products may cause you to face extra challenges. After all, it is one of the most rewarding industries worldwide.
According to experts, starting a CBD business is just like starting any other company with a couple of extra steps. There are some inevitable steps that you have to walk over like getting insurance and creating a solid business plan. But, in the case of the CBD industry, you have to be more specific with your plan and business strategy. You must know the market well and learn how to play safe with all the regulatory hoops.
Moreover, if you do not consider starting from scratch, you can choose other options that the CBD manufacturers are offering. You can choose either white labeling or private label program depending on your financial backup. Also, you can become a wholesale distributor and sell them to retail sellers. Dropshipping and affiliate marketing are two exciting opportunities for individuals looking for selling CBD products with minimum investment. Let’s get to know what all these mean.
Partner With a White Label CBD Company
If you consider bringing your own line of products skipping the massive investment, white label CBD can be a great option. You can partner with a CBD oil manufacturer and buy products from them. Then you can put your own branding on these products. You can use your own logo and label on the products and sell them under your proprietary brand. White label CBD is one of the most approached options for small start-ups. How much you have to invest initially depends on the quantity you want. The minimum order quantity (MOQ) varies depending on different manufacturers. The less the MOQ, the less your risk is.
Private Label CBD
Private label CBD is quite similar to white labeling. It is a great option for those who want to start a CBD business with customized products. You partner with a manufacturer, and they create your products. Even your supplier will take care of branding your products. You will sell them to retail customers. Unlike white labeling, in private label CBD programs, you can choose what should go into your products. It means, you can choose the ingredients and even decide on the formulations. It is a program that involves both retailers and manufacturers. Many of the well-known CBD brands use private label CBD and are leading the market with reputation. In the private label CBD program, the quality of CBD oil depends a lot on your decision and budget. However, while white label CBD is a more affordable option, private label CBD can be a little more expensive.
Wholesale CBD & Dropshipping
If you think the above options are not appropriate for you, you can choose to become a wholesale CBD oil distributor. In the case of wholesale CBD, you will work as an intermediary between retail sellers and the manufacturer. All you have to do is buy CBD oil from the manufacturer and supply it to the retail sellers. You can earn a significant profit using this option. It is because when you buy CBD oil in a large quantity, the unit price drops. The advantage is you can set the price and tout them to the retailers at a much higher price. The CBD dropshipping business is similar to the wholesale CBD. But in this case, you can work without worrying about shipping the products. Also, you do not have to buy products in large quantities. You can decide depending on how many you would want to sell. The supplier takes care of the shipment.
Have a Clear View of Legal Obligations
Although the signing of the 2018 Farm Bill legitimized hemp cultivation and hemp-derived products, there are inevitable regulatory considerations that you have to take into account. The FDA does not regulate cannabis products to the same degree as they do other drugs and supplements. However, the US government handed over the governance of the CBD industry to the FDA.
The lack of regulation surrounding the CBD market puts it in the legal gray area. According to the FDA, you can not market CBD products for their health benefits. You can not claim “it cures.” So, when preparing for advertising and marketing CBD oil products, you have to double-check your campaign. The other way around, there’s a potential risk of getting penalties.
This agency also showed their stance against CBD infused foods and beverages. You can not add CBD to drinks and foods. But in 2017, the FDA ratified a CBD infused medication called epidiolex. Epidiolex is the first-ever CBD infused pharmaceutical drug that is used to treat epilepsy. Therefore, the industry needs comprehensive regulations surrounding the production and distribution of its products.
It is a must to have a better understanding of legal obligations, especially when you would want to venture into a highly scrutinized industry like CBD. While the market awaits clearer federal guidance, you should avoid marketing your products for their health benefits. It is also crucial to stay aware of possible upcoming regulations crafted by the FDA.
Marketing and Selling CBD Products
As well as starting a CBD business, marketing and selling hemp-derived products can be taxing. Although the 2018 Farm Bill liberalized the CBD market to some extent, still selling them on giant eCommerce platforms like Amazon and eBay is prohibited. Similarly, you can not use a paid promotion on social media platforms. Even if you try, the authority has the right to ban your social-media account. So, all you can do is depend on organic content that complies with the guidelines of each platform.
These days, the popularity of eCommerce platforms has grown significantly. A considerable number of people use these sites to purchase their daily needs. Besides, Social media marketing has a massive impact on your growth. Almost all other businesses are using these opportunities. But, in the case of the CBD industry, you are missing out on an enormous opportunity to reach more people and convert them into your customers.
But there is hope! You just need to be more creative. You can create your own online store and sell your products there. However, most CBD brands have their own eCommerce sites. Also, for most companies, online sales play a vital role in generating revenue. Aside from that, you can also use a brick-and-mortar store to sell your products.
For marketing your brand and products, you can use an organic search strategy and reward recurring customers. These are comparatively safer than paid advertisements. However, each market has different regulations. Therefore, whenever preparing a marketing campaign do not forget to review the legal obligations in your state.
How You Can Secure a Competitive Advantage
Unlike most other sectors, the CBD market is way more competitive. Along with the established ones, the arrival of new brands and products have taken the competition in this industry to a whole new level. The most effective way of attaining a competitive advantage is by developing quality products. You have to ensure your products can bear up to the scrutiny of the federal regulators and the educated customers as well.
With the rise of research on CBD and the help of the internet, educated consumers are increasing. They will not only look for CBD oil but also will want to know what you are providing with your products. To help these consumers scrutinize the products, you can use QR codes on your bottles. It will help them get access to your lab test results in a more convenient way. The development of consumer’s credibility on your products depends on how transparent you are.
The next most approached practice to develop credibility among the common people is having certifications. If you have researched on how to start a CBD business you may have seen companies highlighting certain certifications like FDA facility registration, GMP (Good Manufacturing Practices), and USDA organic. Pursuing these certifications is a great way to establish confidence in your customers about the quality of your products.
Challenges You Will Face As a CBD Business Owner
As a CBD brand owner, there are some unique barriers you will have to overcome. Most other industries do not have to struggle with banking, insurance, and payment processor issues. But these are the key challenges you will face while starting a CBD company. Let’s know more in details:
- Banking Issues: The see-saw in the regulatory landscape makes it difficult for CBD entrepreneurs to get access to banking facilities. Most banks consider it a wholesome burden to partner with CBD businesses. It is because the regulatory issues put them at significant risk of potential oversight. As a result, CBD companies often have to switch between banks and face unexpected dismissal of their merchant account.
- High Insurance Price: The next major challenge in the CBD industry is to find budget-friendly insurance. Although the legalization of industrial hemp took place in 2018, prices remain too high.
- Expensive Payment Processing: Just like insurance companies, payment processors keep their prices high for CBD businesses. Besides, visa recently declined CBD companies. So the only available options in your hand are Mastercard and Discover.
- Getting Access to Fund: You will find it more difficult to get funded for a CBD company. Most banks and mortgage lenders show reluctance in investing money in cannabis companies. Most of them perceive it as a risky investment. That being the case, entrepreneurs in this industry rely on using existing resources.
With time these challenges will fade away as more solid regulations appear in the upcoming years. But, right now, you should ensure your business is adaptable to regulatory fluctuations and remain well-informed. Changes in industries and businesses do not come overnight. Therefore, prepare yourself with backup plans and concrete strategies so that you can handle the upcoming challenges with the least errors.
While you see plenty of challenges ahead of launching a CBD brand, opportunities surpass all these barriers. If you approach correctly, you will see success. However, the potential for growth in the CBD industry is unprecedented. There are one or two other sectors that are as profitable as the CBD industry. The 2018 Farm Bill has changed the complexion of this particular industry. Since then, CBD products are becoming more prevalent at a higher rate.
The combination of your assiduity and ability to think out of the box can set your company up for success. It is high time you should start a CBD business that is sustainable and life-changing. After all, you have to do something remarkable to bring out the best in your brand. You have to find out why your products will stand out from the crowd and lead the market. Research as much as you can. Create a solid plan & dive into the market right away.