Basic Guide to Starting Your Own CBD Company

Overview

The CBD industry is projected to hit $22 billion by 2022, growing 40 times its current size in early 2019. The rapid growth of hemp-derived CBD products can seem surprising for such a young market but is a direct reflection of our social trends towards health and wellness products as well as anti-pharmaceutical attitudes. New CBD startups join this evolving industry every day– many see business opportunities in this unique, versatile product. Starting your own CBD company differs from every other industry out there due to its legal gray area, underregulated practices, lack of research, and more. For those considering starting their own CBD company, here is our basic guide.

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Understanding the market: Having a good grasp of any market you’re potentially starting a business in is good practice. This is especially true for CBD. While there are a few CBD companies that are mass producing products, it is important to understand that they started early with a large number of resources. Unless you’re backed by millions in resources, you’re probably looking into starting a small CBD business. Successful, newer CBD companies have found a segment of the market and implemented ways to market specifically to them. We recommend finding your segment and creating a marketing strategy and product that’s tailored to them. This is the best way to differentiate your product in a saturated market.

  • Create a business plan based on the segment you’re targeting. What will your product mix look like? Who is your target customer? What are your business funding methods? What are your marketing and branding plans? Do you plan on creating an e-commerce site and selling online and/or at a brick-and-mortar location? What are realistic sales benchmarks and how will you meet this goal?

Understanding CBD legality and regulations: Hemp-derived CBD with 0.3% THC or less is federally legal in all 50 states. THC levels higher than 0.3%, CBD derived from marijuana, and synthetic CBD all have legal implications in different states. Proper FDA regulations and labeling are pertinent for CBD products as well. CBD cannot be marketed as a treatment of any sort– understanding the legal implications of proper marketing, statements, and labeling is crucial.

  • Obtain business licenses, EIN/TIN, and incorporation for your CBD business. Doing a lot of research in order to create a science-based knowledge on CBD is significant in order to properly market and educate customers. Staff training will also require a solid CBD knowledge base.
  • CBD health claims lack federally-approved research. This means you can’t state that your product can prevent, treat, diagnose, or cure any health conditions. There are substantial preclinical studies and significant scientific data available for CBD. Learn more about these in order to continue educating.
  1. Finding a reliable supplier: The worst feeling for any small business is having a demand for your products but not being able to meet it due to a faulty supplier. Finding a qualified, reliable supplier is one of the more significant parts of starting your own CBD business. The wrong supplier can fail to meet demand, deadlines, and even supply you with toxic and/or federally illegal CBD products.
    • It is important to know where the CBD is sourced from as well as their hemp farming practices. CBD suppliers should always have an independent, third-party tested certificate of analysis, COA, for every batch produced. An FDA disclaimer should always be visible on your supplier’s website. Make sure their facility is also cGMP-compliant.
    • While America’s Finest CBD does carry a comprehensive range of CBD products, we’re always happy to refer you to other wholesalers if we don’t have the product you’re looking for or aren’t a good long-term fit.
  2. Selling CBD online: For any business, creating an e-commerce website is always a great idea. This a great way to get started for CBD businesses since you can ship to all 50 states. With lower start-up fees and operational costs, e-commerce also provides access to a broader audience. Selling CBD in a retail space can give customers a hands-on experience with your product allowing more prompts for questions and education. A retail space offers the opportunity to build repeat customers if you have a knowledgable staff as well as introduce CBD to your community. Finding CBD retailers or third-party sellers to distribute your products through online and in brick-and-mortar locations can also help reach more customers. Here are the steps for selling CBD online:
    1. Register your business: The first step is registering your business. This opens up the opportunity to apply for loans, hire employees, and more.
    2. Apply for a resale license: Businesses seeking unfinished CBD products typically do not need a resale license but that’s dependent on the supplier. America’s Finest doesn’t require a resale license for bulk, unfinished CBD products but would require one for finished CBD products. Regulations for resale licenses are constantly changing and vary from state to state. Please contact us if you’d like more information on the resale license.
    3. Choose your website platform: Finding the right website platform for your CBD business can help with certain functionalities and offer advantages. Some website platforms do not allow CBD sales, making it important to do your own research. America’s Finest has worked with several e-commerce sites and can implement our dropship program with all major platforms.
    4. Find a high-risk merchant processor and business bank account: CBD sales are considered high-risk by merchant processors and banks. Some banks do provide specialty business bank account specifically for the cannabis industry. It can be difficult finding a merchant processor as well. Feel free to contact us if you need any advice regarding a merchant processor or bank.
    5. Optimizing your website: Making sure your website attracts users is crucial for driving revenue. Having a user-friendly, attractive website with fresh, new content posted is important. Writing blog posts is a great way to build authority as well as generate customers for your CBD company.  
    6. Embrace transparency: Transparency helps build trust with customers while also ensuring you’re not making any claims that violate FDA regulations or laws. Include a privacy policy as well as FDA statement.
  3. Marketing your CBD products: There are certain revenues that are great for marketing your CBD products and websites. With strict rules and regulations, CBD companies can’t rely on general marketing practices.
    • Google ads: Google currently does not allow paid CBD advertising. It is still considered a marijuana product, so Google ads are not a viable option.
    • Display ads: Certain websites allow CBD display ads. Having a display ad on a high-traffic website can be a great way to reach out to new customers.
    • Social media: Paid social media ads don’t allow CBD promotion, but CBD companies still have free access to creating their own business accounts. Social media marketing is a great way to promote your new CBD company.
    • Sponsorship programs: Sponsoring high-traffic social media accounts is a great way to market your CBD product. Finding affluent profiles related to your demographic and offering free samples or paid promotion is a great option.
    • Affiliate programs: Offering an affiliate program is a great way to get involved in the CBD community. This provides cross-promotion opportunities and can use more established businesses to piggyback your sales.
    • Search engine optimization: Since numerous forms of paid advertising aren’t available for CBD companies, search engine optimization is crucial for driving organic traffic. Having original, new content on your website with proper keyword density can help make your website more discoverable.
    • Educated customer support: The CBD industry is so new, resulting in countless, potential questions your customers may have. Properly training your staff to handle all these questions is crucial for both customer retention and legality purposes. Being transparent is key.
  4.  Selling CBD in a Retail Setting: Having a retail store has its own set of benefits in regards to selling CBD. There are a few different challenges that differ from selling CBD in a brick-and-mortar location versus selling online. Here are some answers to FAQS:
    • Is selling CBD legal in my state? CBD is legal in all 50 states as long as it is derived from hemp and has 0.3% THC or less. Finding a supplier that offers up-to-date COAs or third-party lab results is crucial in order to ensure your products are in fact legal.
    • Do I need special licensing to sell CBD in a store? No, there is no special licensing you need to obtain in order to sell CBD. You only need an EIN or some proof of your business license.
    • Can my CBD products be seized? You’ve probably heard of circumstances in the news where CBD products are seized by law enforcement. CBD raids are often the cause of miscommunication and ignorance. As raids are becoming less and less common, it is important to still be aware of this risk due to the type of industry this is. When CBD products are seized, they’re usually returned.
  5. Opening a CBD Retail Store: For those considering selling CBD in a new retail store that only sells CBD products, there are a few things to keep in mind. We recommend speaking with a legal professional as well as conducting online research in regards to your local municipality for all the information you need for starting a new retail space. Registering your business, applying for an EIN, researching all local, state, and federal laws, finding an appropriate location, and setting up a compliant merchant processor are the basics when opening a new storefront. This process takes a lot of time and consideration– have the patience to go through proper channels and ensure everything is set up prior to pursuing sales.
  6. Selling CBD in an Existing Retail Location: For business owners looking to add CBD to their current product mix, here are some pointers.
    • Have a comprehensive knowledge base: The advantage of selling CBD in an existing retail location is exposing this new product to different, existing demographics that already visit your store. Having comprehensive knowledge regarding CBD gives you the opportunity to educate customers in order to become a reputable source.
    • Providing CBD samples: Many customers haven’t had the chance to try CBD. Offering samples give them a hands-on opportunity to become more familiar with your products. This is definitely an advantage of having a retail store over selling online.
    • Educate your team: Staff members play a crucial role in the success of your newly added CBD line. They need to be able to answer as many frequently asked questions as possible or be able to quickly refer to a resource for the appropriate answer. A well trained and educated staff benefits your customers and ultimately sales. Be very cautious, however, on your language and wording. Your team members can’t make any claims about CBD preventing or treating any diseases. These types of claims can put you at risk with the FDA– avoid medical claims and use qualifiers like “may”.
    • Continuous research on laws: The laws revolving the CBD industry are constantly changing. We recommend researching laws and consulting with a lawyer prior to carrying CBD products.
    • Offer informational signage or pamphlets: It’s not always possible to speak with customers during busy hours. Informational signage and pamphlets can provide the basic education your customers need in order to make informed purchases. Pamphlets that customers can take gives more opportunity for product knowledge to be shared with other potential customers. Having signage will also promote better visibility for your CBD products.
    • Showcase your new CBD inventory: Promoting your new CBD products in high foot traffic areas ensures more customers have an opportunity to buy it.
    • Having a variety of CBD products for sale: CBD is available in so many administration forms that are based heavily on personal preference. Having a comprehensive CBD product mix can help capture a larger amount of sales.
    • Finding the right merchant processor: It is important to note that not all merchant processors allow the sale of CBD. Calling to confirm that your current processor does is vital. If they don’t, finding a new one to handle all sales processing is recommended.
  7. Marketing CBD Products for Retail Stores: Having a retail location gives different marketing opportunities than selling CBD online. Take advantage of these marketing tips in order to properly grow local awareness for your CBD products:
    • In-store events: Hosting different CBD events at least once a month is a great way to get your customers involved. From wellness classes to educational workshops, the opportunities are truly endless.
    • Partnership opportunities: Partner with different local businesses throughout various industries for in-store events or CBD product promotions. Partnering with a massage therapist for discounted rates or a yoga studio for one free class with purchase of a CBD topical are just a few great ideas.
    • Have active social media accounts: A strong social media strategy can promote brand loyalty and create repeat customers. Active CBD product posting adds familiarity and education for all of your potential customers. CBD isn’t allowed for paid social advertising, but using other products in your store to target demographics is always a great idea. Facebook offers location targeting for potential clients in your area– this service can be utilized by retail stores that aren’t specifically CBD or hemp related.
    • Writing CBD articles: Find local publications to guest write for– as a local business owner and CBD expert, you’ll have a specialized point of view for readers. This is a great way to promote your store, CBD products, and industry education.
    • Creating an e-commerce store: Having an online store in addition to your retail store can broaden your customer base. Visitors that may have tried your product in-store but didn’t make a purchase could visit your website to make a discreet purchase. An online store can also bring more foot traffic to your retail location for individuals wanting a hands-on experience with CBD.

America’s Finest CBD has had the pleasure of working with a wide array of incredible CBD startups. Learning from our own experiences as well as the experience from our business clients has given us great knowledge on starting CBD businesses. If you have any questions or concerns regarding the process, please contact us!