CBD in its many forms has become more popular all over the US, and it is legal in many states. One form of (the CBD oil derived from hemp) is absolutely legal in every state. All these mean that there’s a demand for the product for which you can build a company, and there aren’t really any legal impediments to success.
The potentials for-profits are staggering, as by 2024 some experts project sales amounting to as much as $20 billion. The Internet is full of articles regarding the many supposed health benefits of CBD, which is why today you can find a wide variety of CBD supplements in the market. CBD has infused so many products and comes in so many forms that you now can choose between edibles, tinctures, and topicals.
But it won’t always be easy along the way, as you will need to deal with issues regarding insurance, banking, and advertising. There are still some gray areas when it comes to legalities (especially with what people think are legal or not). Because of these gray areas, you may encounter resistance with banks and other sources of funding.
So, are you interested in founding a CBD startup? If that’s so, you better make sure you arm yourself with the facts.
Guide to Starting a CBD Business
Exactly What is CBD?
Before anything else, let’s make sure we’re all on the same page. CBD is short for cannabidiol, which is a type of cannabinoid. A cannabinoid is a chemical compound that can be found in cannabis plants, and CBD is one of the more than a hundred cannabinoids.
Perhaps you may have heard of THC? This is short for tetrahydrocannabinol, which is the main cannabinoid responsible for that “high” sensation many recreational marijuana users look for. Growers through the decades have been breeding marijuana to produce high THC levels to please marijuana users.
But CBD is a different cannabinoid from THC. The main difference is that CBD does not make you feel high at all. What CBD does is to provide you with the health benefits in a way that keeps you sober.
The creation of a CBD product starts with the cultivation of the source cannabis plant. This is specifically cannabis sativa, but this is a grouping that includes both marijuana and hemp. If you want to keep everything legal and sell to every state, you need to buy or grow a large amount of industrial hemp.
You can then extract the CBD cannabinoid from the cannabis plant, and several methods can be used. If you want, you can do the extraction yourself. Another option is to outsource the extraction to a company that specializes in this process.
The process includes using solvents to extract the CBD, then the CBD compound is often mixed with a carrier oil like hemp seed, olive, palm, or coconut oil. Then it undergoes a heating process to make the CBD more reactive to the human body, and this process is called decarboxylation. Typically, the CBD oil is also tested for CBD content.
You can then market the CBD oil as a concentrate, or you can add other ingredients to make it unique. The end result can be a cream or gel for the skin, an edible infused with the CBD oil, or a tincture that has users putting a few drops of it under the tongue.
CBD Oil from Marijuana and Hemp
CBD oil comes from cannabis Sativa. This is a genus and species group that includes marijuana, but it also includes hemp. However, there is a major difference between the two: the THC level.
Historically, marijuana has been bred for high THC. This makes sense since for decades the major point of using marijuana is to get high and for that you need THC. But hemp is a different breed because by definition it has a THC level that cannot go over a mere 0.3%. This is the definition set by the 2014 Farm Bill, and the 2018 Farm Bill confirms it.
What’s more, the 2018 Farm Bill explicitly states that hemp is legal in all 50 states and is not covered by the federal ban on marijuana. Only the cannabis plants that have a THC level of more 0.3% is legally considered marijuana.
Biologically, hemp and marijuana are closely related. It’s perhaps like saying a chihuahua and Doberman are both dogs. And just as there are crucial differences in practical terms between a toy dog and a guard dog, there are also crucial differences between hemp and marijuana.
The most practical difference is this difference in THC level, which leads to the difference in legal status. Today, marijuana is legal to use for medical purposes in the majority of states with some states even allowing for recreational use. But the federal law that makes marijuana illegal is still in the books, even if the federal agencies aren’t actively arresting marijuana users today.
On the other hand, hemp and all the products made from hemp are all absolutely legal. It is no longer listed among the drugs covered by the Controlled Substances Act. The federal government’s 2018 Farm Bill makes this absolutely clear.
What this means for the budding entrepreneur is that a CBD oil extracted from hemp is therefore absolutely legal too. This means no worries of arrest from any law enforcement agencies, and no hurdles to overcome when dealing with financial institutions such as banks that don’t like to work with potentially “criminal” enterprises.
CBD: Isolate and Full-Spectrum
CBD can be extracted from the cannabis so that it is an isolate. A CBD isolate means that it only contains CBD and there are no other cannabinoids included. This basically means that it doesn’t have (or contains very little) THC, and therefore the medicinal benefits can be enjoyed without the risk of getting high.
On the other hand, the CBD can be extracted from the cannabis plant containing all the other cannabinoids and compounds. If the CBD comes from marijuana, the CBD can then contain much higher levels of THC.
Why would a CBD oil manufacturer consider this option when it comes to a large set of legal issues? It’s true that a full-spectrum CBD oil will appeal to those who don’t mind (or who even really likes) getting high from the THC. But another reason is that some studies indicate that in some cases CBD works better in tandem with THC. In fact, evidence indicates that the CBD can really work at its best when it is accompanied by THC and all the other cannabinoids found in the source plant.
Again, let us reiterate that research on CBD and on cannabis is still in its early stages and we still don’t know much about how CBD really works. But the research is ongoing to uncover the facts, even while some users do believe that CBD works better with higher THC and other cannabinoids.
Types of Different Products
As the manufacturer of CBD, you can offer a wide variety of products to meet the demands and whims of your potential consumer base. Here are some of the basic options if you’re offering CBD oil:
This category alone can offer you a wide range of possibilities. It’s true that you can offer CBD oil alone and the users can then mix it with their own recipes. You can even add some flavoring ingredients into your CBD oil.
But you can come up with your own special food items and have the CBD oil premixed with the edible. A wide variety of foods can be infused with CBD oil, and it’s up to you to discover the tastiest dishes. Obviously, a lot of baked goods can be laced with CBD, but now there’s even a pizza with CBD available. Candies and chocolate can also be infused with CBD, and so can drinks. Basically, it’s like running a food and drinks service, except that your menu consists of CBD-infused food items.
Just take note that your products will then have to be monitored by the Food and Drug Administration.
This is another popular option, ever since vaping machines became popular as an alternative to smoking (and as a way for smokers to quit). The 2018 stats estimate that there are 41 million vapers and 10 million of them vape daily. By 2021, it’s predicted that the number of vapers will reach almost 55 million people.
Quite a few CBD oil users may be convinced to try CBD vape oils and waxes. The users don’t have to inhale smoke, but instead, consume water vapor. The vaping machine is a very discreet device and it’s portable too.
This type of product refers to the tinctures of CBD oil. Your customer can then use a dropper to put in a few drops of tincture under the tongue. Some people like this option because the effects of the CBD appear more quickly compared to consuming edibles.
Sprays also come under this category. A user simply aims the spray under the tongue for a dose of CBD.
You may want to consider this type of product as well. That’s because many people use CBD for pain relief, and this way a user can apply a CBD lotion to the painful area. Gels and sprays may also be included in this category.
Starting Your Business
Starting your CBD business is basically the same as founding any other startup. Your steps will include”
- Writing a business plan
- Monitoring your finances
- Organizing your legal business structure
- Red tape registration with the government and the IRS
- Getting insurance
- Build your team and your sales force
- Growing the business
What troubles the fledgling CBD industry right now is that the legal landscape is quite confusing.
- Some government and law enforcement officials may still be unaware that CBD oil from hemp is legal everywhere.
- Marijuana laws keep changing. A state may suddenly allow for medical marijuana, or even allow for recreational marijuana.
- The FDA hasn’t finalized a definitive set of regulations for the CBD industry.
- The FDA does not approve of advertising health benefits caused by your CBD products.
- You may want to avoid FDA trouble by accurately gauging your CBD and THC content.
You really do need a lawyer to help, though this can be said for any startup in another industry.
Marketing and Selling CBD Oil
This can also be a rather challenging process. That’s because some platforms, such as eBay and Amazon, are somewhat still resistant to selling CBD oil even if the law states that they’re absolutely legal
You may also find it almost impossible to advertise through social media, as paid ads for CBD aren’t allowed so far. Most platforms only permit information passing through organic content.
All this means that you will have to think outside the box for the most part when it comes to marketing. You need a brick-and-mortar shop for curious customers to visit, while you also need your own e-commerce platform for online sales and advertising. You may want to consult with an SEO specialist to raise your site’s Goggle visibility, and you should consider customer loyalty programs.
Again, check your local laws as well. This is an absolute must. There may be rules about advertising CBD products in your neighborhood.
How to Gain Competitive Advantage
Some brands are better than others, and it’s not really just about offering a cheaper option.
- Better to offer high-quality products that will satisfy veteran users and regulators
- Provide 3rd-party lab results regarding the chemical profile and quality of your products
- Get 3rd-party certifications from organizations such as Good Manufacturing Practices and USDA organic.
Hurdles to Overcome
Just in case you’re thinking that everything will be a piece of cake, you better take note of the challenges you’ll face constantly.
- Financing. Many investors and lenders may be put off by the legal gray areas of the CBD industry.
- Banking. Plenty of CBD shops find it difficult to have access to dependable banking services.
- Payment processing. Visa doesn’t work with CBD businesses, while other payment processors charge high fees for CBD businesses.
- Insurance. This can get very expensive, and finding affordable options can be difficult.
The changes to the CBD industry landscape occur almost daily, so you need to be both determined and creative when facing challenges on a regular basis. But the fact remains that there’s money to be had in the CBD industry. You can get in at the onset, and ride the wave of increasing popularity towards a profitable future.