How to Start a CBD Business

First of all, what is CBD?

Cannabidiol (CBD) oil comes from cannabis and hemp plants. Unlike its cousin tetrahydrocannabinol (THC), which comes from the same plants, CBD oil does not have psychedelic effects on the brain. In other words, it does not produce the effect of a “high” like smoking marijuana does. Instead, the substance is praised for the positive effects it has on the health and wellness of users. It provides relief from a myriad of symptoms from various diseases and ailments, especially pain and physical discomfort.  

Since its legalization in the US, the market for CBD and other hemp products has exploded all across the country. In Florida alone, the number of medical cannabis dispensaries has increased from just 24 in 2017 to over 200 in 2019 and continues to rise. With a 400% increase since 2017 in the number of patients in Florida who use CBD to relieve the symptoms of various ailments, it seems apparent that this trend is not going to change direction any time soon.

If those numbers are enticing enough for any entrepreneur, let’s look at the total sales just in the state of Florida. In 2017, market reports showed sales topping out right above $10 million. By 2018, they were already over $270 million, and by the end of 2019 sales have reportedly surpassed $488 million! The current projections position the CBD industry in Florida to bring in up to $2.5 billion per year by 2025. Has it caught your attention yet? If you want to hop on the gravy train and open up your very own CBD business or dispensary, you have come to the right place. Read on to find out how to start a business in one of the fastest-growing industries in the US.

What am I going to sell?

Before you start imagining piles of money, you’ll need to make a plan. Since CBD oil comes from both hemp and cannabis plants, you can choose to cut down on startup costs by growing and harvesting them yourself or coming to an agreement to source the plants from an existing farmer.

Then, there’s the product itself to think about. So in what forms can CBD be sold and consumed? There are four main types of products:

1. Sublingual: The most common method of consuming CBD, sublingual products come in the form of oil sold in a small bottle with a dropper, much like an essential oil. Small drops are administered under the tongue and absorbed to produce the desired effect.
2. Oral: CBD oil can be infused into a number of edible products to be consumed as food. Popular items include cookies, candies, baked goods, and even some beverages (hot chocolate mix, for example).
3. Inhalation: This is a popular method especially for those who enjoy the social aspect of vaping. Oil and wax concentrates are sold to be used with a conventional vaporizer or an electronic one, similar to an electronic cigarette.
4. Topical: Topical ointment, gels, and creams are commonly used to relieve aches and pains locally. For example, back or neck pain.

The hemp and cannabis industry has grown into quite a diversified marketplace. You can choose to focus primarily on wellness and healthcare products, beauty, pet care, vaping, edibles, etc. With more and more everyday products becoming infused with CBD for various purposes, there is an ever-growing list of possibilities to fill the shelves with CBD products. Without a plan or direction, it can be easy to get lost in the sea of CBD. Choosing a niche will not only help you with branding and creating a company image, but it will also help your initial clients get to know you more easily and they will be more likely to come back.

I have a plan, now how do I become a CBD seller?

Getting a CBD business off the ground, in many ways, is just like any other business—with a few more legal hoops to jump through. So, the first step of setting up any business is to name it! You’ll need a name that is both professional and unique.

Once you have a name picked out, you’ll need to set up a legal entity, such as an LLC, and a separate business bank account. These two steps are crucial to protecting you and your personal assets from any business-related mishaps. If a client sues you after purchasing and using your products, they are only legally entitled to sue for assets related to the business itself. Your personal property will be safe.

Along the same financial lines, you’ll need to register for state and federal taxes. You can register for an EIN number (which is like a social security number but used to identify businesses) with the Social Security Administration. It is not a complicated process. And it doesn’t cost you anything!

Finally, don’t forget about insurance! Just like setting up a business bank account and an LLC protects you from any unforeseen legal troubles, business insurance helps protect you from all the other kinds of unforeseen life events that can disrupt your CBD business.

So, what kind of legal hoops do I have to jump through?

The answer here is not so straight-forward. Even with the federal legalization of industrial hemp and its derived products with the 2018 Farm Bill, the industry is still under heavy regulatory pressure. In most states, regulations are still being drafted and will probably be revised more than once before long-term precedence has been set. The safest bet is to do your research in the state that you live in and pay attention to the details.

Now that CBD has been removed from the supervision of the Drug Enforcement Agency, the Food and Drug Administration (FDA) has currently been given the task of regulation—which still has many gaps and question marks. Either way, make sure you have FDA approval before starting to sell any CBD-infused food products. You will also need to obtain state and local licenses and permits; the process for which is much like that of obtaining a liquor license in many places.

In Florida, this licensing takes place in three steps. First, you need to obtain licensing to grow CBD plants (aka hemp or cannabis). Second, separate licensure allows for processing of the CBD oil—which includes extraction and other processing of the raw oil into marketable products. Third, another license, called a dispensing authorization, will permit you to legally sell the CBD products to the public.

Paying attention to all of your legal obligations and making sure to fulfill them is of the utmost importance in this industry. With the high level of criticism and prejudice that this industry faces, the pioneers must set an example for those who follow.  

How do I get the word out?

CBD marketing and CBD sales are also largely affected by this still-controversial industry. Many up-and-coming businesses use sites like Amazon and eBay to get the cash flow started before establishing a physical business. While legal, CBD oil is a difficult sell on these online platforms. On top of that, paid advertising for CBD on social media is all but impossible because your account could be suspended or banned due to its content. So, the alternatives you’re left with are creating and managing your own unique e-commerce store and/or offering products in a physical location. Marketing can also be achieved through loyalty programs and other old-school flyers and business cards.

Pro tip: make sure to set up a website, Instagram account, etc. We live in a digital age. Now that companies like CVS and Walgreen’s are starting to carry CBD products, a strong online presence is more important than ever. It will allow you to bring in new clients and bolster your business. Trends in this industry especially move very quickly. Having a website and keeping social media accounts up-to-date helps immensely to communicate with existing and potential clients about new products and promotions.

A few struggles unique to the CBD industry

Due to the new nature of the hemp and cannabis industry and the ever-changing regulations, it often must confront struggles that other industries have already overcome.

Banking, for example, can be especially challenging for new CBD businesses. Several banks are reluctant to work with them due to the possibility of taking on greater risk and heavier oversight because of the ever-changing regulations. Lenders can also be slow to provide funding to CBD businesses due to the same risks and lack of clear regulations that scare away the banks. Independent investors and alternative lenders are still the leading ways that industry entrepreneurs are funding their CBD enterprises.

Insurance can be another hurdle. Finding a plan that doesn’t consume too much of your actual profits is not a walk in the park. Insurance costs continue to be high even though industrial hemp has been legalized.

Finally, processing payments can be a huge pain in the neck. Not long ago, Visa revoked their services from all CBD companies. That means dispensaries are left with the capability to accept only MasterCard and Discover.

Tips for growing your CBD business

1. Don’t go it alone. Just as with any new business, a good mentor is invaluable; especially if you’ve never owned your own business before. You can do a lot of research online and elsewhere, but there’s really no substitute for a real person that can listen to you and help you strategize and deal with problems as they arise—and they WILL arise. That is just part of life. And business.
2. Understand the CBD industry thoroughly. Again, this is an important step for any entrepreneur looking to establish themselves. With the rapidly changing environment in the CBD industry, it’s even more important. Market trends can change from week to week. Knowing the industry and your client base will help you stay ahead of the curve.
3. Have patience. In many places, a palpable stigma remains surrounding all things cannabis. Even though hemp products are very different from marijuana and have very distinct purposes, educating the public on these differences and eradicating pre-existing bias is a slow process in some communities.
4. Build a solid team. If you’re planning on hiring some help, it might be a good idea to look for someone qualified to help you sort out all the legal mumbo-jumbo.

Take the plunge!

The cannabis industry can be a very rewarding place to build a company. As you know from reading this article, it comes with its own unique challenges. However, with a solid business plan, the right financial partner, a keen eye for the marketplace, and complying with regulations, there is great potential to grow an incredibly successful and sustainable business that you can be proud of.

At South Florida Funding Group, an alternative business funding company, WE FUND THE IMPOSSIBLE, EVEN CANNABIS and CBD!  We provide CBD business funding.