How to Start a CBD Business

May 2, 2024

How to start a CBD business? The sale of CBD products has grown from a fledgling fringe market to a significant, growing industry in the United States rather quickly. Entrepreneurs looking to snag a piece of the market have many options. The real challenge is determining which of them is right for you. On this page, we’ll explore why this burgeoning industry is so appealing and some of the essential “first steps” to getting a new CBD business set up the right way.

Table of Contents

What is CBD?

It may be helpful to start with what CBD actually is. There is a lot of vocabulary related to this extraordinary plant, and often the words are used interchangeably. This can cause a bit of confusion. Here are a few words that may be helpful to know: 

  • Cannabis is a family of flowering plants native to Central Asia that contains dozens of biologically active chemical compounds.
  • CBD (short for cannabidiol) is one of the chemical compounds in cannabis plants. Cannabinoid compounds are also found in other biological organisms including the human body.
  • THC (short for tetrahydrocannabinol) is another chemical compound contained in the Cannabis sativa L. species of the cannabis family and is known specifically for its psychoactive capacity to cause a “high”.
  • Marijuana is a common name for the Cannabis sativa L. species of cannabis which contains THC at a level of 0.3% or higher by dry weight.
  • Hemp is a term that includes cannabis plants and derivatives (including the roots, stalks, stems, and sterilized seeds of the Cannabis sativa L) that contain 0.3% THC or less by dry weight (according to the FDA). 

In offer of Easy Pay Direct, you can also find cannabis credit card processing.

A Growing Industry

With the Federal legalization of hemp in 2018, the market for CBD products has blossomed. As more states have adopted laws opening their borders to these products, the opportunities have similarly expanded and are expected to continue at a staggering rate.  Market research shows that CBD sales are expected to skyrocket in the next couple of years, with projected sales of $15-20 billion by 2025 (up from $4.6 billion in 2020). Needless to say, there’s plenty of room for new players. 

Make a Plan

In today’s ecommerce environment, where anyone with an internet connection can create and launch an online store in minutes, it’s tempting to follow suit. Starting a CBD business demands to make a number of crucial decisions. These will be the backbone of your business plan.

Choose Your Audience

It’s important to know who you want shopping in your store. “Everybody” is not as helpful of an answer as it may seem. Elite athletes and ailing senior adults may both shop for CBD products, but they probably have different needs and expectations for their shopping experiences. Deciding in advance which market makes the most sense for your brand allows you to cater an experience that makes your chosen demographic feel they are in the right place.  There are many ways to identify your target audience. A simple approach is to think of one individual that embodies your ideal shopper.  Then ask lots of questions, like:

  • What is their age, income, and education profile?
  • What specific needs do they have?
  • What are their hobbies or interests? 
  • What makes that individual choose your store over all the others?

Once you’ve hammered out the specifics of your target market, you can design a brand and store that draws them in. It will also make it easier to decide what items to sell.

Choose Your Product

With such an impressive array of CBD products on the market, choosing which to offer can seem overwhelming. But not deciding can lead to customers going elsewhere – to a store that doesn’t cause decision paralysis. Narrowing your focus strengthens the brand and allows you to concentrate on becoming an expert in your market niche. Most CBD products will fall into one of these categories: Tinctures: These are CBD-infused oils that can be applied or ingested in the potency of choice and may be flavored.  Supplements: Most commonly sold as oil-based capsules or gummies, CBD is combined with other ingredients to aid in the defense of a variety of physical and mood ailments. Beauty: Lotions, balms, masks, shampoos, and deodorants are just a few of the CBD products found in this expansive category. Therapy: It’s no surprise that CBD is available in salves and creams for pain relief and relaxation, but there are also a growing number of applications for the relief of the symptoms of major diseases and psychological conditions. Ingestibles: From baked goods and confections to CBD-infused beverages, any form of food or drink intended to be consumed by humans falls under this heading. Pet Care: What’s good for us is good for our pets! From dietary supplements to the treatment of skin conditions and products for their fur, many items are available in pet-friendly doses and formulas. While the possibilities are endless when it comes to types of CBD products, it’s important to do your research regarding which products may cause difficulties in getting financial services or have limitations for where they can be shipped or sold. 

Choose Your Supplier

Another tip to start CBD business is to decide where you’ll get those products. There are basically three options: 

  1. Become a Reseller or Affiliate. Many companies allow and even welcome these arrangements. Whether you simply earn a percentage of sales by referring customers to the original brand, sell items that the branding company fulfills, or purchase the products outright to sell in your own store, this option provides the benefit of instant brand recognition without having to build it from scratch.
  2. White-Label Your Own Brand. If you want to establish a company with your own brand of CBD products, find a supplier that will package their products with your brand on the labels. You may be required to buy your product wholesale and manage your own inventory and shipping so be prepared for a financial investment upfront.
  3. Make Your Own Products. If you prefer to create your own artisan products you’ll need to source a CBD isolate and learn how to incorporate it into the products you develop. An important consideration with this approach is preparing accurate labeling, particularly if you are creating ingestible products.

Choose Your Marketing Strategy

Now that you know who your audience is and what you plan to sell, you can design a marketing plan that capitalizes on these details.  When starting a CBD business, you need to think about where your target audience may already be “hanging out”. For instance, are they likely to be on social media? Who are their influencers? Where else are they shopping? Educate yourself on how to capitalize on the habits they already engage in on a regular basis.  Be intentional about the network you create as a business, and learn from those who are already established in the industry.  Whether you plan to use social media ads, recruit influencers or capitalize on producing top-notch SEO content, having a plan will ensure that your shiny new CBD business doesn’t go unnoticed in the crowd.  

Know the Rules

It’s absolutely essential to know and follow the local, state, and national laws around the CBD industry.  As the CBD market is evolving, the relevant guidelines are changing too. Not knowing the rules can have devastating effects both personally and for the business. Take the time to find out what regulations apply to you.

The Background Documents

Business Registration: Find out what the rules are in your location for CBD businesses. Make sure you have any necessary business registrations or licensing with your city and state. Tax ID: If your business is under an LLC or other corporate legal entity, you’ll need to request an Employer Identification Number (EIN) from the IRS if you don’t already have one. (If you are a Sole Proprietor, you can use your social security number.) COAs: Every end product will need its own Certificate of Analysis. This is a 3rd party lab test that shows that each specific CBD item in your store has a THC level below 0.3% by dry weight. It will also give information about other chemical components of the product.  A Bank Account: They’re becoming more common, but not all financial institutions are willing to open bank accounts for CBD businesses. Make sure you secure a business checking account in the legal name of your company to minimize payment delays.

Prepare to Accept Credit Cards

Credit card payment processing for CBD is still limited to only a few processing companies. Because the rules and laws around the CBD industry are still being established, there are some gray areas that standard processors don’t want to deal with. This means that no matter how well established or reputable your CBD company may be, credit card processors still consider the industry, and therefore your business, to be “high risk”. Securing payment services with a company like Easy Pay Direct assures you have an ally to help you get the right merchant account with the right processing company to fit your needs as a CBD business owner. 

LET’S DO THIS!

Once you’ve considered the risks, established a business plan, and made the preparations, it’s time to get started! Launch your business with confidence, knowing you’ve done everything you can to be prepared. Continue to learn, refine and adapt as you grow to ensure a successful future as a CBD entrepreneur!

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