How to Start a CBD Business

How to start a CBD business

Starting a business based on CBD will entail the following actions: 

• Narrow your CBD product offerings. What type of CBD product will you sell? You can sell more than one type of CBD product, but a clear understanding of your offerings will help you draft a business plan and execute a marketing plan.
• Research the CBD landscape. Monitor local and state legislative issues pertaining to CBD. Researching your target customers is also a good idea to inform your marketing efforts. For example, will you target athletes with muscle pain or pet owners who want to help calm their animals?
• Obtain all necessary permits and registration. If you need a special business license to sell CBD products in your state, obtain one before opening. This step is separate from registering your business’s legal structure (LLC, sole proprietorship, etc.), which you’ll also need to do for business tax purposes.
• Choose your external vendors. You may or may not make products in-house. But unless you’re growing everything, you’ll need a wholesale supplier for your CBD. You’ll also need a payment processor and other vendors a traditional business may need.
• Finalize your business plan. Just like any other new business, you must finalize the details. Determining your prices, confirming the logistics of shipping online products, and drafting an initial marketing strategy are essential steps before you can officially launch. 

Why start a CBD business?

Countless unique opportunities are emerging for new CBD businesses. Starting any business requires hard work and effort; however, entrepreneurs starting CBD businesses also face the uncertainty of a shifting regulatory landscape. Still, in a fledgling industry projected to undergo explosive growth, today’s heavy lifting might be well worth the trouble tomorrow. 

Cory Slovik, owner of Core Roots CBD, started his company after experiencing firsthand the healing properties of the cannabinoid. 

“I used to be a pro snowboarder … and I was always sore, my muscles were constantly in agonizing pain. I tried CBD, and it helped me tremendously,” Slovik shared. “Then, years later, cannabis … started coming to the forefront, and there was research and data backing up everything I felt on the mountain.” 

Realizing a business opportunity and a way to help others treat their pain, Slovik soon launched Core Roots CBD. He says starting a CBD company is like any other business — plus a bunch of added steps. 

“It’s like any other business; there are steps and procedures you need to go through, like getting insurance and writing a business plan,” Slovik explained. “But in this space, you have got to double- and triple-check everything, know your market and jump through regulatory hoops.”

What is CBD?

CBD is one of more than 100 cannabinoids, or compounds found throughout cannabis and hemp plants. The most famous cannabinoid is undoubtedly tetrahydrocannabinol (THC), which is responsible for the intoxication associated with the consumption of cannabis. CBD, however, does not produce an intoxicating effect; instead, it offers potential therapeutic and health benefits, though research into its potential medical applications is ongoing. 

CBD products are generally created in several steps:

1. Harvest raw material. The raw material must be cultivated and harvested. For example, if you plan to use industrial hemp to create your CBD products, you’ll need to cultivate or purchase a large amount of the plant.
2. Extract CBD oil. CBD oil is extracted from the plant using various methods. Again, you can do this yourself or outsource the process to an extraction company.
3. Create the product. Once you’ve extracted the CBD oil, you can sell it as a concentrate or use it to infuse various products. Some of the most common CBD products include sublingual tinctures, infused edibles and topicals, like gels or creams.

Hemp CBD vs. cannabis CBD

CBD is found in both cannabis and hemp plants. CBD oil can be extracted from either plant and used to create products. However, there is a key difference between hemp CBD oil and CBD products derived from cannabis: THC. 

• Hemp: Industrial hemp contains less than 0.3 percent THC. As such, it is considered legal under federal law to cultivate, harvest and process into finished products. 
• Cannabis: Cannabis contains more than 0.3 percent THC (often much higher levels) and remains federally illegal. 

Hemp and cannabis are closely related; in fact, industrial hemp is actually Cannabis sativa L. The difference in name is primarily a function of a legal definition setting the threshold for THC content. A hemp plant’s flowers contain little to no THC, whereas the flowers of a cannabis plant (commonly referred to as marijuana) contain much higher THC levels. 

The federal government considers marijuana a Schedule I drug under the Controlled Substances Act, making it illegal for interstate commerce — even as dozens of states legalize it for adult use. In contrast, industrial hemp was recently removed from the Controlled Substances Act altogether, opening the way for its cultivation and harvest in the U.S. for the first time since 1937. 

Legislation to move marijuana from a Schedule I to Schedule III classification has been introduced to Congress several times since 1972 but has yet to pass a vote. 

Full-spectrum CBD vs. CBD isolate

If you’ve done any research into the CBD market already, you’ve likely encountered the terms “full-spectrum” or “isolate.” 

• Full-spectrum CBD: Depending on the extraction methods used, the CBD oil obtained from the plant might contain other cannabinoids and compounds found in the source plant. This is called full-spectrum CBD. Full-spectrum CBD also contains compounds known as terpenes, which are responsible for creating the plant’s flavor profile, aroma and specific effects. 
• CBD isolate: As the name suggests, CBD isolate contains only CBD with no other cannabinoids or terpenes. While the purity of CBD isolate might sound desirable, some evidence suggests that full-spectrum CBD promotes an “entourage effect;” that is, the compounds in a full-spectrum hemp extract work together to promote more significant effects. The entourage effect is still under investigation by researchers studying CBD and other cannabinoids.

Understand your legal obligations when starting a CBD business

The 2018 Farm Bill federally legalized industrial hemp and, by extension, hemp extract products like CBD oils. However, entrepreneurs must be aware of significant regulatory considerations surrounding the industrial hemp industry. 

FDA oversight

The 2018 Farm Bill essentially removed CBD from the federal Controlled Substances Act and the oversight of the Drug Enforcement Agency. Instead, it placed governance of the hemp industry and CBD oil in the hands of the FDA. 

The FDA is still devising regulations, which leaves the CBD industry in a gray area. So far, the federal agency has signaled that marketing CBD as having health benefits will not be tolerated. It has also initiated a crackdown against CBD-infused foods and beverages in some instances. 

Further complicating the regulatory landscape is the 2017 approval of the CBD-based pharmaceutical Epidolex, an epilepsy medication approved by the FDA. Since CBD is a primary ingredient in an FDA-approved drug, using it in food products without FDA approval could be illegal. 

Clearer guidance expected

Clearer guidance is sorely needed for CBD businesses to operate in compliance with federal regulations. In 2023, the FDA issued a statement that a new regulatory pathway for CBD products must be established because current frameworks are too limiting. The regulatory body indicated it will work with Congress to establish an appropriate regulatory strategy moving forward. 

“I think the FDA does have to step in, and they will,” said Slovik. “I expect a lot of changes to labels; we’re seeing a lot of businesses out there now using the term ‘hemp extract’ instead of CBD, or they’re not thinking of health benefits so much. Many companies are doing different things, but no one really knows [what the regulations will be] until it happens.” 

It is crucial to understand your legal obligations and play it safe in this highly scrutinized industry. While CBD businesses everywhere await more explicit regulatory guidance, consider the following:

• Ensure you don’t craft your marketing strategy around the supposed benefits of CBD.
• Stay apprised of new developments as the FDA moves forward with emerging regulations.

Marketing and selling your CBD products

Marketing and selling CBD products is tricky. While the passage of the 2018 Farm Bill liberalized the industry a little (CVS and Walgreens now carry CBD products, for example), selling CBD products on major online platforms like Amazon or eBay is still challenging. Likewise, social media advertising is virtually nonexistent; paid ads for CBD products risk account suspensions or bans. All your growth must be driven through organic content that falls under the guidelines of each platform. 

“In today’s day and age, if someone is looking to sell a product, the normal avenues are Amazon, eBay, Alibaba or paid ads on social media,” Slovik explained. “In this industry, it’s way, way, way different. You can’t do any of those things.” 

To successfully advertise and sell your CBD products, you must be creative. Consider the following: 

• Establishing your own e-commerce store or carrying your CBD products in a brick-and-mortar location is a must. 
• Marketing your product with an organic search strategy and customer loyalty programs is always safer than engaging in paid advertising. 
• Every market is different, so do your research and understand your local and state laws.

How to gain a competitive advantage

The key to gaining a competitive advantage with staying power in the CBD industry is to develop a high-quality product that will withstand the coming scrutiny of regulators and educated consumers. According to Slovik, if you want to differentiate yourself from other CBD businesses, you must provide third-party lab testing results — through creative means like QR codes — to validate your product’s quality.

“We want to be more transparent by putting QR codes on all our bottles, so anyone in the store can use their phone to get lab results right then and there,” Slovik shared. 

In addition, Slovik said pursuing certifications like USDA Organic, Good Manufacturing Practices and FDA facility registrations are critical moves to instill confidence in consumers about the quality of the products they buy. 

Overall, Slovik said, the formula for success is simple, even if the process is complicated.

“I would recommend double-, triple-checking everything. Know there will be changes. Research as much as you can, and recognize what the future opportunities are by thinking outside the box,” Slovik advised.

Key challenges facing CBD businesses

The CBD and cannabis industry faces unique challenges that other industries don’t. Most relate to the regulatory environment; as federal agencies like the FDA detail specific rules and guidelines, things should stabilize. For now, though, if you want to start a CBD business, you must be aware of these significant considerations: 

• Banking: Access to reliable banking services can be complicated due to the fluctuating regulatory landscape. Many banks are hesitant to do business with CBD and cannabis companies because they fear significant risk or burdensome oversight. Frequently, CBD businesses are forced to switch banks or experience the abrupt closure of a merchant account, which can seriously disrupt operations.
• Insurance: Finding affordable insurance for a CBD business is another significant challenge. Prices remain elevated despite the legalization of industrial hemp as the industry takes time to catch up to the developments. Education remains a key obstacle.
• Payment processing: Some payment processors present high fees and other challenges to CBD businesses. Slovik said Visa cut off all CBD businesses, leaving him capable of only accepting Mastercard and Discover for payments.
• Access to capital: Banks and other lenders are reluctant to fund CBD companies because they view the industry as too risky without clear regulatory requirements. So far, the CBD industry has relied on bootstrapping, outside investors or alternative lenders to find the growth capital it needs. 

These challenges will likely be cleared up as more concrete regulations appear. However, in the meantime, CBD businesses must remain adaptable and well-informed. Changes in the industry come daily, so preparing backup plans could save you a lot of time and money should the worst come to pass.

The CBD industry is projected to grow immensely

Industry analysts predict the U.S. CBD market will reach $22.05 billion in sales by 2030. This would be a major surge from $7.7 billion in 2023 and represent a compound annual growth rate of 16.2 percent. 

Needless to say, society is growing more open-minded and accepting of CBD. Many individuals are turning to it for pain relief, stress management, better sleep and more; many gas stations, restaurants, and local CVS stores now sell CBD products. 

The CBD market will likely experience the following trends in the near future:

• Increased product potency 
• More access to CBD products in big-box stores
• More pharmaceutical CBD products
• More access to products online through CBD websites and e-commerce shops

CBD product types to consider

The CBD industry is introducing new products all the time. If you want to start a CBD business, you’ll have a wide range of product types to consider selling. Here are the most popular types of CBD on the market right now: 

• Sublingual tinctures: A sublingual tincture is CBD oil that generally comes in a small bottle with a dropper. Sublingual products are ingested by placing them under your tongue and allowing the oil to absorb.
• CBD edibles: CBD edibles are a rapidly growing industry sector that includes baked goods, candies and foods. CBD edibles have faced significant regulatory scrutiny from the FDA but remain commonly found products.
• Vape concentrates: Vaporizer concentrates, such as CBD oils and waxes, are another common product. These can be used with an electronic device to vaporize and inhale the CBD product.
• CBD topicals: CBD topicals include gels, creams and sprays for aches and pains. These products are placed directly on the skin to target a localized region of the body.
• Capsules and pills: Many patients who experience seizures or digestive issues take CBD capsules or pills to treat their conditions.

Additionally, CBD isn’t just for humans. Animals also experience calming effects when given small doses, and many businesses offer CBD products for pets like dogs or cats.

CBD is a huge business opportunity if it’s approached correctly

The growth opportunity in the CBD industry is unparalleled. The cannabis industry is one of the fastest-growing in the nation, and CBD is one of the quickest-growing sectors of that industry. If you want to start a CBD business, you’re not alone. 

“This industry has been more or less illegal for the past century,” said Slovik. “At this point, there’s major, major momentum. Many people are trying to break in, so don’t follow the herd. You want to be a leader.” 

A combination of due diligence and creativity will set your business up for success in the CBD industry. Now is the time to get in on the ground floor and build a company that will last. However, you must differentiate yourself with a quality product that stands out from the crowd. 

Natalie Hamingson contributed to this article. Source interviews were conducted for a previous version of this article.