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CBD Business Beginner’s Guide: How to Start a Cannabidiol Company

Lorraine H

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CBD Business Beginner's Guide: How to Start a Cannabidiol Company

Cannabidiol is one of the trendiest nutritional supplement ingredients available today. Have you considered starting your own cannabidiol business? Your path to CBD riches might be easier than you think. Today, we’re explaining the basics behind starting your own CBD business.

Why Should You Start a CBD Business?

CBD is booming – and it’s not expected to slow down. The CBD industry is projected to hit $20 billion in sales by 2024.

Since January 2019, hemp and CBD have been federally legal. The 2018 Farm Bill legalized the production of hemp and CBD in all 50 states.

Despite its legality and popularity, CBD businesses still face significant challenges with advertising, banking, and insurance.

Of course, where some entrepreneurs see challenges, others see opportunities. That’s why there may be no better time than now to launch a CBD business.

What is CBD?

Cannabis is filled with different chemical compounds called cannabinoids. You’ve probably heard of the most famous cannabinoid in cannabis: tetrahydrocannabinol (THC). In recent years, however, cannabidiol (CBD) has become equally as well-known.

THC gives marijuana its psychoactive properties. It’s the chemical compound in marijuana that gets you high.

CBD, on the other hand, does not have an intoxicating effect. Instead, a growing number of scientific studies have linked CBD to various health benefits. Today, some people claim CBD is a cure-all for virtually anything. Although more research needs to be done, CBD has a proven ability to reduce certain types of seizures, among other benefits.

How Do CBD Products Work?

We know there’s a powerful chemical compound called CBD. But how do you access this compound? How do you ingest it? How do CBD products work?

CBD products are generally created in several steps.

Step 1) Cultivating and harvesting the raw material. Typically, CBD is sourced from hemp – not marijuana (it’s present in both plans, but certain hemp plants are now being bred specifically for their high CBD content).

Step 2) CBD oil is extracted from the plant using a variety of different methods.

Step 3) The oil is sold as a concentrate. Or, the oil is infused into food products, beauty products, nutritional supplements, and other products.

Some of the most popular CBD products on the market today include infused edibles and topicals and sublingual tinctures.

Some CBD companies do all three steps themselves, harvesting the plant, extracting the oil, and packaging it into products. It’s more common, however, for a company to outsource the first two steps to different companies: a grower sells hemp to a processing company, and the processing company sells CBD oil to another company.

What’s the Difference Between Hemp CBD and Cannabis CBD?

Today, most cannabidiol (CBD) is sourced from hemp – not cannabis. Both plants contain CBD, so what’s the difference?

Well, CBD oil can be extracted from either plant, and the end product will be mostly the same. Both hemp and cannabis can create good CBD products.

The reason hemp CBD is more common is largely due to legality: hemp, by law, has to have THC content of 0.3% or lower. In cannabis, high THC content is more desirable, which is why plants have content higher than 0.3%. Cannabis, of course, is federally illegal, while hemp is federally legal.

Industrial hemp has been removed from the Controlled Substances Act altogether. Hemp had been on the list since being added in 1937, which is why most of America’s hemp was grown in Canada and Mexico until recently. The passage of the 2018 Farm Bill clarified the legal status of hemp nationwide, opening the door for industrial hemp production.

Full Spectrum CBD Versus CBD Isolates

When browsing CBD products, you’ll often find products listed as ‘full spectrum CBD’ or ‘CBD isolates’. What’s the difference? The difference is in the way the CBD is extracted:

Full Spectrum CBD: This CBD may contain other cannabinoids, terpenes, and compounds from the original plant. There’s a ‘full spectrum’ of cannabinoids and other compounds in addition to the CBD. Many people enjoy having additional cannabinoids and terpenes because the terpenes, in particular, are responsible for creating the flavor profile, aroma, and specific effects of the plant.

CBD Isolate: CBD isolate only contains cannabidiol and no other cannabinoids or terpenes. It’s pure CBD.

You might think isolated CBD would be more desirable: you’re getting the pure stuff instead of a bunch of additives, right? However, evidence suggests that CBD works best when paired with other compounds. There’s an ‘entourage effect’ where the other cannabinoids and terpenes work together to boost the benefits of CBD.

The jury is still out on whether full spectrum CBD or CBD isolate is the best choice. More research needs to be done. Today, however, users generally prefer full spectrum CBD.

Most Popular CBD Products Available Today

The CBD market has been flooded with all different types of products in recent years. Entrepreneurs worldwide are trying to capitalize on the surging trend. The most popular products today include:

CBD Edibles: CBD-infused foods and CBD edibles are rapidly growing in popularity. You can find baked goods, candies, and foods infused with CBD, for example. The United States Food and Drug Administration (FDA) is particularly strict about CBD edibles, but you can find such products nationwide.

Sublingual Tinctures: A sublingual CBD tincture typically comes in a bottle with a small dropper. You place one or more drops under your tongue, then allow the oil to be absorbed. This is generally the most popular way to take CBD for its purported medical benefits. This is also the CBD ingestion method used in most studies.

Vape Concentrates: Vaporizer concentrates like CBD oils and waxes are also popular. You vaporize the product and inhale to enjoy the benefits of CBD.

CBD Topicals: CBD topicals include gels, creams, and sprays that can be applied to your body in targeted areas. Some people claim rubbing CBD-infused cream relieves arthritis pain, for example.

The CBD industry is rapidly diversifying. You can find hundreds of products in each of the above categories. New and exciting CBD products are hitting the market regularly.

How to Start Your Own CBD Business

Ready to start your own CBD business? Starting a CBD business is as difficult as starting any new business. Business News Daily recently published an excellent writeup explaining the challenges of starting a CBD business, including a step by step guide entrepreneurs can take to start their own CBD company.

Step 1) Perform All Steps Needed Before Starting Any Business

Generally, starting any business involves the following steps:

  • Step 1) Refine your idea and write a business plan
  • Step 2) Assess your finances
  • Step 3) Determine your legal business structure, then register with the government and the IRS
  • Step 4) Buy an insurance policy
  • Step 5) Assemble your team or hire employees
  • Step 6) Find suppliers or vendors
  • Step 7) Brand yourself and advertise
  • Step 8) Continue building and growing

There are the basic steps necessary for any business – including a CBD business. As a CBD business owner, however, there are additional challenges you need to face.

Step 2) Understand your Legal Obligations

The 2018 Farm Bill legalized hemp and hemp extract nationwide. However, there are still significant regulatory hurdles CBD companies need to cross to avoid trouble with the law. If you fail to understand your legal obligations, then you’re exposing your company to significant risk from day one.

Making things more complicated for CBD companies is that the FDA is still creating regulations for the industry. Today, CBD companies exist in a sort of grey area.

One of the biggest legal obligations for CBD companies, however, is that the FDA forbids marketing CBD as having health benefits. You cannot sell CBD products while touting their health benefits because these benefits have not been verified by the FDA.

The FDA has also cracked down on CBD-infused foods and beverages in recent months. If your CBD company is selling CBD-infused foods and beverages, then you may need to meet additional regulations in the near future. Remember: the FDA is concerned about foods and drugs. Nutritional supplements tend to fall between the cracks, but CBD foods and beverages will not.

Making regulations more complicated is the fact that the FDA approved a CBD-based pharmaceutical drug called Epidiolex back in 2017 as a treatment for epilepsy. This means CBD is a main ingredient in an FDA-approved drug, which means using it in food products without FDA approval could be illegal.

Ultimately, CBD companies are awaiting further clarity from the FDA. That clarity will hopefully arrive in the near future. If you’re serious about running a CBD company, then it’s your obligation to stay up-to-date on all current and future regulations.

Step 3) Marketing and Selling your CBD Products

Today, it’s easier to market and sell CBD products than ever before. You can find CBD products on store shelves at CVS and Walgreen’s, for example.

However, that doesn’t mean it’s an open market: CBD sellers struggle to get their products listed on Amazon or eBay, for example. Most advertising networks and social media platforms forbid CBD advertising, and advertisers have had accounts banned or suspended for advertising CBD products.

Naming and branding your company can also get tricky. If your company’s name contains overt references to CBD, cannabis, marijuana, etc., then you might struggle to get banks to work with you.

All of this leads to a simple conclusion: the best way to market and sell CBD products is to rely on your own website. Get creative. Drive traffic to your own e-commerce store, then sell directly through that store.

Use organic SEO strategies to get your website listed for key CBD-related search terms. Setup a loyalty program. Advertise on podcasts or other media that have more liberal advertising policies.

Step 4) Surmount the Unique Challenges Facing Any CBD Business

Today’s CBD companies face challenges – just like any business. However, there are certain challenges unique to cannabidiol companies, including:

Access to Banking: Many banks are hesitant to do business with CBD and cannabis companies due to unclear regulations. Other banks see it as an opportunity and will be happy to open a business bank account for you. Be prepared to switch between banks or receive abrupt closure notices, however, as regulations continue to get clarified.

Payment Processing: It’s hard for CBD companies to find banks, but it’s much harder to find payment processors. Today, there are no domestic payment processing companies in America willing to do business with CBD companies. That’s why many CBD companies rely on international payment processors. Or, payment processors may charge excessively high fees for CBD businesses. Be prepared to struggle with payment processing as regulations get clarified.

Access to Capital: CBD is a high-risk industry for investors. That’s why many investors are hesitant. You might struggle to access capital, particularly if you’re relying on conventional sources – like government business lending programs or banks.

Finding the Right CBD Oil Supplier: If you’re not growing and processing your own hemp and CBD, then you need to find a reputable supplier. With hemp now legal nationwide, there are more American providers than ever before. In certain legal states, companies have been growing hemp for years while waiting for federal legalization. Finding a good supplier today can help you avoid regulatory trouble in the future.

Insurance: Insurance is crucial for any business. In the CBD space, however, it can be hard to find insurance companies willing to cover various liabilities for your business. Again, the regulatory clarity isn’t there, and insurers are worried about getting caught.

Final Word: The CBD Industry is a High Risk, High Reward Space

If starting a CBD business was easy, then the market would already be over-saturated. Since starting a CBD business is hard, it presents a great opportunity for an entrepreneur willing to surmount the challenges above.

After being illegal in the United States for nearly 100 years, CBD is legal nationwide. There’s never been a better time to start your own cannabidiol company.

Lorraine H started her young writing career in local news journalism as a reporter many ages ago and was a refreshing insight to her opportunity of authoring engaging and helpful to the people in her community of today. While she has a Bachelor’s Degree in Media Studies And Communication, that story chasing thrill has translated into how she conducts and carries her words to the COR community and all of her contributions.

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