How To Easily Become a CBD Seller
The State of the CBD Market
Before we get started, here is a quick recap of where we are with the CBD industry.
Whether you’re an avid CBD advocate, or an entrepreneur looking for the next great investment, now is the best time to enter the cannabidiol market and launch your own CD brand.
While originally identified in the 60s, the CBD market remained relatively dormant throughout its first few decades.
However, during its rise, cannabidiol products went from niche and novelty items that were hard to acquire, to spanning into everyday and trending markets, with sales nearly doubling to $170 million in 2016, according to Brightfield Group.
With CBD being used daily by many people (and pets!) and legislations becoming more lenient, the CBD market is expected to continue its upward trajectory, with a 49 percent predicted annual compound growth by 2024.
First-Time Entrepreneurs: Getting Started
If you’ve already launched a business in the past, and are seeking more CBD brand-specific information, feel free to skip the next steps and begin reading here.
Launching your own CBD brand presents many challenges not faced by those starting more traditional ventures. That being said, many of the initial steps are standard across all business endeavors. Below, we’ll go through the preliminary steps of building a business for those who are starting their very first brand.
Before you can begin sourcing your products or launching a killer marketing strategy, you’ll need to establish your CBD business. There are a few steps that every business must take before launching. We’ve highlighted these below.
Building a Business Plan
The first thing you’ll want to do is craft a unique approach that will prepare you for all aspects of the market. To do this, start by asking yourself a few key questions: What is the purpose of my business? Who am I selling to? What is my initial investment budget, and how will I finance these startup costs?
By answering these questions clearly and concisely, you will have your brand new business plan.
Many mistakes/challenges that new business owners face are caused by rushing into their launch without having a good strategy in place.
Registering Your Brand
Now, you’ll need to register your business with the government. This can include obtaining an articles of incorporation document, which will have your business name and purpose, corporate structure, stock details, and/or any other pertinent information.
Alternatively, you will need to register your business with your legal name, fictitious DBA (doing business as), or of course, the name that you’ve established for your business. You may want to get this name trademarked, but more on that later.
Next, you’ll want to get a Tax ID, or EIN (Employer Identification Number) from the IRS. This step is not required for proprietors without employees, but if you plan on expanding your business and getting assistance, or, if you prefer to keep your personal and business taxes separate, this step is highly recommended. You can check your eligibility/requirement for an EIN, review the steps for obtaining one, and register for free if necessary, here.
LLC or Sole Proprietor?
Choosing the Right Business Structure
There are many options available for entrepreneurs in terms of business structure. However, for the most part, small businesses will fall under the realm of Sole Proprietor or LLC (limited liability company).
For many new entrepreneurs, this can be a tough decision to make. That’s because both options come with their unique sets of benefits.
In short, sole proprietorship offers more simplicity and lower costs, while LLCs offer more flexibility and liability protection. Of course, there is far more to consider when deciding on your business structure, so be sure to do adequate research before making your choice.
Opening a Business Account
While launching any business will require you to establish a reliable business account, the legalities and risks associated with the fluctuating regulatory landscape of the CBD industry can make this step a bit more complicated than expected.
Many banking establishments hesitate to do business with CBD companies due to the significant risks and regulations. This is typically a larger issue for smaller companies with less collateral and investment leverage. However, all hope is not lost.
Protecting Your Intellectual Property
Too often, startups end up forfeiting intellectual property rights by neglecting to protect their ideas and inventions. If you’re going to go through the trouble of starting your own business, it’s wise to ensure you are protecting your investment.
This may seem like an intimidating or costly step to many business owners, but some simple and cost-effective techniques can minimize any headaches down the road. These can include securing patents, trademarks, copyrights, trade secrets, and confidentiality agreements to name a few. You can find more information on these, here.
Unique Challenges of Launching a CBD Brand (And How to Conquer Them)
As mentioned above, launching a CBD brand brings up many unique challenges for established entrepreneurs and novices alike. That’s because the CBD industry is still in its infancy (with the passing of the Farm Bill occurring in 2018), and regulations are still in fluctuation. Below are some of the areas that may require more attention by those starting a CBD brand.
Selecting a Brand Name
What's in a name? While posited by an angsty, lovestruck teen, Juliet was onto something with this question. From an early age, we’re taught not to judge a book by its cover, but when it comes to business and marketing, few things carry such immediate weight like a brand name.
Your brand name is the first impression given, responsible for conveying not just your business type, but also brand aesthetic, priorities, personality. It’s a lot of weight to carry in just one to two words.
That being said, there is another reason entirely to be selective about the name you select for your brand, and as with all roads CBD related, this one leads to legalities and regulations.
This means that if your brand name has the word “CBD” in it, you might face many obstacles in terms of banking and digital advertising.
So while it is an advantage to convey to your potential consumers that you are in fact a CBD brand, if not done carefully, it will in all likelihood create future obstacles for you, especially if you are a smaller or start-up brand.
Sourcing Your Product
Unless you’re taking a seed-to-sale approach to your CBD brand, you’ll find that where you source your CBD products is another one of those elements where you’ll want to be very selective. This is a vital step, in ensuring that your CBD business establishes credibility and sustainability from the beginning.
Today’s consumer is a well researched one and so, providing a quality product that lives up to your marketed claims will be the differentiating factor between you and the many unreliable CBD businesses running rampant in the industry.
Setting Up a Merchant Account
When setting up a merchant account, or payment processor, it’s always a good idea to start with key players like Square and/or PayPal. This ensures you’re doing business with a secure, reliable and trustworthy source.
However, those who have low monthly values or are just getting started may find it difficult to be approved by these payment processors. More confusing still, is that your account may be approved, only to be revoked months down the line. This will without a doubt be a disruption to your business, resulting in loss of profits as would-be-customers will not be able to complete their transactions.
In cases such as these, you’ll want to look into a high-risk payment processor.
These companies cater to industries where there's a greater-than-normal legal requirement or fraud potential related to the type of products being sold.
While they may come at higher fees, high-risk payment processors will accept the added risks involved with a CBD business.
When creating a CBD brand it is important to be well versed in the compliance and regulations that come along with the industry.
The passing of the 2018 Farm Bill legalized industrial hemp, and by extension, hemp extracts like CBD oils on a federal level. That being said, the are still significant regulatory considerations surrounding the industrial hemp industry.
The FDA is still devising regulations for this fledgling industry. Leaving CBD oils and products in a bit of a gray area. Below are some of the key compliance pain points to look out for when running your CBD business.
Health, Medical, & Untested Claims
Many influencers and research papers may talk about the benefits and treatment abilities of CBD. It is crucial to note, however, that those in the CBD industry refrain from making any health or medical claims, as it violates FDA regulations. The same is true for making “untested” claims. To avoid any complications, claims must always be substantiated, credible, and authentic. In this vein, CBD products can not be referred to as dietary or health supplements.
While industrial hemp-derived CBD is legal at the federal level, this applies to CBD that contains less than 0.3% THC. Of course, this blanket statement can vary depending on the state you’re in. In Kansas, for example, CBD products may not have any traces of THC.
CBD Packaging & Labeling
When creating a label for your products, you’ll need to include information that gives consumers enough specifics to satisfy their needs while also meeting the FDA requirements. Below is a breakdown of a compliant label.
Aside from differences in state laws, CBD is currently governed by strict marketing and labeling regulations. CBD businesses must ensure that they always abide by these rules. This is where working with a knowledgeable and trusted partner comes in handy.
In order to avoid hefty fines and legal fees, be sure to familiarize yourself with the regulations surrounding CBD products. Alternatively, you can partner with an established and knowledgeable CBD distributor who can help navigate the fluctuating regulations.
Once the logistics have been established, you can begin working on your marketing strategy. Aside from the strict labeling and packaging guidelines set in place for CBD products, business owners will also find regulations set in place for digital marketing and advertising.
Shopify and Squarespace are well-known providers of beginner-friendly e-commerce websites. We recommend taking some time to compare the benefits of different platforms: who’s got the easiest setup? Who will allow you to easily make changes to your site once it’s live? Where can you get the best deal on credit card processing fees? Etc.
Running digital ads for a CBD brand can be a confusing series of trial-and-error. Marketers will quickly learn that while some platforms (such as Mantis) are CBD-friendly, others like the popular Google AdWords are much more strict. The latter, for example, only allowing ads for “hemp” products. These restrictions extend not just to the ads themselves, but also the web pages and links the ad leads to.
CBD business owners will quickly learn that marketing on social media will also have it’s restrictions, particularly when it comes to advertising. A couple of things to note:
Facebook and it’s subsidiaries (Instagram, YouTube) allow only hemp-derived CBD advertisements. After lifting its ban on CBD products in 2019, you can now advertise topical hemp products.
Twitter does not permit marketing CBD products. However, you can use this platform to share educational posts and link back to your website.
Because of these restrictions, one of the smartest and most efficient ways to garner attention will be through influencer marketing. CBD brands will benefit from establishing relationships with influencers that have a large and loyal audience. Of course, choosing an influencer that shares your target audience is key.
One way a CBD business can reach out to influencers is by sending free samples for them to try and review.
If influencers enjoy your products, they can be more worthwhile than an advertisement.
Influencers increase brand awareness in multiple ways including:
Sharing a post written about your brand.
Mentioning your brand on their social media platforms.
Reviewing your brand on one of their platforms.
Running a contest with a product from your brand as a reward
Possibly the most organic way to drive traffic to your website and your brand will be through thoughtfully crafted SEO-rich content. You’ll want to ensure that your meta tags and titles, blog articles, and content is created with longtail keywords and phrases that are targeted to your niche market. SEO is very important because it is one of few channels that is not restricted.
Note: SEO keywords will be considered as marketing and advertising materials if the FDA is investigating any health or disease claims.
While one of the oldest forms of digital marketing, email marketing still provides some of the best conversion rates. Establishing an effective strategy that includes welcome workflows, sales promotions, abandoned cart emails, and more is a fantastic way to convert and retain customers.
You can find more information on how to market your CBD brand here.
Ways to Source Your CBD Products
Do It Yourself: A-Z
A vertically integrated, or do-it-yourself, CBD business is one that owns and operates every aspect of their process, from the growing of industrial hemp in their own farms to the manufacturing of proprietary formulations and products, and even the marketing, fulfillment, and delivery processes.
This method requires a tremendous amount of planning and coordination, as well as a high financial and time investment. A few points to note about this business model below:
Due to the complicated and changing laws and regulations associated with CBD and its products, those who are not well versed in them will require the assistance of a knowledgeable legal team in order to protect their investments.
Building a CBD brand from scratch will require the growing and cultivation of hemp, the purchasing of expensive CBD extraction and manufacturing equipment, the sourcing of third-party lab tests, and more. These costs will quickly add up, and entrepreneurs can expect to invest upwards of $1M before they begin to see any profits.
Time to Market
Establishing all of the processes that are required to build your brand from the ground up is a time-consuming endeavor. Once all of these processes are set in place, business owners will need to repeat the lengthy exercise of experimentation and lab testing, before even going to market testing every time they choose to offer a new product. This means that the full process, from seed to sale, can take years to complete.
Due to its hands-on approach, this method will present some very unique challenges. Mainly, business owners will need to have advanced knowledge of botany and the extraction process (or at the least, hire someone who does), as well as the current regulations and legal restrictions of their products and the locations they are selling to.
White Label CBD
For those wanting to go to market as quickly as possible, CBD white labeling is the best option.
White labeling provides resellers with the ability to cut production costs and time, going to market sooner while making a minimal investment. This turnkey solution provides entrepreneurs with ready-to-market products that they can brand and launch in as little as two weeks.
Because white label products have already been manufactured by a third party, they tend to have smaller minimums, which allow businesses to start small, testing out which products are most (and least) popular among their target market. Once the high performing products have been identified, businesses can build up their inventory with confidence.
As part of the white labeling process, the manufacturer absorbs the cost of the expensive machinery, the responsibility of lab testing and certifications, and in many cases, even the branding and fulfillment aspect of the business.
This means that business owners who choose this route have fewer risks and challenges, and can spend more time focusing on growing their brand and developing a marketing plan.
Private Label CBD
If you prefer to go to market with your unique product concepts, then CBD private labeling is the right solution for you.
This service offers some of the same benefits of white labeling, such as having your CBD manufacturer absorb the cost of the expensive machinery, the responsibility of lab testing and certifications, and even the branding and fulfillment aspect of the business, if needed.
The main difference, however, is that through CBD private labeling, you are not restricted by an inventory of existing products and formulations. If you can dream it, your manufacturer can build it, handling the formulating, R&D, and third-party lab testing to deliver a product that is uniquely yours.
While this option is more time and cost-effective than the Do It Yourself route, it will have a slightly longer lead time that white labeling.
Build Your Own CBD Brand
For business requiring more than just a CBD product, but instead, whole business solutions, a Build Your Own Brand option can deliver a full suite of services. This comprehensive approach entails all of the services available through white labeling, with the addition of complete marketing and branding support.
This is a fantastic option for those venturing into business ownership for the very first time.
About The Hemp Plug
Our seed-to-shelf business model positions us as a full-service partner, assisting with the creation of high-quality CBD products, as well as branding, fulfillment, and tailored business development services.
From customization and order fulfillment to brand development and label design, THP provides guided support every step of the way through tailored business strategy.
To date, we have used our industry knowledge and expertise to help over 500 brands launch and grow their CBD businesses around the world while being rated #1 in customer satisfaction four years in a row.