How to Start a CBD Oil Business

While CBD oil is still relatively new to the mainstream, it is already becoming a household name, thanks to its health benefits.

A recent market research by BDS Analytics and ArcView projects that the United States’ CBD sales will surpass $20 billion by 2024. On another report, the annual growth rate of hemp-derived CBD products is forecasted at 55%.

Considering such CBD market analytics, aspiring entrepreneurs have an ample chance for making some green in the industry.

But how do you go about setting up a CBD business? This piece has everything you need to know, including information about legal compliance, challenges within the industry, and the average return on investment.

What is CBD?

Cannabidiol (CBD) is one ofthe over one hundred compounds (cannabinoids) found in the best hemp oil and cannabis plants. Unlike the famous cannabinoid known as tetrahydrocannabinol (THC), CBD does not have psychoactive effects. Instead, it is touted for its exceptional therapeutic and health benefits that have been proven through research.

CBD products are created through several steps. This starts with the cultivation and harvesting of the raw materials (hemp or cannabis). From there, CBD oil is extracted using an array of methods, including supercritical CBD extraction, steam distillation, or solvent extraction.

After extraction, CBD oil is sold as a concentrate or used to infuse a range of products. Some of the most prevalent CBD products in the market today are sublingual CBD oil tinctures, topicals, infused edibles, gels, creams, vapes, and pet treats.

Hemp CBD

Although CBD oil can be extracted from either hemp or cannabis, there is a crucial difference between oil extracted from the two plants: THC.

While CBD oil derived from cannabis is illegal at the federal level, hemp-derived CBD is legal. Industrial hemp contains less than 0.3 % THC and is considered legal to cultivate, harvest, and process under the federal law. On the other hand, cannabis contains over 0.3% THC and at times higher levels, which makes it illegal.

Cannabis and hemp are closely related. Actually, industrial hemp is Cannabis sativa L. The name difference is mostly a legal definition function that sets the THC content threshold. Hemp flowerscontain no THC, unlike those of cannabis. You can check this hemp oil vs CBD oil comparison guide for other details you must know and should understand.

How to Start a CBD Oil Business

As is the case with any other investment, starting a cannabis business will require much hard work and effort on your part. However, you will pay a higher price complying with the legal aspects of the business and need to brace yourself for the uncertainty of the industry’s shifting regulatory landscape.

Below are the steps you need to follow when starting a CBD oil business.

  1. Identify Your Niche

The hemp industry is broad and has tons of business opportunities. Determining your areas of interest would go a long way towards planning, legal compliance, and business execution.

One of the most rewarding fields in the industry is cultivation, which, according to a report by the University of Kentucky’s Department of Agricultural Economics, generates an average profit of $604 per acre. The Hemp Business Journal reports that when planted for CBD extraction, farmers can get more than $2,500 hemp farming profit per acre.

Other rewarding CBD oil business opportunities include:

  • Hemp extraction
  • Processing
  • Online and physical store retailing
  • Delivery
  • Marketing and consultancy
  • Opening a hemp seed bank
  • CBD events planning
  • Hemp business funding
  • Industry employment bureau
  • And more!
  1. Legal Considerations

The success of your business will, to a large extent, depend on how familiar you are with hemp laws.The most crucial law to understand is that the federal government deems CBD products legal only when they are produced from hemp with no more than 0.3% THC.

The other issue is marketing. 

Although CBD has plenty of health benefits, you will need FDA approval on your products for you to claim that they can prevent, treat, cure, or diagnose a disease. Only one CBD drug (Epidiolex) is FDA approved and making such claims on your products could lead you to trouble with the FDA.

Read all federal and state regulations before starting up a CBD business. Afterthis, you can get incorporation and business licenses, as well as employer and tax identification numbers. 

To maneuver through this process more easily and have your contracts well drafted, it would be best to hire an attorney, especially if you are putting in a substantial amount of investment capital.

  1. Create a Business Execution Plan

Before investing or as you wait for license approval, come up with a comprehensive business plan to guide you throughout all your operations. Key factors to include are:

  • The products and services you will be selling.Thesecould include health and wellness, personal care, beauty, or pet care products.
  • Financing methods: Identify how much you need and make a plan on ways to raise resources for financing your startup.
  • Marketing plan: Come up with ideal marketing strategies to drive awareness and sales of your new product or service.
  • Sales forecasts: Review your expectations and research to come up with a realistic sales benchmark and a plan on what you will need to do to stay on track and meet this goal.
  1. Find the Right Supplier

If you are interested in processing, distributing, or reselling CBD oil, you will need to have someone to supply you with the raw materials or finished products. The same applies to cultivation and extraction, among other fields. Reputable hemp is available from Europe and America.

Factors to consider when looking for a hemp supplier include current good manufacturing practice and a Certificate of Analysis.

  1. Build Your Brand, Market and Sell

Before and after you get everything ready, focus on creating a pool of customers you can rely on. This will require you to run aggressive marketing campaigns, optimize your website, and create a strong media presence.

Since most platforms do not allow CBD advertising, you will need to be creative to get results. Marketing CBD products through customer loyalty programs and organic search strategy is more engaging and safer than paid advertising.

Challenges Facing the CBD Business

Anyone looking to start a CBD business should familiarize themselves with the following challenges that are rampant in the industry:

  1. Banking

With hemp’s fluctuating regulatory landscape, accessing reliable banking services when running a CBD oil business can be complicated. Most banks are hesitant to accommodate cannabis and CBD companies as they fear a huge risk of burdensome oversight.

  1. Insurance

CBD oil entrepreneurs find it challenging to find affordable insurance. Despite the legalization of hemp, insurance prices remain heightened for such investors.

  1. Payment Processing

Many payment processors present unreasonably high charges and other challenges to CBD oil businesses. Some like Visa have cut off CBD businesses, leaving entrepreneurs with limited options like Discover and MasterCard.

  1. Capital Access

Lenders, including banks, are reluctant to finance CBD companies as they view the industry as too risky due to the lack of clear regulatory requirements.

Final Verdict

If you approach it correctly, CBD oil is a big business opportunity. All that you need to do to set up your business for success in the industry is combine creativity and due diligence. 

Get in on the ground floor and build a lasting company,remembering to differentiate yourself with quality products or services that stand out from the rest. There is a considerable scope to grow with new business opportunities. For that, you need to chalk out some plan. Visit Peterleehc.com for innovative business ideas and how to execute them in the field.

Adam Hansen