How to Start a CBD Business
The CBD sector of the cannabis and hemp industry is one of the fastest growing segments of the space. Here’s how you could start a CBD business and get involved.
- Cannabidiol (CBD), a compound found in hemp and cannabis plants, is becoming increasingly popular as a dietary supplement.
- The CBD industry is projected to hit $20 billion in sales by 2024.
- Hemp and hemp CBD are federally legal following the signing of the 2018 Farm Bill.
- The industry still faces challenges in advertising, banking and insurance.В
Still relatively new to the mainstream, cannabidiol, more commonly known as CBD, is becoming a household name. The purported therapeutic and health benefits of CBD, one of many compounds found in cannabis and hemp plants, has created a buzz. CBD oil has entered the marketplace in the form of tinctures, infused edibles, topicals and more. The growth of CBD oil products has been so immense, in fact, that industry analyst BDS Analytics predicts the U.S. CBD market will reach $20 billion in sales by 2024.В
The potential of the CBD industry has prompted many people to explore how they can launch a CBD business. The industry is not without its challenges, though, especially surrounding the evolving legal landscape, but the opportunity is significant.В
If you’re considering getting involved in the CBD industry, you first need to understand more about cannabinoids and the products that utilize them.В
What is CBD?
CBD is one of more than 100 cannabinoids, which are compounds found throughout the 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.В
CBD products are generally created in several steps. First, the raw material needs to be cultivated and harvested. For example, if you plan on using industrial hemp to create your CBD products, you will either need to cultivate or purchase a large amount of the plant. From there, CBD oil is extracted from the plant using a variety of methods. Again, you can do this yourself or outsource the process to an extraction company. Once you have extracted the CBD oil, it can be sold as a concentrate or used to infuse a variety of products. Some of the most common CBD products on the market today 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 CBD oil products. However, there is a key difference between hemp CBD oil and CBD products derived from cannabis: THC.В
Industrial hemp contains less than 0.3% THC, and as such, it is considered legal under federal law to cultivate, harvest and process into finished products. Cannabis, on the other hand, contains more than 0.3% THC (often much higher levels) and remains federally illegal.В
Hemp and cannabis are closely related; in fact, industrial hemp is actually Cannabis sativa L. The difference in name is mostly a function of a legal definition, which sets the threshold for THC content. The flowers of a hemp plant contain little to no THC, while the flowers of a cannabis plant (commonly referred to as marijuana) contain much higher levels of THC.В
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. Industrial hemp, on the other hand, 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.
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.” 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 what is known as full-spectrum CBD. Full-spectrum CBD not only contains other cannabinoids found in the source material, but compounds known as terpenes, which are responsible for creating the flavor profile, aroma and specific effects of the plant.В
CBD isolate, as the name suggests, is a concentrate that only contains CBD and no other cannabinoids or terpenes. While the purity of CBD isolate might sound desirable, there is some evidence to suggest 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.
The CBD industry is projected to grow immensely
Industry analyst BDS Analytics predicts the U.S. CBD market will reach $20 billion in sales by 2024. This would be a major surge from $1.9 billion in 2018 (a 49% annual growth rate).
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; and many gas stations, restaurants, and local CVS stores now sell it.В
Some trends the CBD market might experience in 2020 are increased potency of products, more brick-and-mortar CBD shops, more pharmaceutical CBD products, and more access to products online through CBD websites and e-commerce shops. In fact, CBD online sales currently account for 60% of the sales channels.В
The CBD industry is introducing new products all the time. If you’re looking to start a CBD business, you will have a wide range of product types to consider selling. Here are the most popular types of CBD on the market right now:В
- 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.В
- CBD edibles: CBD edibles are a rapidly growing sector of the industry, including baked goods, candies and foods. CBD edibles have faced significant regulatory scrutiny from the U.S. Food and Drug Administration (FDA) but remain as commonly found products.В
- 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.В
- 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.В
Additionally, CBD isnвЂ™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.
How to start a CBD business
There are countless unique opportunities for new businesses to sell CBD. Starting a CBD business includes all the hard work and effort of launching any other company in addition to the uncertainty of a shifting regulatory landscape (and all the issues that accompany it). However, in a fledgling industry projected to undergo explosive growth, the heavy lifting today might be well worth it tomorrow.В
Cory Slovik, owner of Core Roots CBD, started his company after experiencing firsthand what he said were the healing properties of the cannabinoid.В
“I used to be a pro snowboarder вЂ¦ and I was always sore, my muscles were constantly in agonizing pain. I tried CBD, and it helped me tremendously,” said Slovik. “Then, years later, cannabis вЂ¦ started coming to the forefront, and there was research and data backing up everything I felt on the mountain.”В
Slovik soon launched Core Roots CBD, seeing a business opportunity and a way to help other people treat their pain. He said starting a CBD company is like any other business, plus a bunch of added steps.В
“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 said. “But in this space, you have got to double- and triple-check everything, know your market and jump through regulatory hoops.”
[If you’re looking for more details on how to start a business and all the steps you need to take, see our step-by-step guide to get started.]
Understand your legal obligations
Just because the 2018 Farm Bill federally legalized industrial hemp and, by extension, hemp extract, like CBD oils, doesn’t mean there aren’t significant regulatory considerations surrounding the industrial hemp industry.В
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.В
Currently, the FDA is still devising regulations, leaving the CBD industry in a sort of 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.В
Further complicating the regulatory landscape is the 2017 approval of the CBD-based pharmaceutical Epidolex, an epilepsy medication that was approved by the FDA. Since CBD is a main ingredient in an FDA-approved drug, using it in food products without FDA approval could be illegal. Clearer guidance is sorely needed for CBD businesses to operate in compliance with federal regulations.В
“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.”В
Understanding your legal obligations and playing it safe is key in a highly scrutinized industry. While CBD businesses everywhere await clearer regulatory guidance, it is important not to craft your marketing strategy around the supposed benefits of CBD. It’s also important to stay apprised of new developments as the FDA moves forward on crafting new regulations.
Market and sell your products
Marketing and selling CBD products is tricky. While the passage of the 2018 Farm Bill liberalized the industry a little bit (CVS and Walgreen’s now carry CBD products, for example), it is still difficult to sell CBD products on major online platforms like Amazon or eBay. 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.В
“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 said. “In this industry, it’s way, way, way different. You can’t do any of those things.”В
To successfully advertise and sell your CBD products, you will have to be creative. Establishing your own e-commerce store or carrying your 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. And, of course, every market is a bit 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 both regulators and educated consumers. If you want to differentiate yourself from other CBD businesses, it’s key to provide third-party lab testing results to validate the quality of your product, Slovik said.
“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 said.В
In addition, Slovik said pursuing certifications like USDA organic, Good Manufacturing Practices and FDA facility registrations are important moves to instill confidence in consumers about the quality of the product they are buying.В
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,” he said.
Key challenges facing CBD businesses
The CBD and cannabis industry faces unique challenges that other industries don’t. Most of these challenges relate to the regulatory environment and, 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 should be aware of these major considerations:В
- 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, fearing 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.В
- Insurance: Finding affordable insurance for a CBD business is another major challenge. Prices remain elevated despite the legalization of industrial hemp, Slovik said, as the industry takes time to catch up to the developments. Education remains a key obstacle.В
- Payment processing: Similarly, payment processors present high fees and other challenges to CBD businesses. Slovik said Visa recently cut off all CBD businesses, leaving him capable of only accepting MasterCard and Discover for payments.В
- Access to capital: Banks and other lenders are reluctant to fund CBD companies, viewing 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.В
Each of these challenges will likely be cleared up as more concrete regulation appears, but in the meantime, CBD businesses must remain adaptable and well-informed. Changes in the industry come on a day-to-day basis, so preparing backup plans ahead of time could save you a great deal of time and money should the worst come to pass.
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. Especially following the passage of the 2018 Farm Bill, hemp CBD products are proliferating at a fast rate. If you want to start a CBD business, you’re not alone.В
“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.”В
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, but differentiate yourself with a quality product that stands out from the crowd.В
Additional reporting by Sammi Caramela. Source interviews were conducted for a previous version of this article.
The CBD industry is experiencing booming growth. Here is how to start a CBD business and enter the industry.
Hemp-derived CBD vs. marijuana-derived CBD: what’s the difference?
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- Isolate vs. full-spectrum CBD
- The entourage effect
- Which to choose? Experts weigh in
Cannabidiol (CBD) has become an increasingly common fixture in medicine cabinets and on the shelves of local convenience stores and major drugstores. There is growing awareness that not all CBD products are made the same, nor are they even necessarily derived from the same kind of cannabis.
There are two classifications for the cannabis plant that produces CBD: hemp and marijuana.
Hemp-derived CBD is sourced from industrial hemp plants, which are grown primarily for their fiber and seeds. Hemp plants tend to differ from marijuana plants in appearance; they are often skinny and scarce in foliage. Hemp is also differentiated from marijuana by its levels of THC, the cannabinoid that possesses intoxicating properties. Under U.S. law a hemp plant must contain no more than 0.3% THC.
Marijuana-derived CBD is extracted from marijuana plants that have thick, lush foliage and flowers that are generally grown and consumed for their intoxicating properties. The U.S. government defines marijuana plants as those which contain more than 0.3% THC. While most marijuana plants contain THC as the predominant cannabinoid, there are several strains of marijuana that are rich in CBD.
That being said, whether CBD is extracted from hemp or marijuana, it remains identical on a molecular level.
One critical point of difference between hemp-derived CBD and marijuana-derived CBD is the resin content of each plant. Photo by: Gina Coleman/Weedmaps
“The CBD molecule and its associated pharmacology are the same, whether it was extracted from hemp or from marijuana. CBD is CBD, regardless of where it was originally derived from,” explained Jeremy Riggle, Ph.D, chief scientist at Mary’s Medicinals, a medical cannabis company known for its Transdermal Cannabis Patch.
Despite the identical molecular constitution of hemp-derived CBD and marijuana-derived CBD, there are certain factors that differentiate CBD products sourced from the two plants.
One critical point of difference between hemp-derived CBD and marijuana-derived CBD is the resin content of each plant. Cannabis resin is found within the trichomes of buds and, to a lesser extent, on the leaves.
Marijuana plants usually contain copious amounts of resin, while industrial hemp plants contain significantly less. Following that logic, marijuana offers a more abundant source of CBD than hemp. In order to extract CBD oil from hemp plants, a much larger quantity is needed.
There is an exception to this rule. Some emerging craft hemp varieties possess unusually high concentrations of CBD, such as Cherry Charlotte, Cobbler, and Berry Blossom. These cultivars contain between 12% and 20% CBD content with 0.3% THC or less.
Where and how the CBD is sourced has a major effect on contamination levels. A lack of stringent local regulations surrounding the production and refinement of hemp could lead to highly contaminated CBD products.
For instance, in China there are few regulations enforced on the agricultural industry, leading to the production of hemp-derived CBD products that tend to contain high levels of contaminants. Studies show that, due to the country’s mining activities, some regions in China have water and soil that are contaminated with heavy metals.
These contaminants manifest as toxicants within the hemp that can potentially taint CBD oil sourced from these plants. In order to remove the risk of ingesting contaminated CBD, it is safer to consume hemp-derived CBD products that are grown without chemical pesticides and tested by a third party.
Isolate vs. full-spectrum CBD
CBD isolate products are those which contain only the CBD molecule, with no accompanying terpenes, THC, or other cannabinoids. For patients with certain medical conditions, or those wishing to avoid THC, CBD isolates made from hemp may be preferred. The alternative to CBD isolates would be whole-plant or full-spectrum CBD products.
CBD isolate products are those which contain only the CBD molecule, with no accompanying terpenes, THC, or other cannabinoids. Photo by: Gina Coleman/Weedmaps
“Full-spectrum hemp is the extraction of all of the components — cannabinoids, terpenes, flavonoids, etc. — of the hemp plant including low levels of THC,” explained Dr. Chanda Macias, CEO of Women Grow, an organization connecting female professionals in the cannabis industry; and CEO of National Holistic, a healing center based in Washington, D.C.
Marijuana plants, on the other hand, tend to contain a more diverse terpene profile than hemp. CBD products derived from marijuana plants also tend to contain THC levels higher than 0.3%.
“When you extract from marijuana, you get the added benefit of added terpene profiles that you can customize. Terpenes have an important therapeutic value,” said Dr. Herve Damas, a physician specializing in CBD treatment for professional athletes and director of Grassroots Herbals, a producer of CBD products.
The entourage effect
Research indicates that full-spectrum CBD products, whether extracted from hemp or marijuana plants, may offer enhanced therapeutic benefits.
“The entourage effect is essentially the synergy, in terms of outcome, that has been observed when cannabinoids are combined with other minor cannabinoids and terpenes,” Riggle said. “The combined effect is more pronounced in combination than in isolation, helping to prolong or enhance the overall effects.”
Various studies have shown that the entourage effect could help increase the clinical efficacy of CBD. One meta-analysis paper, published in September 2018, demonstrated that epileptic patients responded better to CBD-rich cannabis extracts that were complemented with other cannabinoids and phytonutrients.
Knowing where and how your CBD is sourced will provide major insight into potential contamination levels. Photo by: Gina Coleman/Weedmaps
One of the study’s authors, Fabricio Pamplona, Ph.D, observed, “It’s not necessarily always present in every clinical indication, but we observed that the patients reported lower doses with full-spectrum CBD than with pure/isolated CBD.”
Patients taking CBD-rich cannabis extracts also experienced fewer side effects. “It’s a complicated system that is not yet entirely understood, but the current evidence suggests there is definitely an entourage effect when cannabinoids are combined either with other cannabinoids or with terpenes,” Riggle added.
Which to choose? Experts weigh in
One significant consideration which influences consumer choice between hemp or marijuana-based CBD products is the law. Following the passing of the 2018 Farm Bill, industrial hemp was removed from the government’s list of controlled substances. As a result hemp-derived CBD became legal in all fifty states.
In contrast, marijuana-derived CBD products can only be purchased in states where medical or adult-use cannabis has been legalized.
For those who have the freedom to choose the plant source of their CBD, the experts tend to highlight the benefits of choosing whole-plant products when possible.
“I treat patients with both hemp and marijuana CBD products and I couldn’t say one is more effective than the other. I can concur that most of my patients find that having THC, even the 0.3% found in hemp-derived CBD products, more effective than products with 0% THC,” Damas said.
Macias pointed out that there are medical conditions that respond only to CBD with varying levels of THC, while other conditions do not require the use of THC to achieve medicinal effects.
“Full-spectrum hemp can provide an entourage effect. The medicinal benefits of a hemp-derived entourage effect will depend on the medical condition, stage of the condition, patient physiology, and the dose response,” she explained. “I do believe, however, that CBD-rich marijuana extracts offer greater therapeutic value than full-spectrum hemp CBD, as it pertains to specific medical conditions.”
For those who have the freedom to choose the plant source of their CBD, the experts tended to highlight the benefits of choosing whole-plant products when possible. Photo by: Gina Coleman/Weedmaps
Experimenting with both hemp-derived and marijuana-derived CBD with varying levels of THC and CBD may be the key to finding the right product for your needs. Ideally, choose an organic product of a low concentration, and incrementally increase your intake or product concentration until you find a level that works for you.
“At this point, what we know about cannabinoid therapy is that it is highly individualistic and depends to a significant extent on the symptoms being treated,” Riggle said. “The clinical data is not there yet to provide a one-size-fits-all answer to this question.”
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