The idea of starting a CBD business has become very popular recently.
Dozens of celebrities are now pimping cannabidiol and professional athletes are jumping into the game. Plus hundreds of other people are also trying to stake a claim in the hemp industry.
Who can blame them? The CBD and hemp industry is the darling sister of cannabis with a projected market of 20 billion dollars by 2024. But operating a CBD business isn’t all it’s cracked up to be.
The Biggest Challenges of Starting a CBD Business
While it’s tempting to believe there’s gold in them hills, the reality is you might want to consider selling picks and shovels instead. The CBD industry could be lucrative but there are some huge challenges to overcome.
The FDA is a hypocritical bully.
We believe stricter regulations and testing is critical to protecting a consumer’s safety. None of us really want to put harmful chemicals into our body, but the FDA is filled with hypocrisy.
On one hand, they’re making egregious claims about the “harmful effects” of CBD including potential liver damage, without the scientific research to back it up, yet they go after companies who claim CBD is beneficial even if it’s supported by valid research. While using cannabidiol can cause some issues, even the World Health Organization has extolled the benefits of CBD.
If you plan on starting a CBD business or currently offer these products, you better be prepared for battle.
Any type of health claims, regardless of scope, will land you in hot water. Look at this letter to Infinite CBD, one of our previous manufacturers, to see how
asinine thorough the FDA is in regards to regulations.
Finally, to make matters worse, the FDA has yet to decide how they will classify CBD in the future. If they categorize CBD as a pharmaceutical drug, then its lights out.
The payment processing options are absurd.
Even though hemp is now federally legal, accepting credit card payments for products is almost impossible or expensive.
PayPal, Stripe, and others don’t allow CBD sales and will shut down your account, plus can hold your money for 180 days if you’re busted. Square started accepting CBD accounts on a trial basis but they’re unpredictable and a pain in the ass to work with.
Working with other payment processor companies can be scrupulous and cost prohibitive. Most take advantage of your situation, charging hundreds of dollars to set you up, in addition to high monthly and per transaction fee percentages … upwards of 6% or more! Some credit card processing options won’t allow you to sell CBD flower, vape cartridges or other products.
The rules are always changing. Waking up to discover your merchant account has been shut down for the fifth time is a shitty way to start the day.
The CBD marketplace is extremely crowded.
There are thousands of CBD brands fighting for people’s attention. To make matters worse, businesses such as Family Video to RiteAid to Abercrombie & Fitch are selling these products. There are a LOT of choices, for better or for worse.
Starting a CBD business in an extremely crowded marketplace requires commitment and lots of capital. You will have to build a brand people can trust and relate to, as well as have a passion for more than chasing money. The opportunity is certainly there for any brand to be successful, but it’s going to be a tough battle going forward.
The profits will decline in the next couple of years.
The days of premium CBD pricing are almost over. There will always be those luxury brands who can command premium prices for their products, but most companies will be subject to the falling prices and commoditization of CBD hemp.
Currently there are a dozen quality, large scale manufacturers for CBD products in the United States. I would estimate 90% of the brands available are private labeling with this companies. This means your product won’t be any different from the competition, so it comes down to branding, customer service, and pricing for market differentiation.
Additionally, as more hemp growers hone their craft, there will be an abundance of CBD rich hemp available. This will drive down the costs dramatically. It’s already happened in the adult use and medical marijuana industry. The CBD industry will soon follow.
As consumers become more educated about cannabis and cannabidiol, they will be savvy on pricing and what they will spend going forward. Once retailers like Walmart or Whole Foods offer these products, it will be a race to the bottom unless you stake your claim in a niche market or build a luxury brand.
My Advice for Starting a CBD Business
Overall my advice after launching a well-received and moderately successful brand of CBD products; don’t start a CBD business at all!
I absolutely loved what we created almost two years ago and it was painful to shut it down. The stories of changed lives and results were amazing. But it’s not enough to keep you in the game against brands who have plenty of investment capital, scalable infrastructure, and perhaps influencers to push your products.
If you’re hell bent on becoming the next big brand (or even micro brand) in the CBD marketplace, don’t let my perspective keep you from trying to achieve greatness. The need and interest in these products aren’t going away soon and there is still a good chance you can find success, if you overcome the challenges.
I’d also recommend the following advice:
- Build a kick ass brand or you won’t survive.
- Offer quality CBD products made in the USA.
- Educate your customers as much as possible. But be careful of the FDA.
- Provide amazing customer service and help.
- Test all your products for safety, even beyond what your manufacturer offers.
- Hire a damn good lawyer and accountant to keep you out of trouble.
- Partner with manufacturers who have a great reputation and honor their agreements.
Starting a CBD business is a roller coaster ride that’s both exhilarating and nauseating. There are all sorts of twist and turns. There can be high risks and high rewards waiting for you. But if you desire to climb on board, I salute you and wish you much success. We might even be able to help you build your brand.