There has been a real boom in the CBD (cannabidiol) industry within the past few years. This exponential rise is evidenced by the fact that the Hemp-derived CBD market hit 57% growth in 2018.1 This is mainly due to changes in laws and an increase in public awareness about CBD, the non-psychoactive component of Cannabis.
Below, we’ll examine the finer details of the CBD market, so you can make an educated decision before making an investment choice as a franchisee:
Knowing Your Legal Obligations
You should have a clear understanding of the CBD laws before you think of a business plan. The Farm Bill of 20182 passed by the United States Department of Agriculture (USDA) and the state’s department of agriculture removed hemp from the Controlled Substances Act (CSA), allowing it to be transferred across state lines, to be sold as an agricultural commodity, and used commercially in the manufacturing of products.
This indicates that all industrial hemp products containing CBD are now federally legal in the United States. Accordingly, the control of CBD products shifted from the Drug Enforcement Agency to the Food and Drug Administration (FDA).3 Important considerations in this regard include:
- The FDA is currently evaluating the regulatory frameworks for various CBD products. Meaning, at least for the time being, they are in a regulatory gray area.
- The FDA has only approved one CBD prescription drug. Epidiolex, which was released in 2017 for the treatment of severe childhood epilepsy. As of this moment, they have not approved any other CBD products, as there is limited information based on scientific research on the safety and efficacy of these products.
- As per the FDA, a CBD product cannot claim that it will prevent, treat, diagnose or cure a disease.
- It is very important to pay attention to how the benefits of CBD are described on the packaging, and in the promotion of a product. It’s best to avoid making claims that may be untrue when including a printed insert with general information about cannabinoids, or posting on a website to educate consumers.
Your next priority should be to identify a high-quality supplier or reputable wholesaler, regardless of whether you are thinking about becoming a distributor or a seller. The following two documents should be provided to you by the supplier as essential requirements4 before you finalize any deal:
- The current Good Manufacturing Practice (GMP) certificate usually demonstrates that the business has been operating using the processes and procedures that comply with state and FDA guidelines.
- The Certificate of Analysis (COA) is a report that verifies the plant species, levels of CBD/THC (less than 0.3 percent THC is required by law in areas where marijuana is illegal) and provides a detailed analysis of other components like heavy metals, pesticides, and terpenes in each batch. You can obtain a third-party test to verify the purity and potency of CBD products.
Knowing How to Market & Sell
It is imperative that you are familiar with marketing and selling CBD products. An online survey designed to study the CBD consumption in 2409 users revealed that the majority of survey respondents learned about CBD from internet research, family members, or friends.
You have to be innovative in designing an e-commerce store and market with strategies such as:
- Earned media via positive public relations work can give you a competitive edge in the market, which is superior to paid advertising. An email list can help you reach a greater number of consumers than social media alone.
- Promotion of CBD on platforms such as eBay, Google, and Pinterest is not feasible due to the fact it violates their policies. Amazon has restrictions for the sale of CBD products too but they are still listed on the platform.
Knowing Your Financial Options
Finally, just like any other business, you must have a clear estimate of your finances in terms of the franchise fee, build-out costs, inventory, marketing costs, and tech support. As a result of the fluctuating regulatory landscape and new developments, CBD businesses face the following challenges:
Banking: Approaching a dependable banking service can be complicated, as many banks are uncertain about doing business with a CBD/Cannabis company, being afraid of significant risk. Quite often, CBD businesses have to change banks or experience a sudden closure of a merchant account.6
Payment Processing: Likewise, payment processors present high fees and other challenges to CBD businesses. Recently, Square started processing for CBD companies.7
Access to Capital: The hemp industry is still seen as risky by banks and other lenders who are reluctant to fund CBD companies. The growth capital counts on bootstrapping, outside investors, or alternative lenders.
CBD is one of the fastest expanding sectors of the cannabis industry. It is a great business opportunity if handled with care and when one possesses an understanding of and a willingness to overcome the associated challenges.
- Sherwood C. A Marketer’s Guide to CBD Products in 2019. Cannabis industry journal. May 08, 2019. Ac. Accessed Aug 26, 2019.
- USDA. Hemp is legal – Agricultural Marketing Service.pdf. 2018. Accessed Aug 26,2019.
- USFDA. What You Need to Know (And What We’re Working to Find Out) About Products Containing Cannabis or Cannabis-derived Compounds, Including CBD. Jul 17, 2019. Accessed Aug 25,20019.
- Bonn-Miller MO, Loflin MJE, Thomas BF, et al. Labeling Accuracy of Cannabidiol Extracts Sold Online. JAMA. 2017;318(17):1708–1709. doi:10.1001/jama.2017.11909.
- Corroon J, Phillips JA. A Cross-Sectional Study of Cannabidiol Users. Cannabis Cannabinoid Res. 2018;3(1):152–161. doi:10.1089/can.2018.0006.
- Moss J. Four Ways the CBD Industry Can Process Payments Post-Elavon. Forbes New York Business Council Post. Aug 06, 2019. Accessed Aug 26,2019.
- Angell T. Square Quietly Launches Program for CBD Cannabis Company Credit Card Processing. Forbes. May 22, 2019. Accessed Aug 26, 2019.
- Sopko J. Bootstrapping? 2 funding resources entrepreneurs overlook. Small business loans. Entrepreneur. Jul 1,2019. Accessed Aug 25, 2019.