CBD Business Basics – CBD has swept the marketplace, finding itself infused into countless food and beauty products, pet products, personal care products, and more. And while the number of CBD consumers continues to rise, so does the potential for small business owners to get into the CBD space. Whether just starting a hemp business or thinking of adding CBD to an existing product line, one must understand a few critical CBD business basics.
Notably, CBD is a unique industry. It’s close association with intoxicating THC (the psychoactive chemical in “marijuana”-type cannabis) requires CBD businesses to face some rather challenging hurdles. Fortunately, those who want to start and manage a CBD business can do so easily as long as they follow a few CBD business basics.
Today, we’ll discuss the most vital CBD business basics, including CBD industry outlook, steps to starting a CBD business and managing its supply chain, and tips to market CBD successfully. But first, let’s take a look at what CBD actually is.
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What is CBD?
CBD, or cannabidiol, is a chemical compound that develops primarily in the resin glands that coat cannabis flowers. When ingested, CBD interacts with the Endocannabinoid System by mimicking endogenous cannabinoids, which the body produces as a stress response.
Unlike THC, CBD does not cause intoxication. Nevertheless, CBD does impact the body when it interacts with cannabinoid receptors to help control cellular communication. In doing, CBD may help reduce pain, improve sleep, boost mood, and so on. Notably, CBD research is still relatively young, and these claims are not yet verified, but preliminary research and anecdotal evidence are promising.
Hemp Versus Marijuana CBD
As mentioned, CBD develops in cannabis flowers. However, there is an important distinction between hemp-type cannabis and marijuana-type cannabis. To be clear, both hemp and marijuana are subspecies of the genus, Cannabis. The only distinction is the amount of THC in the mature flowers. “Hemp” refers to cannabis plants with less than 0.3 percent THC dry-weight, while “marijuana” refers to cannabis plants above that level.
When starting a CBD business – or even just buying CBD, for that matter – this distinction is crucial. That’s because the federal government has deemed one of these plants legal (hemp) while the other (marijuana) is not. In other words, though CBD is legal nationwide, the source of that CBD may not be. As such, it is vital to choose a reliable CBD product manufacturer when running a CBD company.
Why CBD is Big Business
Despite a slight decline in CBD sales during COVID, experts project that the CBD industry to grow by about 20 to 23 percent within the next five years. Notably, demand continues to rise due to the increased awareness and innovative nature of CBD entrepreneurs, regardless of their cost, according to Grand View Research.
This is great news for CBD start-ups and entrepreneurs! It means there is ample room for growth, especially for those who adopt innovative strategies for managing a CBD business, including branding, marketing, and supply chain management solutions. Start-ups who offer unique products and customized formulas stand to profit considerably, especially if they can scale as product demand rises. As such, it is generally best to find CBD product manufacturers who offer custom formulations and the capacity to produce them at scale.
CBD Business Basics: Launching a CBD Business
Before Launching a CBD business, one must understand the complexities of the industry. To be clear, the legal CBD market is relatively new, being born from the highly regulated – and heavily scrutinized – marijuana market. In fact, CBD has only been commercially legal since 2018, and only if derived from non-intoxicating hemp.
Understand State and Federal CBD Regulations
The 2018 Farm Bill legalized commercial CBD production and sales. However, it did not establish a regulatory framework for the industry. Instead, the USDA established a few basic CBD hemp requirements and ultimately left the details to individual states and territories. As such, to sell CBD products nationwide, businesses must ensure they are compliant in each distribution area. Generally, this includes product testing and proper labeling, and adherence to stricter marketing regulations.
Build a Business Plan
Establishing a business plan will help CBD start-ups navigate the ever-changing hemp industry and stay aware of new opportunities based on market demand. Moreover, business plans outline a financial trajectory, which investors and stakeholders expect.
Basic business plans are comprehensive documents outlining a company’s structure, objective, market, activity, revenue source, and financial information. Traditional business plans are very detailed and can take quite some time to produce, whereas lean business plans tend to be more concise.
CBD business plans will include a lot of information but should at least have the following:
- Partnerships, including partners, manufacturers, and supply chain managers
- Key activities that set the business apart from the competition
- Resources including staff, capital, and intellectual property
- Value proposition that clearly states the company’s unique market value
- Customer experience, or how the customer will engage with the company (e-commerce or retail, for example)
- Target audience outlining exactly whom the business serves
- Communication channels, or how the business will communicate with its customers
- Cost structure, focusing on things like reducing cost or increasing value
- Revenue, or how the company will generate income
Build the Brand
A brand is a company’s identity. The way a brand markets itself will greatly impact public perception, which companies can use to attract a specific audience. Branding involves things like business names, logos, color palette, packaging and design, voice, social media presence, and other digital media assets related to the company’s identity. Establishing a brand’s identity will help businesses formulate products and determine packaging details easier and more consistently.
Source CBD Products
A brand’s CBD product source is by far its greatest asset. Businesses must choose which products to sell, who to sell them to, and what formulas to use. They must also consider CBD extraction methods, product purity (distillate or isolate, for example), CBD source (marijuana or hemp), and product manufacturer qualifications. The best CBD product manufacturers have a vast network of hemp industry professionals and a long history of proven success.
Determine CBD Banking Options
CBD banking is still a tricky issue. Though CBD is federally legal, many banks and financial institutions still avoid working with CBD companies due to its murky legal status. For example, CBD’s legality varies by location, making it more difficult to ensure legal online transactions. Moreover, banks must be able to verify that businesses only sell hemp-based CBD products. Unfortunately, this may involve a rather extensive vetting process. Notably, those who cannot prove product compliance will find it difficult to maintain their CBD banking.
Though brick-and-mortar stores can skirt some CBD sales issues by requesting cash payments, online retailers must still rely heavily on CBD-friendly banks and payment processors. As e-commerce sales continue to rise, most CBD retailers will require an online presence – and verifiably compliant products. As such, it is often best to outsource product manufacturing and labeling when selling CBD online.
Establish a Storefront
For a CBD brand to make a sale, its product must reach people. Physical shop owners must ensure they follow the proper procedure when selling CBD in their areas, noting some difficulty in states like Nebraska and Michigan with more restrictive CBD hemp laws. In areas such as these, online sales are often the best solution.
It’s easy to establish an online CBD store. The most basic components of an online store include a domain name, a web hosting service, and an e-commerce-compatible website. Connect online payment processors once products are in place to help make online transactions smooth and efficient. All that’s left is to market CBD products to an already eager audience.
CBD Business Basics: Marketing CBD Products
Launching a CBD business is hard, but promoting a CBD business may be harder. To be clear, marketing CBD products requires that companies continually produce unique marketing materials that are both effective and – more importantly – FDA compliant. Marketers cannot get lazy, and they cannot fall behind on industry news. If they do, their marketing material could become irrelevant or cause severe penalties.
Fortunately, there are many tricks CBD start-ups can use to promote their products across platforms without risking FDA compliance issues. Adhering to these strategies will also make it easier to maintain banking while helping reach a larger, more targeted audience. We’ll outline those CBD marketing strategies soon, but first, let’s discuss some important CBD marketing restrictions.
CBD Marketing Restrictions
CBD is federally legal for commercial sale following the 2018 Farm Bill. However, the specific legality of the substance depends on both local and federal law. This, of course, tends to leave some room for interpretation. For example, whereas some states allow hemp products to contain up to 0.3 percent THC, others forbid THC completely. Moreover, some states disallow smokable hemp, including both hemp flower and vapeable hemp products. Businesses that target these areas should not promote these more heavily restricted products in these areas. Generally speaking, marketing platforms that serve these demographics will decline marketing strategies that involve these products, anyway.
However, some CBD marketing restrictions remain valid regardless of location. For example, the FDA clearly states that CBD is not an approved drug and businesses cannot market it as such. Moreover, marketers cannot list it as a dietary supplement because its drug-like properties are currently under investigation. Consequently, companies must be very cautious of the language they use when promoting CBD products.
Educating Your Audience
Education is vital to finding customers and securing repeat buyers. However, how one educates their target audience is also crucial, especially when it comes to marketing CBD products. For example, many people want to know if CBD treats anxiety, sleep disorders, or pain. However, because the FDA has not approved CBD for any of these conditions, marketers cannot suggest otherwise.
Importantly, it is illegal to suggest that CBD cures or treats any diagnosable condition. CBD marketers must bear this in mind when promoting their products. For example, they may opt for phrases like “sleeplessness” instead of “insomnia,” “worry” instead of “anxiety,” or “joint pain” instead of “arthritis.”
CBD marketers must also avoid linking to websites that make unsupported claims and monitor comments to filter out non-compliant statements. Notably, outbound links and user-generated content are both forms of marketing material and cannot make unsupported medical claims. The business is solely responsible for ensuring that all brand-related content is FDA compliant when marketing CBD products.
SEO and Keyword Optimization
Keyword optimization can be unfortunately tricky when it comes to Search Engine Optimization or SEO for CBD companies. To be clear, SEO involves the strategic use of keywords to attract a highly targeted audience. Marketers often optimize websites with the keywords their target demographic is searching for. For example, let’s say a company’s target audience is searching for phrases like “does CBD treat anxiety”. If this happens, the company will likely want to optimize its content to rank for that specific key phrase. However, it must do so without suggesting that CBD treats anxiety because that implies that CBD is a drug. This is a big no-no to the FDA, so don’t risk it.
Consequently, developing an SEO strategy for CBD brands is a bit involved. It requires careful planning, strategic wording, and a consistent supply of well-structured, information-rich content, beginning with some basic keyword research. Popular keyword research tools include Moz, SEM Rush, and Google Ads.
After collecting a keyword list, plan a content calendar using the keywords to develop relevant blog topics. Publish blogs regularly to increase search engine visibility, and share the content liberally across platforms. We’ll explain more about SEO for CBD companies in a later post.
Marketing CBD on Social Media
Social media is an incredibly effective marketing tool because it allows businesses to reach targeted audiences where they already spend their time. According to Statista, the average social media user (which accounts for roughly half of the global population) spends 145 minutes per day on social media. This gives businesses ample opportunity to pop into someone’s newsfeed, provided they don’t get banned for sharing the wrong stuff, that is.
When it comes to marketing CBD on social media, businesses must never violate a platform’s terms of service. Though TOS vary among platforms, generally speaking, CBD companies cannot make any drug claims or display consumption images. Having said that, one of the best ways to drive traffic through social media is by sharing valuable, information-rich content. This is especially true if that content can spark a discussion. Just keep all verbiage and images compliant, and you should be GTG.
Though Facebook recently loosened their paid CBD ads, this only pertains to topical CBD products like balms and salves. However, companies can use this foothold to send visitors to a landing page. They can then use the landing page to redirect visitors to the CBD shop’s virtual storefront. As such, adding topical CBD products to a CBD product line could be the secret sauce of paid social media advertising.
Email marketing is one of the most effective CBD marketing strategies because it allows businesses to connect directly with those who express an interest in their products or services. By collecting email subscribers organically (not by purchasing a mailing list), businesses will find it much easier to stay top-of-mind while maintaining direct communication with their subscribers. The results? A conversion rate of about 180% and a 44:1 ROI, according to some estimates.
Notably, the most effective email marketing strategies employ automated email campaigns. These campaigns may be as simple as a “Welcome” email thanking visitors for sharing their email addresses. Conversely, other campaigns may include a series of carefully timed and automatically triggered email sends designed to walk subscribers through an array of promotional material. Whatever the strategies used, CBD businesses should ensure that they only work with hemp-friendly automated email servers. Examples of CBD-friendly email vendors include Hubspot, AWeber, and Klaviyo (CBD only).
CBD Affiliate Marketing
Another great way to market CBD products is through a process called affiliate marketing. Essentially, affiliate marketing is a system by which individuals and companies earn a commission of all sales they bring to a storefront. Affiliates generally receive unique marketing material to promote a product or e-commerce website, which companies then use to track referrals, referral sales, commissions, and payouts.
Influencer Marketing for CBD Brands
Influencer marketing is a very effective marketing tool, generating about $5.20 per dollar spent on average, according to The Influencer Marketing Hub. CBD companies especially stand to benefit from this marketing trend for a few reasons. First, influencer marketing can help brands skirt some marketing restrictions by promoting personal experiences rather than product claims. Notably, 93 percent of online shoppers consider product reviews before making a purchase. If one of their favorite digital personalities speaks highly of a brand, the consumer likely will, too.
Additionally, CBD influencer marketing helps businesses reach a massive, targeted audience. By choosing influencers with a strong – relevant – following, CBD brands can get their products in front of thousands of potential buyers, all eager to support whatever their favorite influencer supports.
There is one caveat when marketing CBD products with influencer marketing, though: compliance. Remember, all marketing tools must remain compliant, which includes influencer statements. Though brands cannot control how their influencers deliver a message, they must ensure that they don’t deliver the wrong message. As such, businesses must make sure their influencers never make medical claims; they should only explain how the products help them personally.
Final Thoughts about Launching and Marketing CBD
VCM CBD is proud to support CBD businesses of all sizes. We will manage your CBD hemp supply chain, ensuring all products you sell are quality, compliant, and developed to your exact specifications. All you have to do is market and sell it.
Unfortunately, marketing CBD products is not always easy. Nevertheless, you can still launch and manage a successful CBD business and market it to a massive targeted audience. Just use these CBD marketing tips to keep your nose clean and your brand is seen.
Do you own a CBD business? Contact us to learn how we can help it grow.
Abby is a freelance cannabis writer and Founder of Cannabis Content, a marketplace and training platform designed to connect cannabis creatives with businesses that need their services. Learn more at CannabisContent.net