How To Open and Start a CBD Business in US 2022

Start a CBD Business
Reading Time: 10 minutes

The CBD industry’s potential has encouraged many people to investigate how they may start a CBD business in the US. The industry is not without its hurdles, particularly in light of the changing regulatory situation, but the opportunity is tremendous.

Do you intend to work in the industry? If this is the case, it is prudent to grasp how the sector operates to be prepared to launch a CBD business in the US. CBD has virtually become a buzzword, with a place in every home. Although CBD is well-known and in high demand, it is prudent to exercise caution before investing your company’s savings. Here are some things to consider before starting a CBD business in the US.

Step 1: Plan your business

A proper business plan is the first step in launching any successful firm. When it comes to the cannabis market, your business plan will need to be better thought out, but you should still ask yourself the following key questions:

  • What will you call your company?

Choosing the proper name is both significant and tough. If you run a sole proprietorship, you may use a business name other than your own. I recommend studying your business name before registering it by checking:

  • Web domain availability.
  • Social media platforms
  • Federal and state trademark records
  • Your state’s business records

It is critical to register your domain name before someone else does.

  • What are the costs of starting a CBD oil business?

Your startup costs will be inexpensive if you produce hemp and turn it into CBD oil. You may start selling your goods online with only a Squarespace website and commercial liability insurance if a customer sues you after utilizing your product. You might also explore teaming up with an established farmer to help your businesses develop.

  • How can you increase the profitability of your company?

CBD business owners might extend into various types of products to increase their revenues and in turn profitability. There are several options available, ranging from skincare to make-up to tinctures to vaping to edibles.

  • How much money can a CBD oil company make?

According to the latest data, CBD businesses are making net profit margins of around 40 percent on their products.

  • How much money may you charge your customers?

CBD oil selling for $60 for 30 mL is not unusual. A 2 oz bottle of skin cream containing 100 milligrams can be purchased for $85.

  • Who is the target audience?

This product is suitable for almost everyone. CBD oil is used to treat anxiety, soften the skin, and alleviate chronic pain. It can also be used for general relaxation at any time. CBD oil is produced from cannabis, however, it does not provide the same high effects as THC.

Step 2: Form a legal entity

The most common business structure forms are sole proprietorship, partnership, limited liability company (LLC), and corporation.

Establishing a legal business entity, such as an LLC or corporation, shields you from personal liability if your CBD oil business is sued.

Recommended: “You must choose a registered agent for your LLC. A complimentary year of registered agent services is frequently included in LLC creation packages. You have the option of hiring a registered agent or acting on your own.”

Step 3: File your taxes

Before starting the business, you must register for several state and federal taxes.

To register for taxes, you will need to obtain an EIN. It’s really simple and completely free! You can obtain your EIN free through the IRS website, fax, or mail.

Small Business Taxes

Depending on your business form, you may have multiple options for how your company is taxed. Some LLCs, for example, may benefit from being taxed as an S corporation (S corp). There may be state taxes that apply to your business.

Step 4: Get a business bank account and credit card

Personal asset protection requires the use of distinct business banking and credit accounts.

When you mix your personal and business accounts, your assets (your home, car, and other possessions) are at risk if your company is sued. This is known as piercing your company veil in business law.

After you’ve opened your business account, apply for a business credit card. This will keep all of your business expenses in one place.

Open a business bank account

Opening a business bank account is not only required when asking for business loans but also:

  • Separates your assets from your firm’s assets, which is required for personal asset protection.
  • It simplifies accountancy and tax filing.
  • Open net 30 accounts

Net 30 accounts are used to develop and build business credit while increasing cash flow. Businesses use a net 30 account to purchase goods and refund the full balance within 30 days.

Many net 30 credit vendors submit information to major business credit agencies (Dun & Bradstreet, Experian Business, and Equifax Business Credit). This is how businesses establish business credit to get approved for credit cards and other lines of credit.

  • Get a business credit card

Having a business credit card benefits you in the following ways:

  • Put your business’s expenses in one location to separate personal and business expenses.
  • Build your company’s credit history, which will be important when raising funds in the future.

Step 5: Set up business accounting

Recording your various expenses and sources of income is crucial to assessing your company’s financial status. Keeping accurate and detailed accounting also makes annual tax filing much easier.

Additionally, if your accounting is well-organized, your growth potential will skyrocket. It is better to hire a professional accountant who will focus solely on that duty. However, you can do it yourself using various accounting software.

Step 6: Obtain necessary permits and licenses

Failure to get appropriate permits and licenses can result in significant fines or possibly the shutdown of your business.

Cannabis business law is more strict and complex than many others. You won’t be able to launch your CBD oil business until you have all of the necessary licenses and permits. Before you do anything else, find out what company licenses you need in your town. If you are caught without one, you may face a substantial fine or perhaps have your business permanently closed.

  • Federal business licensing requirements

Although CBD oil does not cause intoxicating effects like the THC found in marijuana, the two products are so closely related that CBD manufacture and sales are currently illegal. You must read up on state and federal legislation governing CBD products before establishing your CBD oil business. This will help to guarantee that your business runs effectively and stays out of legal difficulties.

  • State & local business licensing requirements

Some state permits and licenses may be required to start a CBD business in the US. To know more about your state’s licensing requirements, go to the SBA’s reference to state licenses and permits. 

  • Occupancy Certificate

A CBD oil business is often run from where the oil is produced. For firms that operate from a physical location, a Certificate of Occupancy is usually necessary (CO). A certificate of occupancy certifies that all building codes, zoning laws, and government requirements have been met.

If you intend to rent a location:

  • In most situations, the landlord is responsible for obtaining a CO.
  • Before leaving, ensure that your landlord has or can receive a valid CO for a CBD oil business.
  • A new CO is frequently required following a big remodeling. If your location is renovated before opening, incorporate wording in your leasing agreement saying that lease payments will not begin until a valid CO is given.

If you intend to buy or construct a location:

  • You are responsible for obtaining a valid CO from a local government authority.
  • Examine all construction rules and zoning criteria for the site of your CBD oil business to guarantee compliance and eligibility for a CO.

Step 7: Get business insurance

Insurance, like licenses and permits, is necessary for your company to operate legally and safely. Business insurance protects your company’s financial well-being in the event of a covered loss.

Several insurance plans are designed for various types of businesses with varying risks. If you are unaware of the risks that your company may encounter, start with General Liability Insurance. This is the most widespread coverage required by small businesses, so it’s a good place to start for yours.

Another significant insurance product that many businesses require is workers’ compensation insurance.

Step 8: Build your brand

Your company’s brand is what it stands for and how the public perceives it. A strong brand will help your business stand out from the competition.

  • Promotion and marketing –  CBD oil business

CBD oil is so popular that you’ll encounter stiff competition. Most people will hunt for CBD oil online, especially if they want more concentrated pharmaceutical products. Paid web ads, organic blog content, and social media can all assist in attracting customers to your goods. If you sell basic, low-intensity sprays, you can stock your products at general health stores or grocery stores.

  • How to keep customers coming back

Customers will need to feel relieved after using your products. While data is scarce, you can analyze which goods work best for certain groups by collecting feedback. This can assist you in suggesting the ideal product, resulting in less experimentation (and aggravation) on the part of your clients.

Step 9: Create your business website

A website and even a mobile application are required in today’s world. If it isn’t on the internet, it doesn’t exist.  Don’t worry if you’re considering skipping this stage since it will be too expensive. You may create your cannabis app in only a few days.

On the simple Shoutem platform, you may customize your app without any prior coding expertise. This will demonstrate that you are ahead of the competition and will open up new CBD business options.

While developing a website is important, some may be concerned that it is out of their grasp due to a lack of website-building skills. While this was a fair concern in 2015, online technology has made significant developments in recent years, making the lives of small business owners considerably easier.

The following are the primary reasons why you should not keep delaying building your website:

  • Every genuine business has a website, period. When bringing your business online, it doesn’t matter what size or industry it is.
  • Social media accounts, such as Facebook pages or LinkedIn company profiles, are not a replacement for your business website.
  • Website builder services like GoDaddy Website Builder have made it relatively simple to create a basic website. You do not have to hire a web developer or designer to create a website that you are proud of.

Step 10: Set up your business phone system

Getting a phone for your business is one of the best methods to keep your personal and professional lives separate and private. That isn’t the only advantage; it also helps you automate your business, provides legitimacy, and makes it easier for potential clients to identify and contact you.

Entrepreneurs wishing to set up a business phone system can choose from various options.

Statistics on the CBD industry

  • Although marijuana legalization is not expected to end anytime soon, the North American market alone accounted for about 43 percent of the worldwide CBD market in 2018.
  • People in their 20s are more interested in the rapidly changing sector. Up to 15% of CBD users are 60 and older, indicating a shift in opinion across all generations. According to polls, over 40% of US adults are interested in testing CBD products.
  • The cannabis market has become one of the most profitable areas for business owners as cannabis consumption has increased.

Key challenges that CBD businesses face

Other industries do not face the same difficulties as the CBD and cannabis industries. Most of these issues are related to the regulatory environment. As federal organizations such as the FDA explain specific laws and guidelines, things should settle down. For the time being, however, if you are starting a CBD business in the US, you should be aware of the following important considerations:

(A.) Banking: Due to the ever-changing regulatory framework, obtaining dependable banking services can be difficult. Many banks are hesitant to do business with CBD and cannabis companies because they are concerned about major risks or heavy oversight. CBD companies are frequently forced to change banks or face the abrupt closure of a merchant account, which can severely interrupt operations.

(B.) Insurance: Finding affordable insurance for a CBD business in the US is another significant difficulty. Despite the legalization of industrial hemp, prices remain high because the business is slow to keep up with the changes. Education remains a significant barrier.

(C.) Payment processing: Payment processors offer CBD companies hefty fees and other obstacles. Slovik claims that Visa has disconnected all CBD companies, leaving him with only MasterCard and Discover as payment options.

(D.) Access to capital: Banks and other lenders are hesitant to support CBD businesses because they see the market as too risky without clear regulatory standards. The CBD business has relied on bootstrapping, outside investors, or alternative lenders to raise the necessary growth funds.

Know your products

CBD may appear to be a simple product, but it is not. As a CBD business owner, you must understand the requirements for selling your product. You must understand what CBD is, the variations between CBD and THC, where your CBD is sourced, how consumers can utilize your products, and many other details.

Let’s find out the answers if you’re fresh to the vast world of CBD. CBD, often known as cannabidiol, is one of many chemical cannabinoids in the cannabis plant. It is a non-psychoactive chemical, which means it will not provide a mind-altering high. CBD is typically derived from industrially produced hemp plants with high CBD content and trace quantities of THC. It is available in various forms. You may select products you wish to deal with. CBD oil, isolation, edibles, and even high CBD vape juice can be manufactured or sold.

Why CBD marketing is so important

The CBD marketing boom has officially arrived. The surge in CBD marketing is difficult to ignore; whether it is in the form of a CBD-focused advertisement that captures your attention on Facebook, a search engine-optimized CBD advertising campaign that points to an online shop via Google, or a captivating story on Instagram with a ‘Swipe-up’ link directing audiences to a site.

  • Finding new customers.

According to a High Yield Insights study, roughly 40% of U.S. customers aged 21 and up said they would consider trying CBD. This figure is expected to rise; therefore reaching customers through CBD marketing is critical. Customers demand your help, and you must be the one to provide it!

  • Differentiating your brand.

The CBD industry is bursting at the seams, with new businesses popping up daily.

This is not to say that you should abandon your hopes of making money with CBD marketing; rather, discover how to stand out and differentiate your business from the competition. This is feasible by constantly educating your audience.

Create fascinating video content to engage your audience, conduct industry polls, and don’t be hesitant to demonstrate to consumers how they can profit from your services. You might also consider focusing on a specific specialization.

  • Retaining customers.

CBD marketing might assist you in attracting return customers. Affiliate marketing is a terrific strategy to increase retention rates. However, only large brands tend to recruit affiliates, demonstrating the importance of brand awareness.

Including genuine client testimonials on your website that make assertions following all regulations helps improve your reputation and keep clients coming back for more. If you want to improve overall engagement and enhance the possibility of customers returning, send out newsletters, provide discounts to recurrent customers, and encourage them to suggest a friend in exchange for a free product.

Conducting surveys will alert you to client needs/wants and areas where you may be failing to satisfy customers. You should also concentrate on problem-solving, ongoing assistance, and keeping in touch with your consumer base!

Industry Outlook

Cannabidiol, sometimes known as CBD, is quickly becoming a household term in the United States. CBD, one of many chemicals in cannabis and hemp plants, has generated much buzz due to its alleged therapeutic and health benefits. CBD oil is available in tinctures, infused foods, topicals, and other forms. CBD oil production growth has been so rapid that industry analyst BDS Analytics expects the US CBD market will exceed $20 billion in sales by 2024. And being a part of this massive industry has never been easier.

When most people think of cannabis, they immediately think of THC and the high it causes. Both industry participants and consumers gradually recognize CBD’s potential. The recent legalization of CBD has increased cannabinoids’ popularity. As a result, more people are entering the CBD sector to capitalize on its limitless potential.

Get started

Starting a CBD business is not as difficult as it appears. It can be a good decision if you have extensive knowledge of the market and a well-planned strategy. Do your market research, select high-quality products, and develop a solid marketing strategy. You’ll be ready to launch your CBD business.

And It’s worth it when you consider the CBD industry’s sales prospects. According to Grandview Research, the CBD industry would increase at a compound annual growth rate of 22.2% between 2019 and 2025.

And you can join that revenue stream if you start your online CBD business now!