What to Know Before Starting a CBD Business

Posted on August 19, 2019

It may be one of the world’s oldest crops, but the cannabis / CBD industry is one of the newest, and this is a thrilling time to get in on it. The industry is booming. Untapped opportunities for entrepreneurs eager for an adventure and success are everywhere, but if you’re going to start a cannabis business, the more you know the better. Of course, you’ll have to learn the basics, like how to create a business plan, the importance of networking, and management skills, but that’s all pretty standard stuff for any new company. We won’t cover that here. Instead, check out our thoughts on important things to know before you take the plunge into the cannabis industry:

Find your niche

Just like you would in any industry, you have to identify what products or services your company sells, who your audience is, your brand identity, and preferably determine an angle or niche that makes you unique and differentiates you from your competition. Think all the good ideas are taken? Well, you’re in luck because they have not all been taken. The cannabis industry is still young enough that there are plenty of underserved markets and lots of great ideas floating around just waiting for an entrepreneur to take advantage of them.

Know your stuff

Hit the books and educate yourself. You may have smoked weed for years, but do you know the difference between an arabica and a sativa? Do you know the ideal growing conditions for cannabis? Do you know what the major cannabinoids are and what you can use them for? Heck, do you even know the difference between cannabinoids and cannabidiol? Do you know the biggest companies producing cannabis and CBD products? Do you know who your main competitors are? Have you met them, either over the phone or in-person? Learn everything you can about cannabis. And then learn everything you can about your niche within the industry.

Know the law, and the gray areas

Cannabis is legal in some places and not others. And by ‘legal’ we don’t always mean completely legal. Your state may have legalized medical marijuana but not recreational marijuana. It might only be legal pending certain situations. It might only be legal in certain forms. And there are a lot of gray areas. CBD, on the other hand, is generally considered to be legal everywhere in the United States, but there are still some significant complications and gray areas that as a business owner you need to be aware of. And there are plenty of regulations you need to be aware of too. Not to sound daunting, but regulation compliance can be time-consuming. 

Regulations differ vastly based on your products, where they’re produced, where they’re sold, etc. There are regulations for advertising, packaging, product quality, product testing, and more. Things can get complicated, and of course, the legal landscape of the cannabis industry is still evolving. To stay on top of it, get a good lawyer.

Be prepared for money complications

The cannabis industry is booming, and there’s lots of money to make, but chances are you’ll still have a few money headaches. First of all, amassing startup capital can be a challenge. A lot of people who aren’t in the industry hesitate to invest in cannabis startups. Many banks won’t extend small business loans, won’t allow you to open a bank account with them, or won’t even process your payments, because cannabis is still illegal on the federal level. If your business exclusively sells CBD things will be a little easier, but you may still face unforeseen cash flow obstacles.

Unsurprisingly, the tax situation is more complicated too. The federal government has essentially defunded marijuana prosecution in states where it is legal, allowing cannabis companies to file their taxes without the worry of being locked up. However, the business deductions you can take are completely different than those for any other business. Because of the peculiarities of the law, a cannabis producer can deduct the costs of growing the plant, but not the rent for their retail space, costs of advertising, or even employee salaries. Make sure you get a good accountant to help you navigate through all of this.

Educate your customer

If your customer is new to cannabis or CBD, they are bound to have some misconceptions that could get in the way of you making a meaningful connection with them. They may associate CBD with marijuana without really knowing the difference (marijuana gets you high, and CBD doesn't), they may be concerned about safety, or they may worry about legality.

It’s your job to change those misconceptions. Do it everywhere, including in your advertising and over social media. Diamond CBD’s blog, which has a wealth of information about our products and about cannabis in general, is a great example.

Marketing is also … complicated

Like any business, you want to get in front of eyeballs and reach out to your customer base, but when you’re talking about marketing and advertising cannabis products, there are a few things to know. First of all, what you can and can’t do really depends on the platform. A lot of mainstream advertising platforms will limit your access. Many will block you outright, and some will only let you talk about your product obliquely.

There are a lot of rules about what you can and can’t do on social media. For example, Facebook doesn’t allow ads that mention cannabis or CBD, and companies have also had serious issues even marketing their products through their Facebook pages. As recently as 2018, Facebook didn’t even let cannabis company pages show up in search results, which was a huge obstacle in getting to viral success. However, there are rumors that Facebook may be taking a second look at their stance on cannabis, so this could change in the next few years.

The content of your marketing and advertising is also of the utmost importance. Across the internet, you’ll see many companies making extravagant claims about the benefits of cannabis. While cannabis holds huge potential, this is a recipe for disaster. Not only does promising your customers that cannabis will seemingly cure everything make them skeptical of your products, but it’s also illegal and can get you in trouble with the Food & Drug Administration. So be careful.

Don’t Overindulge on Your Own Product

Every cannabis entrepreneur should believe in what they sell, but that doesn’t mean you should hit the bong all day every day. Save that kush for happy hour.