The Do’s and Dont’s of Starting a Business in the CBD Industry

A young man uses CBD oil in his drink

If you were one of the unlucky few who took their eyes off the market about a year ago, then you learned a few things the hard way: the first is that volatile stocks change quickly, and a run or a drop can be a trading day away (so keep your phone on).

The second is that while legal cannabis and CBD growth is a potentially highly profitable business, sound financial strategies are always essential, no matter how hot the product. Business in the CBD industry is booming for some, and a bust for others; so what makes the difference? As it turns out, quite a bit.

As with all things cannabis, public opinion, market demand, and the law form a trifecta that, if navigated poorly, can lead to hurdles. Vaping was the beta test of legal strictures being tightened when the FDA turned its focus on vaping products at the start of this year.

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In August of 2019 Tilray and Canopy Growth, two of Canada’s largest producers of legal cannabis showed huge losses even as they showed huge production. In some cases, yield tripled, and yet the market showed an incredible combined 41%-point dip.

The biggest takeaway for hungry investors, and budding entrepreneurs, was simple: the profitability hump for CBD industries can be a decade-long slog, and staying afloat before you’re raking in a different kind of green isn’t as simple as shipping a few tasty CBD chocolates and direct mailers.

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KNOW THE LAW

Even when marijuana is legalized, the state-by-state licensing strictures could hamstring your start-up or make it DOA with fees. Violations can sink shares, as was the case with CannTrust after authorities seized illegally-grown cannabis from their campus. Additionally, only eleven states have legalized weed.

While this opens up the market for CBD products, it still leaves a gray area in many states that might inhibit your ability to start or sustain a purely-CBD based business. Without the binary legality of THC products, CBD’s availability can often be subject to local tastes and tolerance, and not in a fun way.

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Small-scale CBD entrepreneurs found themselves in crosshairs in the state of Maine last year, as regulatory crackdowns trailed behind demand and squeezed smaller vendors out of the market. Knowing and advocating for changes in laws regulating your state is essential.

A young man uses CBD oil in his drink
Image: https://www.pexels.com/photo/man-in-gray-long-sleeve-shirt-holding-a-dropper-3807374/

KNOW THE MARKET

Even with the growing and evolving market, and people of all kinds touting the health benefits of CBD oil, knowing the unique idiosyncrasies of the cannabidiol market is absolutely essential. Even as demand surges, the market is flooded, and distinguishing your high-quality CBD products from the various snake-oils pedaled by those looking to make a fast buck is a pivotal part of any good brand strategy.

Knowing your ideal customer is always a good start, and crafting specific and targeted language, with data sets to test their viability, gives you hard numbers: the saving grace in what can often be an opaque industry.

Are you looking to draw on a niche market? Is your demographic going to be weekend warriors looking for CBD-infused colas, semi-pro athletes needing to recover with gummies, or other entrepreneurs who want a biohacking oil to help them focus?

Before you dream up your first CBD oil name or recipe for cannabis-infused treats, do the math: after all, dessert is always earned by eating your veggies.

Don’t know where to start? Begin with a competitive analysis – it will give you a hard look at the business horizon, costs, and challenges you’ll face as you corner your niche market in the CBD industry.

KNOW YOUR LIMITS

CBD-infused drinks were all the rage when Canopy Growth purged their leadership, searching for someone who could lead the market with soft drinks and sodas featuring CBD. Today, those drinks have fizzled to normalcy in terms of consumption, and CGC has balanced out.

Constellation Brands (known for their market share of adult beverages) has made possible what would have been impossible for even the most visionary CEO.

Grow to scale, and make sure you build a business model that can grow with you. Not sure how? While CBD is a new industry, some business truths hold evergreen, and consulting an expert is a great way to make your board of advisors more robust.

Have stories of success (or cautionary tales) from the wild world of CBD entrepreneurship? Contact us at Medible Review!


Tess DiNapoli

Tess DiNapoli is an artist, freelance writer, and content strategist. She has a passion for yoga and often writes about health and wellness, but also enjoys covering the fashion industry and world of fitness.

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