Starting a CBD business can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful CBD business.
Importantly, a critical step in starting a CBD business is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.
14 Steps To Start a CBD Business:
- Choose the Name for Your CBD Business
- Develop Your CBD Business Plan
- Choose the Legal Structure for Your CBD Business
- Secure Startup Funding for Your CBD Business (If Needed)
- Secure a Location for Your Business
- Register Your CBD Business with the IRS
- Open a Business Bank Account
- Get a Business Credit Card
- Get the Required Business Licenses and Permits
- Get Business Insurance for Your CBD Business
- Buy or Lease the Right CBD Business Equipment
- Develop Your CBD Business Marketing Materials
- Purchase and Setup the Software Needed to Run Your CBD Business
- Open for Business
1. Choose the Name for Your CBD Business
The first step to starting a CBD business is to choose your business’ name.
This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your CBD business:
- Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check to see if a suitable domain name is available.
- Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
- Think about marketing. Come up with a name that reflects the desired brand and/or focus of your CBD business.
2. Develop Your CBD Business Plan
One of the most important steps in starting a CBD business is to develop your business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.
Your business plan should include the following sections:
- Executive Summary – this section should summarize your entire business plan so readers can quickly understand the key details of your CBD business.
- Company Overview – this section tells the reader about the history of your CBD business and what type of CBD business you operate. For example, are you a CBD producer, processor, retailer, wholesaler, or an online CBD business?
- Industry Analysis – here you will document key information about the cannabis industry. Conduct market research and document how big the industry is and what trends are affecting it.
- Customer Analysis – in this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing products like the ones you will offer?
- Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
- Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
- Product: Determine and document what products/services you will offer
- Prices: Document the prices of your products/services
- Place: Where will your business be located and how will that location help you increase sales?
- Promotions: What promotional methods will you use to attract customers to your CBD business? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
- Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
- Management Team – this section details the background of your company’s management team.
- Financial Plan – finally, the financial plan answers questions including the following:
- What startup costs will you incur?
- How will your CBD business make money?
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business?
3. Choose the Legal Structure for Your CBD Business
Next you need to choose a legal structure for your CBD business and register it and your business name with the Secretary of State in each state where you operate your business.
Below are the five most common legal structures:
1) Sole proprietorship
A sole proprietorship is a business entity in which the owner of the CBD business and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.
A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start a CBD business together. The partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.
3) Limited Liability Company (LLC)
A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a CBD business include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.
4) C Corporation
A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a CBD business is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.
5) S Corporation
An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.
Once you register your CBD business, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.
4. Secure Startup Funding for Your CBD Business (If Needed)
In developing your CBD business plan, you might have determined that you need to raise funding to launch your business.
If so, the main sources of funding for a CBD business to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a CBD business that they believe has high potential for growth.
5. Secure a Location for Your Business
When looking for a CBD business location, it is important to consider the zoning regulations in your area. Each municipality has specific zoning regulations for CBD businesses, so it is important to research what is allowed in your area. Additionally, it is important to find a location that is accessible and has a high traffic count.
6. Register Your CBD Business with the IRS
Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).
Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.
Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
7. Open a Business Bank Account
It is important to establish a bank account in your CBD business’ name. This process is fairly simple and involves the following steps:
- Identify and contact the bank you want to use
- Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
- Complete the bank’s application form and provide all relevant information
- Meet with a banker to discuss your business needs and establish a relationship with them
8. Get a Business Credit Card
You should get a business credit card for your CBD business to help you separate personal and business expenses.
You can either apply for a business credit card through your bank or apply for one through a credit card company.
When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.
Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
9. Get the Required Business Licenses and Permits
CBD businesses require multiple licenses and permits to operate lawfully. The most important license is a cannabis license, which may authorize the business to cultivate, process, or sell CBD products. In addition, CBD businesses may need to obtain a license from their local government, as well as a permit to operate a retail store or distribute products. It is important to contact your local government agency to find out what licenses and permits are required for CBD businesses in your area.
10. Get Business Insurance for Your CBD Business
There are a few different types of insurance you will need to operate a CBD business.
Some business insurance policies you should consider for your CBD business include:
- General liability insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
- Workers’ compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
- Commercial property insurance: This covers damage to your property caused by fire, theft, or vandalism.
- Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
- Professional liability insurance: This protects your business against claims of professional negligence.
Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
11. Buy or Lease the Right CBD Business Equipment
The type of equipment you will need to run a CBD business depends on the scope of your operation. For instance, you’ll need different equipment if you plan to produce or process CBD versus if you just plan to sell it. In general, some common equipment includes a CBD extraction machine, CBD oil processing equipment, and packaging supplies.
12. Develop Your CBD Business Marketing Materials
Marketing materials will be required to attract and retain customers to your CBD business.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your CBD business. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
- Website: Likewise, a professional CBD business website provides potential customers with information about the products you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you..
- Social Media Accounts: establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media networks will help customers and others find and interact with your CBD business.
13. Purchase and Setup the Software Needed to Run Your CBD Business
To run a CBD business, you will need software to manage your ordering and inventory process. The software should also keep track of your sales and customer data. Finally, it’s important that the software can handle payments and process shipments.
14. Open for Business
You are now ready to open your CBD business. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.
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How to Start a CBD Business FAQs
Is it hard to start a CBD business?
No, it's not hard to start a CBD business. The first step is to do some research and ensure you are compliant with all the regulations in your area. The more knowledgeable you are about the industry, the better equipped you'll be to start and run a successful CBD business.
How can I start a CBD business with no experience?
You can start a CBD business with little to no experience by looking into what others in the industry are doing. Reach out to people who have successfully started similar businesses for advice. You may also want to look into online courses or webinars that can help you get started. Finally, it's important to develop your business plan and create a budget.
What type of CBD business is most profitable?
There is no definitive answer to this question because profitability depends on multiple factors, including location, competition, and consumer demand for the products. However, in general, a CBD business that offers high quality products will be more profitable than one that does not because high quality products entice consumers to come back for more.
How much does it cost to start a CBD business?
It can cost anywhere from $20,000 to $500,000 to start a CBD business. However, the cost of starting a CBD business largely depends on the scale of your business, the type of CBD products you plan to sell, and your production process.
What are the ongoing expenses for a CBD business?
The ongoing expenses for a CBD business can vary depending on the size and scope of the business. Generally, some of the most common expenses include rent or mortgage, utilities, insurance, marketing and advertising, and employee salaries.
How does a CBD business make money?
CBD businesses make money by selling CBD products. CBD products can be sold in a variety of forms, such as tinctures, edibles, and concentrates. CBD businesses can also make money by selling related products, such as vape pens, hemp derived CBD, and CBD capsules. Other businesses also venture in the CBD oil business.
Is owning a CBD business profitable?
Yes, owning a CBD business can be profitable. The CBD market is growing rapidly, and there is significant potential for growth in this industry. CBD products are becoming more popular, and there is increasing demand for them in many places. There is also a lot of competition in the CBD market, but this can actually be a good thing for businesses. It means that there are more opportunities to stand out from the crowd and make a profit.
Why do CBD businesses fail?
One of the main reasons CBD businesses fail is a lack of understanding of the industry and what it takes to be successful. CBD businesses may also fail because they don't have a clear plan or goal, and they're not sure who their target market is. Finally, many CBD businesses fail because they cannot create a consistent, high quality product. If you want to be successful in the CBD industry, it's important to do some research and develop a clear plan before you get started.