Starting your own business can be incredibly rewarding, both personally and financially. As a matter of fact, according to a recent study by cloud accounting software company FreshBooks, the number of self-employed Americans could triple to 42 million by 2020.
However, becoming your own boss is a lot harder than most people think. When it comes to planning a new venture there are so many things to think about, and so many decisions to make, that it’s very easy to miss something. And as the old saying goes: “Fail to prepare and prepare to fail”. Getting off on the wrong foot can result in lengthy and costly setbacks, or even failure.
When it comes to setting up a new CBD business, things can get even more complicated! Due to the lack of understanding surrounding CBD and its legality, planning a foray into the CBD industry can prove to be incredibly challenging. However, if you get things right you could be in with a chance of securing a share of the multibillion-dollar pie.
So, before you dive head-first, you might want to check out this list of 5 pitfalls to be aware of when planning your new CBD business.
- Finding a CBD merchant account and payment processor
When it comes to accepting payments on their website, most new CBD business owners instinctively think of PayPal, Stripe, Square or Authorize.net. However, few people actually know that these “mainstream” payment processors don’t accept CBD businesses as clients.
Unfortunately, it’s often when vendors already have their brand, products and site finalized, that they have the shock of finding out that their application has been turned down. In other cases, start ups see their applications accepted and they begin taking payments, only to get shutdown a few days later. This can happen overnight, without prior warning and result in your funds being frozen.
Therefore, one of the first steps you should consider before launching a CBD business, is to find a payment processor who specialises in CBD merchant accounts and payment solutions for the cannabis industry.
For the unacquainted, the payment solutions correspond to the actual gateways which integrate with your website and enable it to take payments. The CBD merchant account is where payments received from your clients are then held prior to clearance.
It’s also good to know that these companies can offer payment solutions to medical marijuana and recreational cannabis dispensaries, in the form of cashless ATMs for cannabis businesses for example. Others offer Mexican CBD merchant accounts for businesses who aim to sell their goods the other side of the Southern border.
- Opening a bank account
Opening a bank account for your new CBD business is imperative. This is the account from which you will pay your bills and overheads, for example. This is also where the payments you have received on your website will eventually settle, once they’ve been cleared by the merchant account and then withdrawn.
However, finding a bank willing to take on a CBD or cannabis business can also be an uphill battle! Indeed, most high street commercial banks will refuse to open an account for you because CBD merchants are classed as “high risk”.
Be on the look out for CBD-friendly banks and give yourself plenty of time, as upstream as possible in your planning process, to evaluate your options.
- Getting insured
Entrepreneurs like the adage: “With high risk comes high reward”! Unfortunately, insurers don’t look at things the same way! As a matter of fact, insurance companies are totally risk adverse…For this reason, getting your CBD business insured can be difficult and very costly.
However, the cost of not having the appropriate insurance can far outweigh the cost of the insurance premium itself. Indeed, most retail chains, drug stores or webstores will require that you have appropriate insurance in order for your goods to be listed. No insurance = no business! Also, failing to have insurance can expose you and your business to costly claims and suits.
generally three main types of policies recommended to cover the most common
risks: public liability, product liability and employer’s liability (if you
plan on hiring staff). You can also seek to cover your stock and/or equipment
Often, insurers will want to know things such as who your CBD suppliers are, if they are accredited or GMP certified, and if laboratory reports are available for their products for example. They will also likely ask if you have an internal traceability process, a product recall process or prior trading history for example. The more boxes you tick off, and the better you can prove that you are trading responsibly, the lower your premium should be.
- Marketing your business
Advertising via pay per click (PPC) on Google or purchasing Facebook ads is often a first step when it comes to marketing a business online. However, as I’m sure you will have guessed by now: it’s a non-starter when it comes to the CBD industry.
Indeed, these internet giants (as well as many others, such as Amazon or eBay for instance), have taken the view that anything related to cannabis in general – and CBD products in particular – do not meet their terms & conditions.
When it comes to traditional marketing channels – such as TV or billboard for example – the picture isn’t much brighter either. Recently, one might recall that CBS turned down a commercial for Acreage Holdings (an American cannabis company) which was to be aired during the Super Bowl.
The truth is that the media haven’t really kept up with their times, due to fear, ignorance, misunderstanding or a combination thereof. But despair not, other solutions exist!
In today’s world it has actually never been easier to bypass the middlemen and get in touch with your target clientele directly. Our advice is to focus your efforts on search engine optimization or SEO. With a good website and solid SEO efforts, your rankings in the search engine results page (SERP) should improve and in turn your organic traffic should grow. You won’t have to go after your clients anymore, they will come to you!
- Selling outside of your state
As you probably know by now, the laws and regulations surrounding the sale of CBD or cannabis products in the USA are very convoluted, to say the least. This complexity can make selling and transporting CBD across state lines a risky business!
Whilst cannabis is now legal for medical use in 33 states and for recreational use in 10 states and Washington DC, it’s still illegal under federal law.
When it comes to CBD, the situation is perhaps even more confusing. Up until recently, hemp – from which CBD is commonly extracted – was illegal to sell or grow in the US. However, it was legal to buy it from abroad. Then, at state level you have different laws which determine if and where a CBD product can be distributed and sold. Go figure! Therefore, trading legally in this judicial haze can be a daunting task.
However, things might be about to change. Late 2018, Trump signed the farm bill into law – including a provision to legalize hemp in the USA. Eventually, the hope is that all states will have a unified system which will enable hassle free sale and shipping of hemp-derived CBD products across all 50 states. But this may take time.
Until then we recommend that you first focus on building strong sales in your domestic state. Then, seek solid legal advice before you begin shipping your products across state lines. The last thing you want to do is to be charged with drug trafficking!
We hope that this short guide will have prompted you to consider some of the pitfalls of opening a new CBD business, which you might not have otherwise considered. And above all, we wish you the best of lunch with your new venture. Welcome to the Green Rush!
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