The CBD industry has enormous potential for entrepreneurs and investors. But are CBD stores profitable? This article takes you through the data and trends.
CBD stores can be highly profitable, with data showing that companies are seeing net profit margins of above 40%. The industry is expected to reach $20 billion by 2024. However, regulations in certain regions could decrease profit margins for CBD companies due to additional hurdles that affect operations.
If you’re interested in entering the CBD industry, your first question is always going to be, “Is selling CBD profitable?” Let’s unpack the answer.
Can You Make Money Selling CBD Products Online?
A trend that has coincided with the expansion of the CBD industry is the growing popularity of online shopping and marketplaces.
E-commerce companies like Shopify have allowed CBD products to be sold on their platform since 2019. Selling online has presented opportunities for CBD stores to attract new customers and increase their sales volumes.
According to market research,[1][2] more customers chose to buy CBD products online during the Covid-19 pandemic. CBD sales hit $4.6 billion in 2020, and forecasts predict that the US market will grow to $20 billion by 2024.[2]
There has never been a better time to enter the CBD industry and establish your company as a well-known brand.[3]
CBD Profit Margin
High sales volumes are one thing; making a profit on those sales is another. So, considering overhead costs, what does the data say about profit margins?
According to data published in the 2016 Marijuana Business Factbook, profit margins for companies in the cannabis market typically fluctuated at around 32%. Almost four of the top 10 companies had profit margins above 40%.[4]
And based on industry growth, it is conceivable that profit margins for sales of CBD products have risen even further as the market has grown.[5] This is attributable to the growing demand and the fact that the client base for CBD products is willing to pay premium prices for many products.
Other business opportunities in the CBD industry extend beyond selling in-demand products like edibles.[6] For example, there are opportunities in CBD blogging, influencing, and podcasting. These activities unlock new marketing channels to help CBD brands grow, which can increase sales and result in high profit margins.
However, while legalization has played a significant role in the CBD industry’s growth, regulations have had a negative effect on profit margins. And the uncertainty surrounding regulations that are still being developed has diminished investor confidence.[4]
Ensuring that your CBD products are compliant with regulatory frameworks has created operational hurdles that raise production costs. For example, regulations stipulate that CBD products contain no more than 0.3% THC content.[4] CBD companies in highly regulated markets like the state of Colorado have reported comparatively lower profit margins.
How To Stay Ahead of the Competition in the CBD Industry
Entering the CBD industry is a great way to make money and realize high profit margins. But the industry is still new, and with the novelty comes a great deal of uncertainty.
It is difficult to accurately predict the direction that legislation and regulations in the CBD industry could take. So, how do you stay ahead of the competition, position yourself to build brand loyalty, and expand your operations?
The key to gaining a competitive advantage when establishing and expanding your CBD business is to develop products that comply with existing and future regulations. You must also satisfy the new market, which will likely be better educated about CBD products in the future.[7]
As more and more CBD stores emerge, the industry’s expansion will lead to market saturation. That’s why it’s important to differentiate your product from those of other CBD brands in the eyes of both consumers and regulators.
One strategy is to provide third-party lab testing results to attest to your product’s quality.
Suppose you can easily prove that your product complies with industry standards and offers complete customer satisfaction. You’d establish yourself as an industry leader and build a brand that customers can trust. You would, therefore, occupy a lucrative space in the market.
The Challenges Facing CBD Businesses
You can take advantage of plenty of CBD opportunities as an entrepreneur or investor. However, various challenges need to be overcome to establish staying power.
For example, many business banking services are currently out of reach. Large banks are unwilling to get involved with CBD businesses due to the high-risk profile of the loosely regulated industry.
Affordable insurance for CBD businesses is another obstacle. At the same time, payment processing systems and capital access may be difficult to obtain.
However, the good news is that as the CBD industry develops, financial institutions will most likely start taking CBD businesses more seriously. Eventually, the government will establish regulations, and financial service providers’ risks will decrease. This means banks will show a greater willingness to serve CBD businesses.[7]
Important Questions
How much does the average CBD store make?
With 30%-40% profit margins, there’s an opportunity to make a lot of money in the CBD industry, and the demand for CBD continues to grow. Being a less established product means there’s less hard data on how much money different stores are making, but it also means that there is more opportunity to get brand recognition and a customer base before the space is too crowded.
How much money a store can make depends primarily on the business model and execution. There’s an opportunity for larger profit margins and lower overhead online, but it’s harder to create loyal customers.
Is CBD a good business to invest in?
The simple answer is yes. It’s a booming industry that continues to grow. There are still lots of opportunities. The longer answer is that it depends on the company you are investing in. Like any investment, it’s important to analyze the fundamentals of the company and the market potential.
Of course, all investments carry risk. No matter how good things look, the unexpected can always happen. On the other hand, one has to take risks to make money. It’s always a good idea to get help with your due diligence to make sure that you didn’t miss anything.
Can you make money selling CBD?
Absolutely! More and more people are every day. From starting your own brand to dropshipping to affiliate marketing to retail, CBD has many lucrative business options.
Conclusion
So, if you want to know if CBD stores are profitable, the short answer is yes. They are incredibly profitable, and there’s a lot of room for growth in the industry. Forecasts show that CBD sales are set to explode in the near future.
However, making your mark in the CBD industry is easier said than done. To start realizing the profits you’re aiming for, create a product that differentiates you from the rest of the pack. To do so, you need third-party lab testing mechanisms that will verify the quality of your product.
- The Future of the CBD Industry in 2022 and Beyond | Forbes
- CBD Market Could Reach $20 Billion By 2024, Says New Study | Forbes
- Is It Profitable to sell CBD oil online? | Quora
- Chart of the Week: Profit Margins for Infused Products Can Be Sky High | MJ Biz Daily
- 8 Reasons Why Investing in CBD Oil Will Make You Rich | Kyro
- 8 CBD Business Opportunities To Pursue in 2021 | Opulent Organics
- How to Start a CBD Business | Business News Daily
