Though a potentially profitable venture in a growing industry, starting a CBD home business can be difficult due to the legal requirements of selling products online or physically from your home. So, what is needed to start a CBD home business?
Starting a CBD home business requires having the licenses needed to legally store, sell and/or extract CBD for products at home or online. When starting a home business, another consideration to keep in mind is separating your work and home premises, especially if you want foot traffic.
To legally sell CBD products online or in your home, you will need the proper legal certificates for storing, selling and/or extracting CBD hemp legally. Let’s look at that first, and then we will discuss business plans.
What Are the Legal Requirements for Selling CBD From Home?
While the 2018 Farm Bill legalized industrial hemp on a federal level, and by extension, hemp extractions such as CBD oils, there are still statutory regulations that need to be complied with. [1]
While no longer a banned or criminal substance, hemp is now under the authority of the U.S. Food and Drug Administration (FDA).
The FDA is in the process of finalizing regulations on a federal level. This means that states have a significant level of control over the sale of CBD products from home premises.
CBD cannot be harvested from hemp products that contain more than 0.3% THC due to its psychoactive effects on users.
However, despite state control, this grey area on a federal level means that home CBD business owners are uncertain how to market their products.
Furthermore, CBD home business owners are unclear whether FDA approval is needed to infuse products with CBD.
It is recommended that home business owners err on the side of caution and not advertise any supposed health benefits of CBD in their marketing campaigns.
The FDA strictly prohibits advertising health benefits in a product that still requires research to confirm any/all health benefit claims.
With this information in mind, new CBD home businesses should opt to acquire CBD licenses with the assistance of lawyers who are familiar with the laws at both state and federal levels.
What Steps Should Be Taken to Start a CBD Home Business?
CBD is a growing industry valued in the billions of dollars, and the increased consumer interest has led to unprecedented growth and competition.
Here are six simple steps you can take to give yourself a competitive edge in the CBD home business market: [2]
1. Identify Your Market and Products
The popularity of CBD products has led to CBD home businesses further specializing in the following: [3]
- CBD-infused food and beverages.
- CBD pet products.
- CBS supplements and wellness products (subject to strict marketing laws).
- CBD-based cosmetics.
These individual markets typically stock the following products:
- Drops and sprays with key cannabinoid ingredients, such as CBD oil and dried hemp flowers.
- Pills and capsules housing CBD wrapped in a soft shell or gelatin.
- CBD vapes and cartridges typically for purposes of pain relief and social smoking.
- Tinctures that combine CBD, cannabinoids and alcohol.
- CBD edibles that usually come in the form of treats for either human or animal consumption.
Though there is a diversity of products and consumers in each CBD market, you should focus on one particular market sector.
Marketing and selling CBD products to a dedicated consumer base is recommended over trying to capitalize on the CBD industry in its entirety.
The smaller nature of a home business will benefit from specializing in one of the smaller, niche markets within the CBD industry.
A home business will not be able to attract the amount and diversity of customers commercial spaces enjoy. But by specializing in a specific niche, you will build a loyal and dedicated consumer base.
When you know who your market is and how you wish to reach them, use multiple platforms for advertising your home business.
This is vital, as you don’t have the benefit of a third party’s marketing to help you, such as being located inside a busy shopping mall.
Lastly, because there is still confusion around CBD products and a continued stigma in some communities, it’s recommended you have educational resources on your website and social media pages, or printed pamphlets readily available for in-person customers.
2. Create a Home Business Plan
Before embarking on any business venture, it is vital to consider your:
- Long and short-term goals.
- The costs of operating a home business.
- How you will need to physically restructure your home.
Method of Business
Depending on whether your store will operate in a strictly online, physical or hybrid space will vastly change how your home business will be run.
Additionally, whether you decide to operate via a physical space or a purely online storefront, you must have an e-commerce platform to improve your sales.
Each e-commerce platform needs to be researched to make sure a CBD home business is permitted under each service’s rules and regulations. [4]
The following three services have been identified as popular platforms for e-commerce traders in the CBD home business space:
- BigCommerce
- Shift4Shop
- Shopify
Funding a CBD Home Business
Typically speaking, a bare minimum of $5,000 should be set aside to begin a small home CBD business. More may be needed depending on the context and scope with which you hope to begin your business.
A particular consideration for home businesses is the construction of a separate:
- Storefront.
- Storage space.
- Growing space separate from living spaces (if you opt to have physical foot traffic instead of a completely online business).
Refurbishing your home can be an expensive endeavor.
You will need secure storage space, equipment for home growing hemp and the possibility of extra security features, such as security cameras in the storefront.
It’s important to note that the addition of security cameras and other safety features may be a necessary expense for securing business insurance.
3. Choose a Home Business Name That Stands Out
When choosing a name for your home business, it is important to select a name that illustrates your expertise in CBD distribution and speaks to your target audience.
You should choose a name that meets the standards of online analytics and search engine optimization (SEO).
Fortunately, Google AdWords and GoDaddy provide data that can help you find a suitable and catchy name.
4. Get a Business Account
Having a business account is essential for tax purposes and keeping business and personal expenses separate.
A business account is also important for legal purposes.
This is because purchasing large amounts of CBD via personal accounts may violate FDA rules and regulations (even though you may be operating the store from a residential/personal space).
5. Research Regulations and Requirements
Before getting started with your CBD home business, it’s crucial to thoroughly research the legal regulations around CBD at both the federal and state levels. While the 2018 Farm Bill legalized hemp and hemp-derived products like CBD at the federal level, there are still specific rules that must be followed. For example, legal CBD products must contain less than 0.3% THC and cannot be marketed with health claims.
At the state level, CBD regulations can vary widely. Some states have more restrictive laws than others. Be sure to look up your state’s specific CBD laws and any local ordinances that may apply to selling CBD products from home. Consider consulting with a lawyer who specializes in cannabis or CBD businesses to ensure you are fully compliant.
In addition to CBD-specific regulations, you’ll also need to make sure your home business follows all the proper licensing, zoning, and tax requirements for your area. Thoroughly research the business licensing and registration process in your city and state.
6. Ensure Your Home Business Is Legally Registered
Standard rules and regulations regarding the establishment of a business all need to be met, including but not limited to:
- Complying with residential and/or communal rules and regulations, such as body cooperate or complex rules.
- Registration of the home business, which must include an EIN/TIN request from the IRS.
- A reseller’s license. This is vital if you plan on purchasing CBD products from wholesalers, as it negates the requirement to pay sales tax while allowing you to reclaim sales tax from your customers.
- Any other bylaws that need to be complied with as per your city or town’s regulations.
7. Buy Products From Reputable CBD Suppliers
One of the keys to running a successful and compliant CBD business is sourcing your products from reputable manufacturers and suppliers. However, finding the right CBD supplier requires careful research and vetting. Here are some of the key things to look for:
- GMP Compliance: Choose a manufacturer that follows Good Manufacturing Practices (GMP). This ensures they adhere to strict quality control and safety standards in their production process.
- Organic Hemp: The best CBD is derived from high-quality, organic hemp plants. Ask potential suppliers about their hemp source and farming practices. Avoid manufacturers who use hemp grown with pesticides or other harmful chemicals.
- COAs: Reputable CBD manufacturers should provide Certificates of Analysis (COAs) for all their products. COAs are lab reports that verify the cannabinoid content, potency, and purity of the CBD. They help ensure the products do not contain harmful levels of contaminants like heavy metals, pesticides, or residual solvents. Always review COAs before purchasing inventory.
- Third-Party Testing: In addition to COAs, look for manufacturers that use independent third-party labs to test their CBD. This provides an extra layer of quality assurance and transparency.
- Hemp Sourcing, Extraction, and Infusion: Investigate the supplier’s methods for sourcing hemp, extracting CBD, and infusing it into their products. Look for suppliers who use sustainable, ethical farming practices and clean, efficient extraction methods like CO2 extraction. Avoid suppliers who use harsh solvents or have unclear sourcing.
- Expertise and Service: Choose a supplier who has deep knowledge of CBD and the hemp industry. They should be able to provide guidance and answer any questions you have. Also make sure they have reliable customer service and can guarantee a consistent supply of products to meet your needs.
- Logistics and Distributor Reviews: Evaluate the supplier’s logistics capabilities to ensure they can deliver products reliably and efficiently. Read reviews from other distributors to get a sense of their experiences with the supplier’s service, shipping, and product quality.
- Pricing: While price shouldn’t be the only factor, it’s important to ensure you’re getting a fair value for quality products. Compare pricing between suppliers, but be wary of deals that seem too good to be true, as they may indicate lower quality products.
- Variety of Products: Depending on what types of CBD products you want to sell, look for a supplier that offers a range of options including oils, edibles, topicals, and more. This will give you a better selection to build out your product line.
- Contracts: Before entering into a partnership with a supplier, make sure to have a legally compliant and enforceable contract in place. This contract should clearly outline the terms of your agreement, including pricing, minimum order quantities, shipping and payment terms, and any quality or compliance requirements.
Take the time to thoroughly research manufacturers, read reviews, evaluate their sourcing and production processes, and request documentation before making a decision. Your CBD supplier will be one of your most important business partners, so it’s crucial to choose one you can rely on for quality, compliance, and service. A strong supplier relationship built on a solid legal foundation will be a key asset as you grow your CBD home business.
8. Build a Professional Website
In today’s digital age, having a professional website is essential for any business – even local home-based ones. Your website serves as the online face of your brand. It’s a place to showcase your CBD products, share information about your business, and connect with potential customers.
When building your website, focus on creating a clean, user-friendly design that is easy to navigate. Use high-quality images and clear product descriptions. Make sure to include important information like your location, contact details, business hours, and any special promotions.
If you don’t have experience with web design, it’s worth investing in professional help to ensure your site looks polished and functions smoothly. Hiring a web designer who understands the CBD industry and its unique challenges can be especially valuable.
In addition to design, you’ll also want to focus on creating quality content for your site. Provide educational blog posts and articles that inform people about CBD, its potential benefits, how to use different products, and more. This type of content not only helps engage potential customers, but it also improves your site’s visibility in search engines.
Speaking of search engines, Search Engine Optimization (SEO) is crucial for driving traffic to your CBD website. SEO involves optimizing your site structure and content to rank higher in search results for relevant keywords. When done effectively, it can greatly increase your organic reach and attract new customers.
Some key SEO tactics to use on your site include:
- Researching and targeting relevant keywords
- Optimizing your page titles, headings, and meta descriptions
- Building quality backlinks from other reputable sites
- Creating a blog with keyword-optimized educational content
- Ensuring your site is mobile-friendly and loads quickly
SEO can be a complex topic, so just like with web design, don’t hesitate to hire an experienced professional to help optimize your site, especially one who understands the CBD industry and its nuances.
By prioritizing your website and online presence in your business plan, you’ll be better positioned to reach CBD consumers and grow your customer base. A strong website and SEO strategy are powerful marketing assets for any modern CBD business.
What Are the Challenges Facing CBD Home Businesses?
There are four challenges that you are likely to face in the starting and running of a home CBD business. They include: [6]
- Banking and finance
- Home business insurance
- Differentiation from the competition
1. Banking and Finance
Banks and financial institutions typically label CBD home businesses as high-risk ventures.
Some institutions and banks offer more favorable loans to CBD home businesses than others.
You must be prepared to spend time either negotiating with these institutions or sourcing business finance privately.
2. Payment Processing
Having the correct payment process for your home business is essential.
You cannot rely on third-party methods of payment that may have been afforded to you had you gone into a commercial, shared space, such as a shopping mall.
Consequently, time should be taken to research credit card facilities, e-commerce payment platforms, etc., to see if they can assist CBD home businesses.
3. Home Business Insurance
Home business insurance is considered essential for all business owners.
Especially since it will have a major bearing on your home insurance premiums and the content of your home insurance contract.
Unfortunately, numerous insurers hike up premiums to dubious amounts for CBD home businesses or do not provide any insurance plans whatsoever.
It is advisable that your broker in charge of your home insurance either organizes home business insurance with a reputable insurer or works closely with a third-party broker to ensure both your personal and business insurance needs are covered.
4. Differentiation From the Competition
Many entrepreneurs are looking to capitalize on the growing demand for CBD products by starting their own home businesses. It is essential to differentiate yourself from the competition.
Consequently, there are a few key factors you should be aware of that will legitimize your home business and help you stand out from the competition:
- Transparency about your products, service providers, pricing and communication channels.
- Accuracy about all information regarding the effects and safety concerns of ingesting CBD.
- Storytelling that provides engaging and honest information about your venture into the CBD home business and why your home business and its products can help consumers.
Conclusion
While starting a home business may seem like the simplest and easiest method of entering the CBD market, it is in many ways harder than operating your business from a commercial space.
Consequently, compliance with all rules and regulations and the importance of legal marketing and insurance contracts cannot be overstated.
