So, you’ve decided to start a cannabis business. Congratulations! Starting your own business is an exciting and rewarding journey, but it does come with its fair share of challenges. This is especially true when it comes to the cannabis industry. There are many unique considerations in the cannabis space that can make or break your success. To help you navigate these murky waters, here are 30 of the most common mistakes to avoid when starting a CBD, Hemp, or other Cannabis company.
Avoid these 30 Common Mistakes when Starting a CBD Business
#1. Choosing the wrong business partners.
According to CB Insights, choosing the wrong partners is the #3 reasons startups fail. Here are some helpful tips when choosing a business partner:
- Make sure everyone brings something to the table.
- If all a potential partner has is an idea and no money or know-how, do not partner with them. There are plenty of good ideas. Today, entrepreneurs need to bring much more to the table.
- Make sure you have an operating agreement in place
- Make sure all the partners understand the operating agreement, duties, roles, and consequences.
- Avoid close friends and family if possible
- Make sure your business partners are not involved in too many things. Successful businesses have partners dedicated only to that business. It is possible, depending on the partner’s level of involvement to be part of more than one business. However, analyze how their other business will affect their performance in your business.
- Make sure there are no conflicts of interest where one partner would personally benefit from decisions, they are in charge of instead of making those decisions in the best interest of the company.
#2. Not writing a customized operating agreement
An operating agreement is imperative to a successful business. Remember every business is different. So, writing a customized operating agreement is necessary to avoid conflicts between partners in the future. Think ahead of everything possible that could go wrong and make sure your operating agreement defines everything from duties, responsibilities, consequences, and expectations. Especially make sure it defines all money coming into the company and how disbursements will occur.
#3. Assuming all business partners understand their duties, roles, responsibilities, and repercussions
A good operating agreement should define all partners’ duties, roles, responsibilities, and repercussions. But that doesn’t mean because it’s now in writing that each partner has read and understands them. Have a group meeting with all partners before signing the operating agreement and go through every line to make sure all partners are on the same page and completely understand their roles and duties before obligating yourself into an agreement with them.
#4. Poor Business Plan
Any poorly thought-out plan will most likely fail, especially when it comes to startup businesses. Spend the time now to see if your new brand and business is feasible. Set realistic goals and time frames to work within. Then hold each member accountable for not meeting these goals. It takes less time to plan now than it will to reorganize and blow out fire after fire in the future. Your business plan doesn’t need to be formal, but it does need to cover everything from market research, compliance, marketing, operations, accounting, administration, fulfillment, sales goals, and a realistic budget.
#5. Lack of Corporate Culture
A company’s corporate culture is, in my opinion, one of the most important things for a sustainable business model. You rely on your employees to do the work and unhappy employees can lead to poor performance, theft, and a high turnover rate. It’s important to think about what environment you’ll create for your staff. How will you measure their performance? How do you define success? What is your reward system? Here are some different types of company cultures to think about. You don’t need to choose just one. You may take several and combine them.
- Innovative Culture – a culture of change that’s adaptable and experiments with new ideas to always improve.
- Aggressive Culture – competitive in nature, this corporate culture values outperforming its competitors as its sole focus. This culture usually falls short of corporate social responsibilities to their employees and the community.
- Outcome-Oriented Culture – values results, such as sales performance, as its most important value
- Stable Culture – bureaucratic and predictable. Everyone follow the rules is the focus. Unfortunately, this type of culture can fall behind the times in everchanging markets.
- People-Oriented Culture – value their employees’ rights and ensure a fair work environment for all. Usually, companies with people-orientated cultures will have happy employees, getting great benefits, that stay with the company over a year longer than any other culture.
- Team-Oriented Culture – builds value in a team environment where employees are trained to be capable of performing more than one job, therefore being able to cover for another team member.
- Detail-Oriented Culture – perfection is the key to this culture. Making sure every detail is perfect is their goal. Companies with detail-orientated cultures usually have elite products or services within their industries.
- Strong Culture – values the company’s performance. A group effort among all employees to make the company as profitable as possible. And in return, their compensation is affected directly by the company’s performance.
#6. Improperly training employees
Your employees’ actions directly affects both your company’s performance and its risk, especially in the cannabis industry. Improperly formulating products or content writing using medical claims can get you in big trouble and cost you much more than if you’d have properly trained them in the first place. It’s highly recommended that you also have multiple employees trained to do each job, so you do not experience down time when someone is sick or on vacation.
#7. Delegating & Outsourcing Blindly
How can you possibly make good business decisions if you don’t know anything about the product or service you need? In business you don’t need to know everything about everything. But someone on your team such as a business partner or a trusted employee should have the knowledge needed to know which employee to do a task or which vender to hire for marketing. If you don’t have this knowledge, and simply have your employees figure it out the best they can, you’re risking a lot. And I hope you pay them enough to really care about their decisions. Spend the time and learn the basics about every facet of the business so you can put the right employees and outside companies in place for optimal results.
#8. Choosing a brand name that limits you.
Choosing a brand name that limits you to a particular location, time, cannabinoid, product type, or product can cause serious branding issues down the road as you grow and expand. Keep your brand simple and broad. A brand name doesn’t need to tell you exactly what a company does, that’s what branding is for.
#9. Using Companies that don’t allow CBD or Cannabis
There are hundreds of Companies that don’t allow CBD. Several of these are huge and widely used. And, if you didn’t know any better, you’d use one of their services, and shortly thereafter have your account shut down. This can temporarily put an entire business on hold and cost thousands of dollars. Make sure the companies you choose to partner with are cannabis friendly.
Here’s an article about some of the companies never to do business with if you own a cannabis company.
I'm sure this list is much longer than the one you’re about to read in this article. However, these are the major offenders of the Anti-Hemp corporate world. You know some of them for sure. They are the companies that love everyone, but when it comes to doing business with them as a CBD company, they instantly become anti-hemp cannabis haters or the I-hate-hemp-and-CBD-companies’ companies. And if you decide to open accounts with them or try to do business with them, you will get shut down. It's not a matter of if, it’s when. You'll be surprised with some of these companies that have shut us down over the years for selling CBD products. Most likely, you use one or more of these companies now. They become so "second nature" that most people just starting out in the CBD industry automatically assume they can use these companies as platforms to sell products, do marketing, business banking, web hosting, website builders, and even run payroll. That's right, payroll. Here's a list of Anti-Hemp Companies to Avoid if you Sell CBD products.
#10. Not buying the .com that matches your Brand Name
Proper research for a domain name is imperative. It’s always recommended to buy the .com domain name that matches your brand name. There are some exceptions to this rule. But you don’t want to own a .co domain name and have someone else in the same industry own the .com. You will be marketing for that company instead of your own. Here are a few articles that go deeper into this topic and give tips on how to find a great cannabis domain name.
#11. Choosing the wrong logo design
This does not happen often. However, some logos can speak to the wrong audience and can affect your business in a negative way. It’s important to understand your target audience and make sure your logo speaks to them. Keep it simple. Great logos and the most recognized brands are all very simple. Don’t reinvent the wheel and follow their lead.
Here are some great tips on creating a great cannabis logo for free.
#12. Spend the money now on a Quality Website
Every time I’ve asked an owner of a huge CBD company their secret to success, one of the things they always mention is their website. Brand reputation and a quality website go hand in hand. Putting the money in now will allow your marketing to convert into sales. Otherwise, you’re simply wasting marketing dollars, driving traffic to a website which doesn’t convert and will never rank on google.
Here are some great marketing tips for CBD Companies (which include what a quality website should have).
Cannabis Marketing is still very challenging. Running paid ads is still not allowed by Google, Facebook, Instagram, Twitter, or on Television. Even the marketplaces like Amazon and eBay won't allow you to sell CBD or any Legal Hemp products, making marketing for CBD Companies very challenging. However, there are 5 things that still work and have for years. These are the 5 things that every cannabis company should do for marketing.
#13. Choosing the Wrong Supplier.
- Do you make all your products in-house?
- Do you source your extracts from different suppliers every time?
- How long have you been in business?
- Are you licensed with the state?
- Can I have a copy of your manufacturing license?
- Can I have a copy of your Liability Insurance Policy?
- What is your Minimum Order Quantity (MOQ) requirements?
- Will the MOQ requirements increase in the future (happens all the time as companies get bigger)?
- Do your lab testing standards meet Florida requirements (strictest in the country)?
- Where can I find your COA’s?
#14. Get Licensed with your State
Getting licensed with your state usually only costs a few hundred bucks. Do it now while you’re a smaller company. Use it as an advertising advantage to set yourself above these rogue CBD manufacturers out there. CBD licensing can be tricky. Every state has different licensing requirements and in some states, you may need multiple hemp licenses or even a state food permit. Have no fear, Hemp Lively has done the work for you with our State Hemp Licensing Guide below.
Are you starting a CBD Company, Hemp Farm, or hemp-derived manufacturing facility and want to know what hemp & CBD Licensing Requirements there are in your state? If so, you've come to the right place. It’s important to understand what licenses are required in your state and find out if there are any restrictions on certain hemp-derived products. The Hemp and CBD industry can be quite complicated with new laws and licensing coming out every day. Because Hemp Lively works with new and established Hemp and CBD brands and hundreds of hemp-derived product retailers across the United States, we decided to put together this State-by-state hemp licensing guide.
#15. Don’t put cannabis words in your Entity Name (LLC, Inc.)
Never use cannabis terms in your LLC Name. Using words like Hemp, CBD, Canna*, Green, Bud, Delta, and THC in your Entity Name (LLC, Inc.) can cause huge issues with your applications. Especially when it comes to Banking and Payroll. Make your LLC name like your brand but without those words. For example, if your brand is called “Big Buds”, make your LLC name “BB LLC”.
There are 7 words you should never use when forming your entity (naming your LLC or Corporate Identity). No, this is not George Carlin’s 7 words you can't say on TV. But it might as well be if you're starting a Cannabis Business or CBD Company. From banking to merchant processing to payroll, you'd be surprised to find out the number of companies that will shut you down if they see these 7 words in your LLC or entity name on business applications. Don't learn the hard way like I did in 2016. Things have come a long way, but it’s better to be safe than sorry. Let me show you how to avoid these issues.
#16. Choose Quality over Price
This is the biggest mistake you can make in the CBD, Hemp, and cannabis space. And it happens all the time, especially with startups. Most entrepreneurs are so focused on the profit margin of a product that they completely forget the lifetime value of a customer. They solely focus on buying the least expensive products to make the largest profit margin that they forget that quality beats price every time. Yes, making an extra few bucks per product is great. But not if the customer doesn’t come back because the products were poor quality and ineffective.
My old partner used to say “Penny Wise, Dollar Foolish”. It’s true. If you are starting a CBD Company or selecting products for your new CBD Brand, focus on quality products that work. Your lifetime customer value is much more important than a single sale with no repeat business.
#17. Spending money on Pre-printed packaging to early
A lot happens in the first few years of a CBD brand’s business. Spending too much on preprinted CBD packaging, especially when you’ve had to meet extremely high MOQs, can be a big waste of money if you can’t sell the products or you’ve been forced to make changes to your branding. It’s best to ensure your marketing strategy is successful before investing in large amounts of preprinted tincture boxes and POP/POS boxes.
Here are some great CBD packaging tips with Low MOQs that may help when you’re just getting started.
#18. Poor Content Strategy
Content is king. And if something is that important, why would you not plan for it. Whether you’re focusing on SEO or social media, it’s all the same. Plan out what content you’re going to put out ahead of time. Make sure your content is quality and relevant to what’s happening in the industry and the world. Don’t forget to include all ecommerce holidays in your content strategy as well. Include this content in your weekly newsletters and on social media for optimal exposure.
#19. Not following a consistent marketing schedule
One of the things Google looks at is Consistency. They want to see steady growth. It assures them they are sending traffic to a stable company. Therefore, when you commit to writing a 2000 word blog every Thursday and including it in a weekly newsletter you send out every Friday. Do it. You can even get ahead of the game to ensure, if something comes up, it’s covered. A good strategy is to Schedule your blog posts, coupons, social media posts, and weekly newsletters, a few weeks ahead of time.
#20. Offering customers huge discounts
Offering huge discounts to customers gets sales and new customers. But at what price? Be extremely careful about offering huge discounts regularly when starting out a new brand. It will get your customers used to the discounts. And thus, if you decide to lower the discounts, you will most likely lose the customers.
#21. Not implementing a Customer Reviews system
If you have an ecommerce site, integrating a 3rd party verified customer review system is imperative. A good one to use is CusRev.com which comes in a WordPress Plugin as well for free. It verifies actual reviews, and you can customize where they are automatically posted on your website. The premium version allows you to manually approve them and even edit them prior to posting them on your website to avoid any reviews that give or imply a medical claim.
#22. Not Getting Product Liability Insurance
When you’re just starting out, product liability insurance can be expensive. Plans usually start out at around $500 per month, especially if you are selling Delta 8. It’s always recommended, especially if you are selling any psychoactive hemp products, that you buy a product liability insurance policy.
Here is the contact information to our Insurance Agent who specializes in the cannabis space. Click the image below to download a PDF.
#23. Outsourcing Content Writing overseas
Poor content makes for a poor customer experience. It can affect your google rankings and overall brand reputation. Hiring someone who’s native language is not English, is not recommended for writing content. Furthermore, whoever you hire to write your web content, they need to completely understand how to avoid making medical claims about your products which can get you in huge trouble with the FDA. Most of these overseas content writers use AI Writing Software like Jarvis. Which is actually pretty good but does not take into consideration medical claims. Furthermore, in googles recent update, they are now penalizing companies that use AI (artificial intelligence) writing software. Hire a content writer that’s familiar with the industry and put quality content out to the world. It will pay in the long run.
#24. Paying for Services that are Free (and Easy to do)
Money is usually a big issue when starting a business. One of the biggest mistakes I see young entrepreneurs make is paying hundreds of dollars for something they could do in a few hours for free. One of the biggest offenders of this is doing your own Google Business Page.
What is google business?
Google Business is a free service on google that ties into google maps. You list your business, hours of operation, website, and images and instantly you’re on the first page of Google for people searching close to your address. Here’s what a Google Business Listing looks like.
You most likely have gotten this email: “Get on the first page of Google for only $500”. Well, that’s what they are selling. For $500, they will fill out your company information on business.google.com which you could easily do yourself. Put that $500 to better use like SEO or marketing.
#25. Waiting to Start SEO
SEO takes time. The goal of SEO is to rank organically on the first page of google. To do this you have to do SEO which includes backlinks and several other tasks. However, this takes time, and you are in competition with other CBD companies. Start this as soon as you have built a quality CBD website for your business. You’ll spend money up front for this which may take 6 months to a year to recoup. But once you’re getting organic traffic from ranking on the first page of google, it will be the best investment you’ve ever made.
#26. Using the same company for too many things
Try to spread out your vendors. Cannabis is a complicated industry where you will get some account shut down because they don’t allow cannabis companies to use their services. Knowing the right companies to use is important. But if you don’t, the last thing you want to do is put all your eggs in one basket. Here’s an example.
Instead of buying your domain, hosting, website builder, and merchant processor all in Shopify’s one-stop-shop, use these separate venders instead.
- Domain Registrar – Buy your Domain from GoDaddy.com
- Hosting – Buy the Grow Big Hosting Package from Siteground
- Website Builder – Use a free self-hosted copy of WordPress on your Siteground Hosting Account and add the WooCommerce Plugin to create your store.
Why use separate venders for your CBD Business?
Well, let’s go back to Shopify (this has happened to at least 20 people I’ve spoken to by the way). Say you’ve purchased your dream brand-name dot com domain and built an amazing website, all on Shopify. Not realizing that they don’t allow Delta-8 products. In an instant, and they will find out, they will shut down your account leaving you know access to your web content or even the ability to point your cannabis domain name to another hosting provider. You’re dead in the water my friend.
It’s more work but do your research and use different companies for almost everything.
#27. Forgetting to register your website with Google
We all know Google is smarter than most people. So why would you not let them know you’ve built this amazing new website. Integrating Google Analytics, Google Search Console, Google Optimize, and Google Tag Manager is imperative to ranking on google.
#28. Choosing the wrong Web Hosting and Website Builder
Here is the optimal setup for a cannabis company’s ecommerce website.
#29. Waiting to start Accounting
Don’t wait until taxes are due to start your accounting. Start it from day one. Get in the rhythm of doing weekly accounting or hire a bookkeeper. It will pay off in the long run.
#30. Not controlling customer communication
It can be a daunting task managing customer phone calls, text messages, several social media chats, what’s app, voicemails, and your web chat. Setting in place an omnichannel system so all communication funnels into one place is the best way. Ask your web developer to integrate an omni channel into your website and configure all your communication channels into one, easily managed system.
Starting a cannabis company is no simple task. There are lots of hurdles, financial risks, legal considerations, compliance issues, and market conditions that need to be considered before launching your business. With just a bit of planning and forethought though, you can avoid these 30 mistakes when starting your own CBD company. Good luck!