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CANNABIS BUSINESS MAN INSPECTING EXTRACT

How to Start a CBD Company: Business Starter Kit

Introduction

Looking to start a CBD company? But not sure where to begin. The cannabis industry is booming, and with it comes a surge of interest in new CBD companies. But what exactly does it take to start one? Most entrepreneurs think starting a cannabis company is just like starting any other business. Spoiler Alert! It’s not.  There are more hurdles and challenges in this industry than any other I’ve faced in my lifetime. From banking to payroll to marketing to merchant processing, every step must be taken correctly, or you will most definitely run into huge setbacks.

However, this industry has an immense amount of opportunity, huge potential for growth, and significant financial reward. And if you can do everything right the first time and avoid all the potential speed bumps, it’s worth pursuing. In this blog post, we’ll explore the ins and outs of starting a successful CBD business. Whether you’re looking to tap into the growing CBD market or simply want to make your mark on the cannabis industry with a new line of innovative hemp-derived products, this guide has everything you need to get started. From choosing the right business model and obtaining necessary licenses and permits, to marketing your CBD products and navigating regulations, we’ll walk you through every step of starting a successful CBD company.

I always tell people, “If I could go back in time to 2016, when I started my first CBD company, with what I know now and all the challenges I’ve had to face over the last few years, I’d probably sell toilet paper instead.”

female hands holds many rolls of toilet paper on a 2021 10 29 19 30 51 utc

Of course, I wasn’t talking about actual toilet paper. But I was referring to some other product that didn’t have so many challenges. Hence, the reason I decided to write this in-depth article and the other dozen or so CBD business guides in our blog. Let me show you how to start a CBD, Hemp, Delta 8, THC, or any cannabis company without experiencing all the growing pains.

How do I start a CBD Company?

Starting a hemp or CBD business can be broken down into 7 Steps and can be applied to a cannabis manufacturing company, a Retail store that sells hemp-derived products, wholesale and distribution, and cannabis ecommerce websites.  The 7 steps to starting your new Cannabis Brand or Hemp Company are:

 

  1. Business Planning
  2. Branding & Web
  3. Planning your Product Line
  4. Assembling the Team
  5. Forming the Corporate Foundation
  6. Building out your departments
  7. Executing your Business Plan

Each step will walk you through every aspect of starting a CBD Company, a hemp-derived product line, or another cannabis business.  I’ve included links to state resources and other Hemp Lively cannabis business blogs.  Plus, you’ll find helpful downloadable templates and other resources throughout our website which are 100% Free to help you on your way. 

How to get the most out of this guide

This How to Start a Cannabis Business Guide goes over every step of the process exactly how Hemp Lively was built.  Over 200 hours went into creating this tutorial for you to help you set up your CBD Business correctly the first time.

The article is over 20,000 words.  It may take some time to finish so stop what you are doing and bookmark this page in your browser now so you can get back to reading more as you complete each step of the process. 

Included in this article are links to a dozen other in-depth Cannabis Business Guides.  Read them all. I promise you, there will be something in every article that you don’t know.

Look out for several downloadable tools throughout this, and other, business articles to help with CBD Product Pricing Strategies, Domain Name Brainstorming, Price Sheets, Business Plans, and many more. Let’s get started on our first section, business planning.

Once you finish reading this information, if you have questions about this process or would like to open a Hemp Lively Wholesale Account, learn more about our turnkey Private Label hemp-derived product manufacturing services, sign up to buy bulk hemp gummies, or need information on custom cannabis ecommerce website design services, please call us at (850) 299-9624 and ask for David McGinnis.

How to Start a Branded Cannabis Business: Start to Finish

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Step #

Business Startup Step 1

Business Planning

When starting a new business, having an effective plan is essential. This is especially true when launching a CBD company or brand. A business plan will help you to identify the necessary steps to get your business off the ground and define and measure your progress going forward. Here are some key steps for developing your CBD business plan and taking your idea from concept to reality.

NOTE: This is not a formal Business Plan.  These are the main practical steps you’ll need to understand and execute your business.  If you are planning on obtaining startup capital from investment companies or most angel investors, you need to do a formal business plan as well.  This article will get you started.  However formal business plans are much more extensive, and you can find several great articles and online tools on how to do them very easily.  For more information on writing a formal business plan and seeing sample business plans for various industries, check out the Small Business Development Network (SBDC)  Business Plan page.

 

Choose the right Business Model

When it comes to starting a CBD company, one of the first decisions you’ll need to make is which business model to use. There are several different options available, each with its own pros and cons. Are you planning on manufacturing your own products, using another manufacturer to private label your product line, reselling other company’s products, or simply marketing either a dropship site or affiliate marketing for multiple cannabis companies.

Manufacturer

COMPLEXITY:          🤔🤔🤔🤔🤔
WORKLOAD:            😡😡😡😡😡
POTENTIAL RISK:    😬😬😬😬😬
UP-FRONT COST:   💲💲💲💲💲
PROFIT MARGINS:  🤑🤑🤑🤑🤑
SALES CHANNELS: ✔️✔️✔️✔️✔️

Gummy 1

If you’re planning on manufacturing CBD products yourself, you’ll need to consider factors like production capacity, location, and regulatory requirements. While this model can be profitable, it also carries a high level of risk as your success will depend on factors outside of your control. Manufacturers have a high overhead, a brick-and-mortar manufacturing facility, and a large staff. However, if you can manage all this properly and generate enough sales to cover your expenses, you’ll have the potential to make a considerable amount of money. Another benefit to making your own CBD products is your low product cost. This gives you a huge advantage when competing with other CBD Wholesalers.  As a hemp-derived product manufacturer, you’ll now have multiple sales channels.  You can sell your own branded cannabis products.  You can offer private label manufacturing services for other CBD Brands.  And you can sell bulk unpackaged products such as bulk delta 8 gummies to other hemp-derived product manufacturers. This opens your potential customer base to almost everyone.

Private Label Hemp Products 1

Private Labelled Products

COMPLEXITY:          🤔🤔🤔🤔
WORKLOAD:            😡😡😡😡
POTENTIAL RISK:    😬😬😬
UP-FRONT COST:   💲💲💲💲
PROFIT MARGINS:  🤑🤑🤑🤑
SALES CHANNELS: ✔️✔️✔️✔️

Private Label, also known as White Label, is a service where another manufacturer will make your company’s branded products. They will come labelled with your logo and label artwork, turnkey and ready to sell. For this service, manufacturers charge a manufacturing fee and most require a Minimum Order Quantity (MOQ) on all purchases. Well, that is, except for Hemp Lively who has no MOQs on most of our Private Label Hemp Products. Private Labelling your CBD product line allows cannabis companies to create and sell their own brand, without the added expense of running a manufacturing facility. This is extremely popular among the most successful brands. The trick to using a Private Labelling service has two main components:

 

  • Manufacturing – Find a Quality Hemp Product Manufacturer. Quality is everything in this industry. Quality hemp-derived products create lifetime customers.

 

  • MOQ Requirements & Changes – Before choosing a private labelling service for your new brand, find out their MOQ or other minimum purchase requirements. Also, make sure they are not planning on raising their MOQ requirements, which is one of the most common complaints I hear from our new private label customers who were previously working with another CBD manufacturer.

Reseller

COMPLEXITY:          🤔🤔🤔
WORKLOAD:            😡😡😡
POTENTIAL RISK:    😬😬
UP-FRONT COST:   💲💲💲
PROFIT MARGINS:  🤑🤑🤑
SALES CHANNELS: ✔️✔️

Hemp Lively Whole Plant Hemp Oil 12 pack POP Box 1

If you’re looking to minimize your up-front costs and risk while still having the opportunity to generate substantial profits, then a CBD re-seller business might be right for you. As a CBD reseller, you’ll work with multiple CBD companies and wholesalers to market and sell their products on your own ecommerce website or in your brick-and-mortar retail shop, or chiropractic office.

This model allows you to sell CBD products without having to worry about the logistics and costs involved in manufacturing CBD products yourself, allowing you to focus on marketing and selling your CBD products. You can have as little as one employee with this business model and a range of overhead costs depending on whether you sell solely online or operate a retail store. This model is widely used because it allows business owners to focus, almost solely, on marketing and sales.

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Dropship Site

COMPLEXITY:          🤔
WORKLOAD:            😡😡
POTENTIAL RISK:    😬
UP-FRONT COST:   💲
PROFIT MARGINS:  🤑🤑
SALES CHANNELS: ✔️

Another option for CBD Company owners is to set up a dropship business. As a CBD Dropship Site business owner, you’ll work with suppliers and manufacturers to market and sell their products on your own drop shipping ecommerce website. The difference between running an ecommerce website and a drop shipping site is simple. With a dropship site, you don’t have to ship any orders. Those are done by the drop shipping fulfillment company.

You are still responsible for collecting the money from the customer at checkout and all other aspects of the business including customer service. Another benefit of dropship sites is you don’t have to buy and hold any inventory. You only pay for the products that are shipped out by your supplier, which is almost a risk-free business model.

Do not confuse a dropship site with an ecommerce business that utilizes a fulfillment company. Ecommerce business owners who use a fulfillment company must buy, in advance, their inventory and then pay to have it warehoused at the fulfillment facility, who then ships the orders out as they are sold.

Running a dropship ecommerce site has extremely low overhead. And in return, also has much lower profit margins. If you’re looking for a low-risk, low-overhead, marketing-focused business, a CBD Dropship Site may be the business model you’re looking for.

Affiliate Marketing

COMPLEXITY:          🤔🤔
WORKLOAD:            😡😡
POTENTIAL RISK:    😬
UP-FRONT COST:   💲
PROFIT MARGINS:  🤑
SALES CHANNELS: ✔️

Hemp Lively Affiliate Program 2

Affiliate Marketing is a great CBD Company business model if you’re looking to market and sell CBD products without the risk or financial investment required by manufacturing your own CBD products or reselling other company’s products. There is very little up-front cost when it comes to starting a successful affiliate marketing CBD business. However, it can be very time consuming for some. The great news is it can also be residual commissions.

As a CBD affiliate, you’ll work with multiple CBD companies and ecommerce businesses to market and sell their CBD products on your own website, blog, social media, or various other online posts throughout the internet. This can be done through text-based ads or banners, social media posts, email marketing, and more. When someone clicks on any of your affiliate links or ads, they are sent to a CBD Company’s website which uses a tracking cookie in their browser to assign the customer to you and track them for a period. You’ll then receive a commission on every sale that customer makes during the set period. As an affiliate, you simply need to focus on creating good content and driving traffic to other CBD brands to generate sales for them. Think of yourself as an independent marketing company with unlimited earning potential. Average affiliate commissions range from 15%-40% with the tracking cookie good for 3-12 months. There are however some affiliate programs which pay lifetime commissions up to 50%. Hemp Lively’s Affiliate Program has a 1-year cookie tiered commission structure ranging from 25%-50% commission on every retail sale. Some of the top CBD affiliates in the USA make over $100,000 per month. Will you be the next top affiliate marketer?

Market Research

A Startup's Foundation for Success

When starting a new cannabis company or CBD Brand, market research is one of the most important components of your business plan.  Before you can start selling anything, you need to do some research on the market first.  Learn about the industry and find out who else is in the space and what kind of products they are offering.  This will help you identify potential gaps in the market that you can fill with your own unique offerings. It will also help you create an effective marketing strategy that resonates with your target customers.   Market research allows you to gain an in-depth understanding of your target customers, identify potential competitors, and assess the viability of your CBD products.

The first step of any CBD, hemp, or cannabis company’s market research is to understand the basics.  Learn about CBD, THC, Delta 8, and other cannabinoids.  Make sure you understand the different extraction techniques and how they may affect your products.  Learn about Lab Testing standards (which we cover further down in this article) and how to read and understand COAs.  Lacking this first step will undoubtedly put you in the same category that most CBD Companies fall into: a bunch of business guys who don’t understand the products but understand marketing and business.  Most of these companies make a lot of money in the beginning but fail to capture lifetime customers because their products are subpar.  Spend the time and learn.  It’s that simple. 

Next, do a thorough comparative market analysis of your competitors’ products and pricing.  Identify where the needs are in your local market by visiting local chiropractors and smoke shops.  Other key market research steps to consider include personal interviews with CBD consumers, analyzing market trends and sales data, reviewing CBD industry publications and reports, and attending CBD-related conferences or trade shows.

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Find Your Niche

Now that you know what is already out there, it’s time to choose your niche. Are you going after a specific demographic? Are there particular types of products or services that are underserved by existing companies? Think about what makes your offering unique and how it fits into the larger hemp industry landscape. This will help ensure that your business stands out from the competition.

When it comes to CBD companies, there are plenty of options ranging from a medicinal approach to more recreational-geared brands.  Find out where your strengths lie and focus on that aspect of the industry. For example, if you have experience in skincare or nutrition, then those would be great places to start your journey as an entrepreneur in the world of CBD. 

What is Hemp Lively's Niche in the Cannabis Space?

At Hemp Lively, for example, one of our niches is the new CBD Brands.  We’ve captured this niche due to our Private Label CBD Services which are attractive to new CBD brands because we do not have any MOQs or other minimum purchase requirements.  About half of them have used other manufacturers that recently raised their MOQ requirements, finding our no-MOQ private label services perfect for their needs.  We also take the time to do one-on-one consulting and offer additional services to get their brand up and running such as Web Design and Label Design.  This all-encompassing group of services has captured a large portion of the CBD startup market seeking quality private label CBD product manufacturers.

Understanding your Target Audience

Once you’ve identified your target niche, get to know who your target market is.  It’s essential when crafting any successful business plan and will affect everything from your brand name to your logo design.  To properly identify who your target audience is, you need to define both their Demographics and Psychographics.

demographics vs psychographics foundr definition

What are Demographics?

Demographics are physical characteristics of a person or group which include Age, Gender, Race, Location, Employment Status, and Income Levels.

What are Psychographics?

Psychographics are intangible characteristics of a person or group which include their Personality Traits, Values and Beliefs, Attitudes, Interests, Hobbies, and Lifestyles.

Knowing these can be an effective tool, especially when it comes to branding and marketing. 

For example, if your target audience was men and women over 60 years old.  You wouldn’t want to name your new hemp company “LIT CBD”, have your logo be a monkey smoking a joint, and market on Instagram.  Instead, a better approach would be a brand called “Silver CBD”, a Logo with pastel blues and greens of a simple cross in a circle, and marketing by sending a wellness brochure in large print along with a month’s supply of CBD to their house.

Ask yourself things like:

  • Who are the people most likely to buy from or use your product or service?
  • What age range do they fall into?  
  • What income level?
  • Male, Female, or both?
  • Where do they live? 
  • What do they enjoy doing?
  • How do they view hemp and cannabis products?  As a dangerous drug or as something that helps you.
  • What is most important to this group? CBD products for wellness, THC products for fun, or both?

These are all important questions that must be answered before moving forward with any new venture.  Knowing who your customer base is will allow you to create effective marketing strategies and tailor them specifically for those customers. 

Marketing Strategy

Once you have completed your market research, it is important to develop a Cannabis Marketing Strategy that is viable for CBD and hemp products and aligns with your target customers’ needs and preferences.  Marketing is one of the biggest challenges in the cannabis industry.  Almost all the major paid advertising channels do not allow CBD, hemp, and cannabis companies to promote their products.  These include online giants like Google, Facebook, and Instagram, marketplaces such as Amazon and eBay, and all Television advertising.  So, how do you market CBD products?  I’ve broken it down for you in detail in this article: 5 Marketing Strategies every CBD company should do (from day 1).

David McGinnis

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.

Most of the strategies I cover in the above article are organic (free not paid).  However, there are 2 very effective paid ad platforms which do allow CBD products to be marketed.  Some of the organic methods include creating targeted organic content on social media instead of paid ads which is allowed on platforms such as Facebook or Instagram, utilizing SEO tactics to improve your website’s search ranking to get to the first page of Google organically, and sending promotional emails and SMS messages directly to CBD consumers to generate more sales leads. Your marketing strategy should be one of the central focuses of your business plan. Ask yourself questions like:

  • How do you plan on promoting and advertising your new brand?
  • What channels will you use?
  • Do you need to invest in digital marketing or is traditional advertising more suitable for your target market?

 

Thinking through these questions now will help ensure that when it comes time to promote and advertise, you’ll be ready. You need to determine how you will reach out to potential customers online and offline, such as through social media campaigns, email marketing, print and digital advertising, or other methods. Your strategy should include details on who will manage these marketing efforts and how much budget they have available to work with each month or quarter.  With the right approach, you can position yourself as a leader in the CBD industry and build a successful CBD business.

Pricing Strategy

Also included in your Marketing Strategy should be your CBD Product Pricing Strategy.   This is not the exact pricing of your products, simply the overall pricing strategy or, in most cases, a combination of several pricing strategies.  For example, will you price your products high and offer huge discounts or are you planning on continuously checking your competitors’ pricing to always stay just below theirs?  I won’t go too much into this but have written an in-depth article on different pricing strategies below.

David McGinnis

Product Pricing is one of the most important aspects of any CBD business. After all, if you don’t price your CBD products correctly, you could end up losing money and customers. So, what are the different types of product pricing strategies out there? And which are best suited for Cannabis, Hemp, and CBD Companies? How do I figure out pricing for Retail, Wholesale, Ecommerce, or is there a structured pricing strategy to cover all of them? We’ll answer all that and more in this blog post. We'll even give you downloadable templates to use for your new business.

Create a Startup Budget

Creating a budget is one of the most important steps in any business plan, especially when it comes to launching a startup company or introducing a new brand.  It’s important to think through all potential expenses before getting started so that there are no surprises down the line.  This will also play a key role in your upcoming feasibility study.  One of the biggest reasons startup companies fail is running out of money.  What a novel idea that would be to figure that out in advance.  I know, this seems obvious to some, but it’s not to all.  Others attempt to do this but do not include every expense.  And thus, when unexpected expenses pop up, it causes huge problems and may even put them out of business.  These expenses can vary depending on which cannabis business model you choose to do.  Are you manufacturing or doing a drop-ship CBD website?  Knowing the expenses of each may even change the business model you choose. 

Business Startup Budget Template

Don’t worry, Hemp Lively is here to help. Download this detailed Hemp Company Budget Excel Workbook now. It has a different Budget Sheet for each Cannabis Business Model. Click on each CBD Business Model Tab and you can adjust the expenses for your unique CBD Business Startup. All the totals automatically adjust when you change your expenses so it’s super easy to use. Start off on the right foot with the right tools for the CBD space you’re about to be in.
FREE

Knowing how much funds you’ll need up front may decide if your business is feasible and will play a key role in your sales goals.  Outlining what funds will be used for what purpose and when these funds are needed helps ensure that everything runs smoothly throughout the startup process, as well as long-term operations of the company. 

Feasibility Study

It’s important to assess whether it makes sense financially to pursue opening a new CBD shop, hemp-derived product line, eCommerce cannabis business, or delta 8 gummies brand, even if this is something that you’ve done before.  Conducting research into what sort of competition exists locally or online could provide helpful insights into whether there is sufficient demand in that market for another player for it to be profitable in the long run.  Doing so will also help you create goals to meet realistic sales projections needed to eventually exceed your projected budget expenses.  That’s right, I said “eventually”.  In the beginning, your expenses will outweigh your income.  This is called your burn rate.  Too large a burn rate and you run out of money.  No burn rate and, well, there is no such thing.  You will always spend more money than you make in the beginning.  A well-planned, realistic, and fully executed business plan usually becomes profitable within the first 1-2 years.  One year is a great goal to have, but make sure you have enough capital for two, pending there is sufficient growth within the first year to “see the light at the end of the tunnel”.

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Goals and Milestones

Goals and Milestones are a huge part of this.  A goal is an idea or desired result that a person or a group plan and commit to achieving.  Then, set several realistic milestones within each goal. A milestone is a point used to measure progress toward the goal.  It separates the end of a phase from the beginning of another.  Milestones can become a motivating factor, especially when they come with bonuses for your employees. 

Metrics & Key Performance Indicators (KPI)

To measure progress towards goals and milestones you need to define different metrics to track as well as your Key Performance Indicators, or KPI. 

What’s the difference between a Metric and a Key Performance Indicator?

A metric can be anything you track whereas a Key Performance Indicator measures performance.  For example, a metric could be the percentage of edible CBD products. By itself, it does not measure your company’s performance.  An example of a KPI would be the Monthly Sales Growth of CBD Edible products.  There are hundreds of different KPI’s to track depending on your position within a company and the type of products or services you sell.  However, when you are just starting out, especially starting a new CBD Brand, there are a handful of KPI’s that you should always keep your eye on to help you run and improve your business, properly execute your business plan, and achieve your goals.

Popular Key Performance Indicators (KPIs)

Click on any of the KPIs below to learn more.

Average Order Value (AOV)

Average Order Value is the average dollar amount customers spend per order, usually calculated within a set period.  The national AOV for ecommerce sites is $78.  Hemp Lively’s AOV is $100

 

Total Revenue ($) / # of Orders = Average Order Value ($)

Conversion rate (CR)

Your conversion rate measures the efficiency of your marketing.  In ecommerce, this would be calculated by the number of orders divided by the number of visitors to your website.  If you owned a retail store, your conversion rate would be the number of transactions divided by the number of walk-ins.  It’s important to note that you shouldn’t get too alarmed by a low Conversion Rate when you have very little traffic.  Once your traffic is over about 500 visitors within a period, then start focusing on your conversion rate because you will then have much fewer volatile figures to compare regularly.

 

# Of Sales / # of Visitors = Conversion Rate (%)

Customer Acquisition Cost (CAC)

Your Customer Acquisition Cost is the expense of gaining a single customer.  It’s calculated by taking all Sales and Marketing expenses (including salaries) divided by the number of new customers.

 

Total Sales & Marketing Expenses ($) / # of New Customers = CAC ($)

Cost Per Acquisition (CPA)

Cost Per Acquisition is like the Customer Acquisition Cost but for a specific marketing channel or campaign. 

 

Total spent to acquire new customers via specific marketing channel or campaign ($) / # of New customers from the same marketing channel or campaign = ($) Cost Per Acquisition

Purchase Frequency (PF)

Purchase Frequency measures the number of times your average customer orders within a given period.  Usually this is measured over a 12-month period.  Repeat customers are much easier and less expensive to acquire than new customers. Also, customers who make purchases frequently usually refer their friends and family.

 

# of Orders / # of Unique Customers = Purchase Frequency

Repeat Customer Rate (RCR)

A Repeat Customer Rate measures the percentage of your customers within a set period who have completed more than one order.  An average RCR is between 25%-50%.  If your CBD Company has a repeat customer rate of less than 25% then you’re not properly marketing to existing customers with weekly newsletters and specials.  Or your CBD products (for lack of a better word) suck.  Quality products and proper marketing to existing customers are the key to this metric.

 

# of Repeat Customers / Total # of Customers × 100 = Repeat Customer Rate (%)

Lifetime Value (LTV)

The Lifetime Value of a Customer measures how much money will the average customer spend in their lifetime.  Knowing this doesn’t happen overnight.  However, it is one of the most important KPIs a company can measure once they are established.  The LTV of a Customer needs to be higher than the Customer Acquisition Cost for a company to be profitable.  However, without knowing their LTV, a company may not pursue certain expensive marketing channels because they may not recoup them in the first sale.  However, if you know that each customer, on average, spends 10x’s that amount in their lifetime, then it would be worth it in the long run.  With this valuable information, you significantly expand your Customer Acquisition to more expensive methods and scale your business to the moon. 

 

Average Order Value (AOV) X Purchase Frequency (PF) X Average Length of a Customer / = LTV

Revenue by Traffic Source

Revenue by Traffic Source shows the total revenue per channel such as organic web traffic, direct web traffic, social media, paid ad campaigns, and even email campaigns. Tracking which marketing efforts are driving sales is crucial to planning an efficient marketing budget. Knowing where your customers come from is key in any business.

Cart Abandonment Rate

Cart Abandonment Rate measures the percentage of customers that add products to their cart and don’t check out.  Why are they not finishing their transaction?  Great question.  And tracking this on a regular basis can help pinpoint when you have huge problems with your site. 

 

1 – (# of Completed Purchases / # of Shopping Carts Created) = Abandonment Rate

Gross Profit Margin (GPM)

Gross profit margin measures the percentage of revenue that is actual profit before subtracting operating costs.

 

(Total Revenue ($) – Cost of Goods Sold ($)) / Total Revenue ($) X 100 = Gross Profit Margin (%)

Net Promoter Score (NPS)

The Net Promoter Score measuring customer satisfaction.  Scores range from -100 to 100 based on a 0-10 scale survey the customers receive.  Because customer satisfaction has a direct correlation to customer referrals, this metric is used to measure organic, word-of-mouth growth.

  • Scores of 9-10 = Promoters (loyal customers that with most likely refer their friends)
  • Scores of 7-8 = Neutrals (may purchase again but probably won’t tell their friends)
  • Scores of 1-6 = Detractors (will speak negatively about their experience and detract brand reputation)

 

(# of Promoters – # of Detractors) / # of Total Surveys X 100 = Net Promoter Score

Other KPI Examples

To view other KPIs, please visit GeckoBoard KPI Examples Page.

Financial Projections

Now that you have created your budget, developed a marketing plan, goals, milestones, and how to track your progress, it’s time to put all this together with your estimated financial projections by creating a Performa.

A Performa is a financial projection that shows your estimated sales revenue, expenses, and available capital over a period.  This tool is used to see if your sales projections minus your operating expenses exceed your available cash reserves.  If you plan this out correctly, it can be extremely helpful in setting sales goals and financial milestones needed to succeed as a business.  Overestimating your sales or not figuring in necessary expenses can be detrimental to your business.  It’s best to estimate realistic income projections with goals that are achievable.  “Under promise and over deliver” they say.  And when it comes to a business being financially feasible, that is the exact thing you should do until you truly know your exact income, expenses, and growth rate.

Startup Company Performa Template

FREE

Legal Issues

The business may be financially feasible, but is it legal?  Before you spend thousands of dollars on an entire sales team or stock up on hundreds of CBD products, double check there aren’t any new regulations that would impede your new business. 

You should verify the legality of any local or state cannabinoid laws to answer things like, “Is Delta 8 Legal in my state?” to ensure you’re complying with the law.  There’s nothing like building an empire around something that’s illegal. 

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A History of Legal Loopholes for Hemp-derived Products

In the old days (2016-2018), hemp-products were non-psychoactive and marijuana products were psychoactive.  The U.S. Farm Bill of 2018 split the two cannabis types, hemp and marijuana, by the amount of Delta 9 THC in the hemp and finished hemp-derived product.  Using a threshold of 0.3%, the government thought they “nipped this in the bud” so to speak (pun intended).  However, with better extraction techniques and basic chemistry, the hemp industry overcame this in just a few years with the mass production of Delta 8 THC converted from CBD.  As if that wasn’t enough, Delta 8 was followed by Delta 10, THCo, THCp, and HHC, with dozens of other potential psychoactive naturally-occurring and synthetic cannabinoids and terpenes on the horizon to take their place, should a state ban them.  

To make matters more complicated, the original 0.3% Delta 9 THC per dose in a hemp-derived product has also been manipulated with the introduction of a larger gummy.  With a simple 3.6g gummy and a high Delta 9 THC hemp extract, a hemp-compliant 10mg Delta 9 THC gummy, which is a standard dose of a medial marijuana edible, now stays below the 0.3% threshold and is perfectly legal.

As a counterattack to bring hemp product back to a non-psychoactive product type, states around the USA have slowly been implementing new laws banning certain cannabinoid like delta 8, selling the maximum mg per serving of THC instead of a percentage, and banning synthetic or converted cannabinoids.  Every few months, a new regulation comes out in at least one state banning delta 8 or other hemp-derived product specifications.

Keeping up with the changing cannabinoid state laws is nearly impossible, which is why I’ve put out a state-by-State Guide on Delta 8 Laws

David McGinnis

Is Delta 8 Legal in your state? Delta 8 THC laws are changing every day. In this State-by-State guide, we'll walk you through Federal and State laws affecting the Sale and Manufacturing of Delta 8 products. You'll find links to state agencies, statutes, hemp manufacturing and retail licenses, and helpful resources. Does state law turmp federal law or the 2018 Farm Bill? We cover it all, even the states that say delta 8 is illegal but the laws show otherwise. Buy, Sell, and Manufacture Delta 8 THC products with peace of mind that you're not breaking the law. Over 300 hours went into the research of this article and it's current as of January 2023.

Over 200 hours of research went into this State-by-State Guide on Delta 8 THC Laws.  And what I learned during the process was alarming.  I originally googled “Delta 8 THC State Laws” and “Is Delta 8 Legal in” each state.  I read over 100 state-by-state guides and found that none of them were alike.  This was not surprising as the internet is filled with misinformation.  There were some obvious mistakes as well referencing Marijuana Statutes that didn’t apply to hemp, siting definitions of “cannabis”, “marijuana”, and “tetrahydrocannabinols” that also don’t apply to hemp, and naming THC a Schedule I drug which is correct but once again does not apply to hemp.  I also noticed states putting out Notices to the public that contradicted the written law in hopes of stopping legal business activities like selling Delta 8 Gummies or Vape Pens. 

It’s a lengthy read but not if you only need to look up one state.  I’ve put all links to cited laws and state websites for your reading enjoyments.  As usual it’s always recommended to consult an actual attorney regarding legal matters.  I am not an attorney, but much closer to one than most of the other authors out there.

As industrial hemp laws regarding hemp-derived products change, almost daily, it’s a good idea to consult with your attorney regarding the legality of hemp-derived products in your state.  This is especially true if you sell psychoactive products such as Delta 8, HHC, or other cannabinoids that can be made by converting a cannabinoid such as CBD into a psychoactive cannabinoid. 

Wrapping up your Business Plan

Creating an effective business plan is essential when launching any new venture, particularly one related to cannabis products such as CBD Oil, Delta 8 Gummies, or THC Vapes. Taking time upfront during this planning process can save headaches down the road while helping ensure success once operations begin moving forward.  By following these steps outlined here today, such as selecting the right business model, creating a targeted marketing strategy, researching target markets & competitors, setting up budgets, and conducting feasibility studies, any budding entrepreneur should have little difficulty making their dreams come true when it comes time to launch their own CBD company or brand!

If you need investment capital, you’ll need to do a formal business plan to obtain commercial or private funding.  However, if you don’t you at least need to take the steps necessary to completely understand what it will take to become a profitable company and what risks are involved.  Understanding every aspect of your business, even on the most basic levels, puts you at a huge advantage compared to other CBD startups.  Spend the time now.  Do it right.  And it will pay off.

The cannabis space is unique and has many pitfalls that can be avoided with the right planning.  The article below goes over 30 of them.  Read all 30 by clicking the link below prior to starting your venture.  To your success!

David McGinnis

If I knew then what I know now, it would have saved hundreds of hours and tens of thousands of dollars. The Cannabis industry has several pitfalls and uncommon traps which can set you back both in time and financailly. From choosing the wrong companies to work with, naming your LLC the same as your brand, and numerous other mistakes that I'd love to share with you to help you avoid these traps. Learn from our mistakes with first hand knowledge of How to Avoid Making Mistakes when Starting a CBD Company or Cannabis Business with these CBD Business Startup Tips with 30 Huge Mistakes to avoid when starting out in the cannabis space. Read on to learn more.

Step #

Business Startup Step 2

Branding & Web

Your brand identity is more than just a logo.  It encompasses everything from colors and fonts to how employees interact with customers online or in person. Your branding should reflect who you are as a company and tell your story.  Who is your target audience is and what Brand Name, Logo, Colors, and images will resonate with them while most effectively portraying your brand’s products and values across. Also, consider how customers will perceive your brand when they see it online or out in public.

What does a branding agency Vowels offer

Develop Your Brand Identity

Take some time to define what sets your company apart from others in the cannabis space. Then create a memorable Brand Name and Logo that embody this unique personality throughout all your branding materials, such as your business cards, signage, and your website.

Brand Name

A brand is your company’s identity. Your brand name should be short, memorable, and speak to your target audience. Branding takes time and should not be rushed. Before you choose a brand name, it’s important to learn about branding and domain names. Ideally, they should match. Below are two articles that dive deep into both. Take a moment to first learn about brand names. Then, start your brand name search by finding an available brand-matching .com domain name using the methods I’ve laid out in the second article.

David McGinnis

Choosing a Brand Name for your CBD Business or Cannabis Company seems simple enough. But there are several things you should thing about before selecing a Brand Name for your new CBD company or for your new CBD product line? It's my favorite part of building a business. However, before you finalize a brand name, you must answer these 6 questions. If you don't, you can be in a world of hurt and a bunch of wasted time, not to mention money. I'll show you 6 things to think about which should open up your brand name brainstorm to some unique possbilities. Read on to learn more.

Domain Name

After you learn about brand names, it’s time to start searching for available .com domain names. Why dot com? It’s the most widely used domain extension.  And if you choose to use another extension and someone else in the same industry already owns and uses YourBrand.com, you’ll inadvertently be sending business to them. Statistically, customers who want to look up a brand’s website, simply type in “BrandName” + “.com”. A good domain name should be short, easy to read, 1-2 English language words or a unique new word less than 8 letters. And ideally it should match your brand name. Therefore, starting your brand name search by searching available domain names is the best way to go.  Once you’ve found some great available .com domain names that are worthy of your brand name also, it is important to do your due diligence on these new brand names and domains.

David McGinnis

Finding an available domain name for your CBD Company can be very hard, especially if you're looking for a .com domain name to match your CBD Brand Name. Most people wait until they've chosen a brand name before they even think about buying a domain name for their new CBD company. They must assume the brand-name-matching .com domain name is still available, which is rarely the case. This can cause huge issues down the road for any CBD company, but especially those that plan to sell online. There are also several other things to research about the domain name. The domain name, in my opinion, should always be Step #1. Read on to find out more about domain names and How to find the Perfect Cannabis Domain Name (BrandName.com) for your CBD Business or Cannabis Brand.

Logo

Your logo is one of the core elements of your brand identity and should be carefully designed to convey your company’s values and vision. To create a great logo, you need to first understand what makes up a good logo, then research different logos in the cannabis space and identify the characteristics that resonate with you.

Characteristics of a Great Logo

There are many different characteristics that make up a great logo, including simplicity, visual balance, emphasis on your brand name or image, a meaningful color scheme, and one that resonates with your target audience.

Simplicity

Your logo should be simple and clean in design. A busy or cluttered logo can easily overwhelm customers and distract them from your message. Instead, opt for a simple design that clearly and concisely conveys your company’s values and vision.

Visual Balance

A visually balanced logo has a sense of symmetry to it. This creates harmony across all elements of the design, making it more aesthetically pleasing to viewers and easier to remember.

Emphasis on Brand Name or Logo

Your logo should have a clear focus, either on your brand name or your company’s logo. If you choose to emphasize your brand name, then it should be large and easy to read. On the other hand, if you decide to place greater emphasis on your logo, then make sure that it is still clearly visible and readable at smaller sizes.

Meaningful Color Scheme

A good logo also has a meaningful color scheme so that viewers can easily differentiate between different elements of the design. Colors often spark certain emotions.  Choose colors that are immediately recognizable as part of your brand identity and stick with them throughout all your marketing materials.

Resonates with your Target Audience

Understanding who your target audience is can affect the images and fonts you use in your logo. If your target audience is adults seeking relief of some sort, you’d want to stay away from black and red colors with images like cartoons, joints, and smoke. Instead, you should use blue and green with a simple cross. Knowing your target audience should play a key role in your visual choices.

Now that you understand what makes up a great logo, it’s time to do some research into various cannabis industry logos and identify the ones that you like. Start by using Google Images and online logo generators to download 50-100 different visuals. Then use Canva to combine your favorite visuals with text to make your final logo. This creative process takes time. However, it can easlity be done for free by following this step-by-step tutorial.

David McGinnis

Do you need a CBD or cannabis logo for your new cannabis hemp, or CBD brand? This guide will walk you through step by step How to Make a Cannabis Logo for Free Online. Cannabis and CBD Logo design for cannabis and hemp companies. Quick and easy. I'm going to show you the tools I've used over the years and how to get them for free. Design a cannabis company logo in a matter of minutes or use the tricks of the trade I'll show you to spend the time and make the perfect logo for your cannabis business venture. I'll take you step by step with links to all the coolest online tools. Plus, I'll show you a few places to get some great graphic designers. Stay tuned my friend.

Website

Whether your entire CBD business is ecommerce, or you may sell online in the future, every CBD company needs a website. Every brand needs to have a clear web presence and selling online opens your target market to millions of people. Building a website in the cannabis space comes with much more than just a landing page and shopping cart. There are several other compliance issues you will run into such as:

 

  • Choosing a CBD and THC approved merchant processing
  • Using the correct hosting
  • Selecting the right web-builder
  • Setting shipping restrictions to comply with different Delta 8 state laws
  • Age Verification on all purchases
  • Avoiding making any medical or health claims about your products
David McGinnis

If you own a hemp, CBD, Delta 8, or other Cannabis Ecommerce website, one of the big "No-No's" is giving medical advice or making health claims. Doing so can get your business shut down or at the very least, you'll either lose or won't be able to get Credit Card Processing. However, there are some clever ways of getting your message across without giving medial advice or making health claims. Check out this thorough guide which will show you key phrases you can and can't use and how to use them. Just saying words like "May", "Potentially", "Might", and "Maybe" may not be good enough anymore. Don't get caught with your scrubs down and read this article on How to Avoid making health & medical claims about Hemp-derived Products or other on your CBD Website.

Cannabis Ecommerce Web Design Services

Building an online store is much more than a website.  A true web design service should build an online business, not just a website.  It should be high-converting, full of valuable content, and have integrated markting tools to send newsletters, SMS messages, customer reviews, and handle customer support issues.  In the cannabis space, it also has to comploy with state age and shipping restrictions.  If you need a quality web store built for your CBD company or any business, download the brochure below and give us a call for a Free Web Design Consultation.

Do you need a Compliant Ecommerce Website for your Cannabis Business?

At Hemp Lively, we know all the ins and outs to building an effective and compliant cannabis ecommerce website for your next CBD company, hemp-derived product brand, or cannabis dispensary. Download this brochure to learn more and view several cannabis ecommerce web design packages for a custom and turnkey online business.

Give use a call for a turnkey eCommerce Website Design Consultation.

(850) 299-9624

Step #

Business Startup Step 3

Create your Product Line

Now that you’ve planned your business, created your logos, and know who your target customers are, it’s time to create a product line that meets their needs. Think about which type of products (e.g., tinctures, topicals, edibles) they might be interested in buying. What products are selling right now? And which product variations (strengths, flavors, strains) should be included.

What drives your customer's buying decision?

Understanding what drives your customers can be a valuable tool when developing a product line.  It’s important to state a clear message for each product geared to your potential customers “hot buttons”. Hot buttons are needs or emotions that trigger a sale. One person may buy a product because its 50% off. Their hot button would be financial. Another hot button would be a person seeking relief. Their hot button would be avoiding pain.

Select your Products

When just starting out, do not fall into the trap of adding thousands of different products and product variations. Choose your top 10-25 product variations to get started. This will give your potential customers enough variety to appeal to different target audiences without overwhelming them with too many choices.

When it comes to CBD and cannabis products, there are 6 specific things you need factor in before you select your product line. We’ve outlined them in detail in the article below. You’ll also find Hemp Lively’s list of best-selling hemp products in there as well (#6 in the article below).

David McGinnis

Before finalizing your product choices for a new CBD Product Line, there are 6 things you need to consider. Selecting a new product line can be a daunting task, especially with hundreds of product variations to choose from.  However, taking the time to plan your upcoming CBD or Hemp-derived THC product line may make a huge difference in your overall profits and sales. Read on to find out the 6 things everyone should consider before choosing products for your new CBD Product Lineup.

Always Sample Products

Whether you plan on manufacturing your own CBD products, having a private label CBD manufacturer make your branded product line for you, or are going to resell other CBD companies’ products online or in your retail store, always have someone you trust try the products before offering them to your customers.  I can’t tell you how many subpar and ineffective products there are out there. But I can tell you there’s more you shouldn’t buy than quality products you should. Don’t just focus on the price. Choose a quality hemp product manufacturer or supplier that will keep your customers coming back because the products work great. Think of the Lifetime Value of a Customer. If someone spends $100 every month for 52 years, that customer’s LTV is $50,000, just because you chose to carry quality products.

Always Sample Products

Cannabis product labelling is extremely important.  Each state has thier own labelling requirements.  However, there are some universal things that should always be on every hemp-derived product label.  You’ll need to include the following on every product:

Label Template Private Label Delta 8 Gummies 10ct x 25mg Strawberry
  • Product Name
  • Type
  • Targeted Cannabinoid
  • Strength
  • Size
  • Suggested Use
  • Supplement Facts (ingestible products)
  • Ingredients
  • Allergy Warnings
  • QR Code linked to either the product’s COA or the website where the COA is located
  • UPC Code
  • FDA Disclosure
  • State Mandated Disclosures
  • Health Warnings for Psychoactive Effects, Pregnancy Use, Vaping, or any other applicable warning needed to protect consumers from harm and avoid misuse.
  • Age Restrictions
  • State-specific Hemp Icons

Copies of each label should be located on your website for customers that cannot read the small print on your label or an additional QR Code must be placed on the label that opens a digital copy of the label for consumers to read.

Failing to include all necessary information on your product labels can result in your hemp state license being revoked, FDA Warning letters and fines, and in some cases lawsuits.

To see examples of CBD and other hemp-derived product labels, Suggested Use, Ingredients Lists, Warning and Disclosures, or download label templates and Supplement Facts for your new product line, please visit the Hemp Lively or Private Label product page.

Hemp-derived Product Label Design Services

If you need label design for your new product line, Hemp Lively’s graphic design team would be happy to help. For only $25, we’ll design a print-ready Product Label and a digital 3D Product Image to use on your website. Please call (850) 299-9624 for more information.

Private Label Hemp Products

Packaging

Professional looking CBD packaging is essential when starting a CBD or cannabis product line. Not only does it add value to your products, but it is also crucial if you plan to sell in stores. Packaging goes far beyond a labelled bottle, jar, or bag. It includes individual product boxes, POP and POS boxes, display boxes, and functional parts like hole-punched packing for properly hanging on wall displays. When selecting packaging, there are several factors you need to consider, including:

  • The type of cannabis product(s) you want to sell. Do you plan to sell cannabis flower, CBD oil tinctures, Delta 8 Gummies, and other edibles, THC Vapes, Hemp Extracts & Concentrates, or CBD Skin Care Products and Topicals?
  • Will your cannabis products be sold online, in dispensaries, at smoke shops, or in retail stores?
  • Branding and marketing considerations – How do you want to present your cannabis brand and product line to your target audience?
  • What kind of design aesthetic are you going for, and how can your cannabis packaging help you achieve that goal?
  • Additional Safety Concerns – Does the additional packaging add needed child-safety protection?

Types of Cannabis Packaging to Consider

When it comes to cannabis packaging, there are a variety of options available. Some of the most popular cannabis product packaging besides the typical bag, jar, or dropper bottle include:

Pre-Printed Product Boxes

(tinctures, gummy jars, vapes, skin care)

Pre-printed individual product boxes are often printed with the brand name and logo on the outside and include additional information about the product that is either missing or too small to read on the product label itself. These can also replace the need for bubble wrap when shipping. However, any preprinted boxes will usually have a very high Minimum Order Quantity which can cause huge waste if you can’t sell enough products to use the boxes or you’re labelling or branding changes and you have to throw them out.

CBD Boxes 1
clear boxes
Clear PET or PVC Boxes

(gummy jars, tinctures, skin care)

Clear cannabis product packaging is great for transparent cannabis products like cannabis extracts, concentrates, and vapes. The see-through material allows consumers to easily see what’s inside without having to open the package. Clear cannabis boxes can also be customized with labels and stickers giving you the ability to use the same box for multiple product variations. You can also buy these in very small quantities.

Child-proof Mylar Bags

(gummies, pre-rolls, flower)

Mylar cannabis bags are a great option for cannabis edibles, pre-rolls, and flower. However, when you are selling any psychoactive product, you should always attempt to use child-resistant or child-proof packaging. A good solution to this is by using child-proof mylar bags. Child-proof mylar bags have a hidden zipper on the side that is hard for even adults to open. But that’s the point and safety first as far as I’m concerned. These can be purchased preprinted or blank and then labelled.

Dispensary Mylar Bags Driploc Baggies
Hemp Lively Whole Plant Hemp Oil 1200mg
Customized Tubes

(tinctures, pre-rolls, flower)

Custom cannabis product packaging can also include cannabis-branded tubes. There are two tube-shaped packaging types including cardboard tubes for tinctures and plastic tubes for pre-rolls. Both can be purchased blank and labelled or custom printed. Tube packaging is not very common so you if you want to stick out in the crowd, tubes may be a great option.

Child-proof Vape Cartridge Boxes

(vape carts)

If you are selling cannabis vapes, child-proof cartridge boxes are a great cannabis product packaging option for keeping kids safe while storing, displaying, and shipping cannabis vapes such as delta 8 carts.

Press N Pull Vape Cartridge Box 1
Hemp Lively Delta 8 Carts 800mg 1ml Kandy Kush 1
Clam Shell Packaging

(vape carts, capsules)

Clamshell cannabis packaging is typically used for vape cartridges. The cannabis product packaging looks like a plastic egg with a hinge on the side. These can either be labelled or in most cases there’s a spot to insert a printed card which can be seen through the plastic. Clam shells can be made into any shape or size and are very inexpensive.

POP/POS (Point of Sale) Boxes

(tinctures, gummies, vapes, skin care)

POP cannabis product packaging is designed to be displayed at the point of sale, or POS.  They usually contain 10-20 units per box. These cannabis product boxes typically include 10-20 units and can easily fit on any cannabis retail shelf. They are usually printed with eye-catching designs and colors as well as other cannabis branding elements like logos and brand names. Most “pop” boxes have a top that “pops” up for added advertising space. If you plan on selling to large retail chains or distributors, POS boxes are a must.

Hemp Lively Whole Plant Hemp Oil 12 pack POP Box 1
CBD Oil display
In-store Displays

(variety of products in a single display)

Display cannabis packaging is perfect for gas station, smoke shops, and dispensaries looking to showcase specific products or entire cannabis product line. Displays can be extremely expensive. However, it also ensures prime real estate within the store and increased sales due to its attention-grabbing nature.

Pros and Cons of Additional Packaging

Pros
  • Additional advertising space
  • Separates individual products for convenient shipping
  • Professional look to improve Brand Reputation
  • POP/POS boxes and Displays increase sales

 

Cons
  • Preprinted boxes usually have high MOQs
  • Unused Boxes Go to Waste if products don’t sell or product labelling guidelines or branding changes
  • Increases your COGS (Cost of Goods Sold)
  • Increased Labor Expenses

 

When choosing cannabis packaging, it is important to work with a company or supplier that has experience in the cannabis industry. This will ensure that you get high-quality products and reliable service. At Hemp Lively, we offer a range of cannabis packaging solutions for CBD and cannabis product lines, including cannabis packaging supplies, cannabis shipping boxes and cannabis labels. So, whether you are just starting out or looking to expand your existing product line, contact us today to learn more about how we can help!

David McGinnis

Looking for an inexpensive way to improve your CBD product line with some professional looking CBD Packaging? If you're just starting out a brand, creating preprinted CBD tincture boxes or display POS/POP boxes can be extremely expensive. Either you pay top dollar for a low MOQ (Minimum Order Quantity) or you get cheap printing from China but you have to buy 10,000 units. This can be a huge waste of money when you have thousands of preprinted boxes that you no longer need if you have to update designs or no longer carry a product. Here are a few low MOQ packaging ideas you can use for all sorts of products.

Lab Testing & COAs

Understanding COAs and Lab Testing is critical to ensuring the safety, quality, and consistency of your CBD products. At Hemp Lively, all hemp extracts used to make our products and our finished CBD and THC products are lab tested using Florida lab testing standards, the strictest in the country. A Certificate of Analysis, or COA, proves the purity and potency of your product to both the company and the consumer. It’s proof that the product meets its label claim (if it says 1000mg there’s at least 1000mg in the product) and shows the potency of all major cannabinoids and terpenes. Plus, it ensures the product is free from pesticides, heavy metals, mycotoxins, residual solvents, listeria monocytogenes, pathogenic, and other contaminants.

Click below to view a Full-Panel Certificate of Analysis (COA)

Sample COA: Full Panel Lab Test for Whole Plant Hemp Gummies

ACS Laboratory

What's the best lab to use to test your CBD and Delta 8 products?

We recommend ACS Laboratories in Sun City Center. They are both ISO 170025 and DEA certified. Of the dozen different laboratories, we’ve used over the years, ACS has shown the most accurate and consistent results we’ve seen.

ACS LAB CERTIFICATIONS AND TESTING STANDARDS

ACS Laboratories is one of the best labs in the country. Their lab results are consistant every time. ACS holds both a 170025 Certification and is DEA licensed to handled Delta 8 specific testing. Click below to downlaod the ACS Lab Testing Strandards and Certifications Packet.
FREE

What's the difference between CBD Testing and Delta 8 Testing?

All hemp-derived CBD products should have a full panel lab test with results for cannabinoid potency, pesticides, heavy metals, mycotoxins, residual solvents, listeria monocytogenes, and pathogenic. However, due to how delta 8 is produced, it’s physically impossibly for the extract to contain heavy metals, pesticides, mycotoxins, listeria, and residual solvents. Therefore, when testing delta 8 non-ingestible products, a full panel is not needed. Another interesting face about Delta 8 lab testing is that it must be done at a DEA certified lab that can differentiate between Delta 9, Delta 9, and Delta 10 THC. For example, if you run a standard cannabinoid potency test on 80% Delta 8 Distillate, it will most likely report that the distillate has 10% Delta 9 THC and 70% Delta 8 THC. When in fact, it has less than 0.3% Delta 9 THC. Make sure when you are testing Delta 8 products that you are using a DEA certified lab and you’ve ordered a Delta 8 specific lab test, not just a standard cannabinoid profile potency test.

Pricing

If you’ve followed the initial steps of this guide, you are already familiar with the different pricing strategies and have researched the market.  Now, you need to set your pricing for your product line. This can, of course, change. But it’s best to start the process now. You should set pricing for the following:

  • Cost of Goods Sold (COGS) – total of all costs including labor and shipping to either make or purchase the product and ship it to the customer.
  • Minimum Sales Price – the bottom price you’d ever sell this product, no matter the quantity. Usually this is calculated by adding a set margin or markup such as a 30% margin (43% markup). This price is reserved as a bottom figure in case you get an extremely large order request. For example, from a large distributor. Hopefully, somewhere between this number and your wholesale price is an acceptable price for a large buyer. This prepares you for that situation.
  • Wholesale Price – Whether you plan to sell to resellers at discounted wholesale prices, it’s best to be prepared in case a wholesale request comes in. Most wholesale prices are 50% – 60% off the retail price. You can also set a Minimum Order Quantity (MOQ) for wholesale purchases if you choose to. 
  • Retail Price – This will be the price of the product before any discounts or sales are applied. Do not be afraid, especially if you sell ecommerce, to list this on the high end of what your competitors charge. Then put the product on sale to a point where it sells, and the perceived value is a “deal”. It’s much easier to go down after you get started than it is to go up in price. Keeping that in mind, don’t get greedy. Do your research and make sure this is not the highest price on the market. It won’t sell.  

 

There can be plenty more pricing metrics to track. But these will get you started and enough to operate business. Below is a Downloadable Price Sheet with Hemp Lively’s products as well as Private Label products with tabs for each pricing tier you may buy from. This way, you can easily see what your COGS will be depending on the discount pricing tier you order from. We’ve added your choice of either 50% or 60% off Wholesale Pricing.  The same sheet will work whether you are reselling hemp lively products or using Hemp Lively’s Private Label Manufacturing services for your new hemp-derived product line.  Plus, we’ve made it editable so you can easily make it your own if you need to use it for another manufacturer or supplier.

handshake of two business people two men making a 2022 11 10 00 36 58 utc

Step #

Business Startup Step 4

Assemble the Team

Throughout this process, you’ll need to assemble your team.  This includes business partners, investors, suppliers, vendors, and employees.  Choosing the wrong team members is one of the top 3 reasons startups fail.  Having the right people by your side when building a new business, especially in the cannabis space, is imperative.  Here are some helpful tips that can help you on your journey.

Business Partners

When building your team, you need to be very selective about who you partner with.  You want to make sure that they share your vision and values, while also bringing additional skills and experience to the table.  Some of the most important factors to consider when choosing business partners include:

Industry Experience – The cannabis industry is booming, but it can still be quite regulatory and tricky to navigate.  If a potential partner has existing experience in the industry, that can be a huge asset to your startup.

Entrepreneurial Mindset – A good business partner should have a similar vision and drive to succeed as you do.  Look for someone who is willing to take risks and is eager to learn new things.

Alignment with Your Values – As you build your team, it’s important to make sure that everyone shares the same values and beliefs.  For example, if you are planning to offer CBD products that support a healthy lifestyle or promote wellness, then you’ll want your team to share that same mindset.

Focus and Drive – Choose partners who are committed just to this, not twenty other business ventures.  Make sure each member is committed and has the drive to move your CBD company to the finish line.

Choose your Partners Wisely

If you’re reading this, I’m going to assume you’re an entrepreneur.  And if you’re an entrepreneur that’s previously owned a business with other people, then most likely you’ve had a bad business partner.  It’s a rite of passage when you grow up in “Entrepreneur-Land”.  If you don’t believe me, just get a few seasoned business owners together for some drinks and bring up the subject.  Trust me, the past business partner horror stories will be spewing out of their mouths for hours.

So, how can you avoid choosing the wrong business partner?  To answer that question, first let’s break down what people bring to the table in a partnership.  There are 3 main categories:

 

An idea – Someone, of course, must have the idea for the business.  And as magical as they think it is, an idea isn’t worth anything.  It’s especially not worth half of a company.  There must be more.  If that’s all they have, give them 1% of the business or move on.  Successful business owners must bring ongoing value to a company until the business is self-sustaining and has reached a point where the business model has been proven and the company is able to hire a CEO to execute the board of directors’ business plan. 

Money – Capital is essential when starting a new venture.  In most small startups, one of the business partners is the money.  This is crucial and valuable, especially to the other partners without any.  They may have a great idea, know-how, and a great work ethic.  But without some serious “cheese”, you’re dead in the water.   However, don’t fall into the trap of someone providing initial funding for a startup, taking half of the company, and that’s it.  Think bigger.  Every partner should keep contributing.  So, how can someone with money help further after the initial cash infusion?  Easy.  Most angel investors don’t want or have the time to be involved in the day-to-day.  But you may need more money in the future.  So, have them commit to future growth funding when you reach certain milestones.  Put it in your operating agreement.  If they don’t have any extra money of their own, they should be responsible for finding more money when you reach a point where your business model is proven and it’s time scale up.  If they can’t, make it part of the agreement that, if they cannot part of their shares in the company will be sold to raise money, not yours.  Because if you don’t have some sort of ongoing commitment where both parties are held accountable for some performance, then you should have just gotten a loan from them and paid a higher interest rate instead of giving away a portion of your company for one shot of some money.

Know How – Experience, skills, talent, and knowledge are extremely valuable and necessary when starting a new business.  But before you partner up with someone, dive deep into what they know and know how to do.  Is it not something you can figure out yourself?  Have you even Googled it?  What point will this knowledge become obsolete?  How much is their know-how worth.  Have you investigated alternate options such as hiring vendors and consultants for a one-time fee to complete work and train your team?  Every venture has its own challenges, but these are things you should think through now.  It’s easy to go the lazy route and fill in your needs with partners quickly.  Look past your immediate needs and ask yourself, “when we are done with what I need them for, will they still be able to add value to this business?”

 

The goal of this section is to get you to start thinking about the long game, not just the current missing pieces.  Especially if you are planning on giving away a large percentage of your company.  For each skill, knowledge, or asset a potential partner brings to the table, answer the following questions:

  • What are each of these worth?
  • Will each of these initial partner contributions continue or is that all I get from my partner?
  • If there is a definitive end to their initial contributions to the company, what will their responsibilities be after?
  • Can they grow into something greater or is that all you get? 
  • Are they afraid to learn new things and get their hands dirty?
FUNNY GUY IN BOWTIE SMILING AND ADJUSTING HIS BOWTIE

What type of entrepreneur will each partner be?

In my experience over the years with multiple businesses in several different industries, I’ve run across several types of Entrepreneurs, each with their own personality traits.  Some good, some bad.  These aren’t formal types, just the names I call them.  However, the descriptions will surely remind you of someone.

 

The Visionary – The visionary has extremely high-level business concepts that with the right team over time can happen.  Visionaries become the Bill Gates of the world.  But they are not all Bill Gates.  There’s a large portion of visionaries that will never see a company developed enough for their skills to even matter.  Be careful of the visionary if he’s moving too fast and attempts to proceed with his plan prior to being ready.  Another common trait of a bad visionary entrepreneur is a growing verbal disrespect to another partner or employee which is usually the most valuable of the team such as the brains of the operations or marketing.  If you see a visionary feeling threatened and they start criticizing or verbally abusing the company’s most valuable member, run like the wind.  The company will not succeed.  Visionaries are more valuable to hire as a CEO once the company has been established.  Unless, of course, they are one of the great ones and you’ve chosen an amazing partner wisely. 

The Brains – The “brains” of the company is a person (or persons) that know how to execute the idea.  This person is vital.  Without the know-how or someone who can easily learn the “know-how”, a new startup company rarely gets off the ground.  Even if you decide to outsource almost every part of the business, you still need someone with an understanding of all the pieces to properly manage the outsourced tasks.  However, working with The Brain can be challenging sometimes.  When disagreements happen between two business partners, one of which being The Brain, it’s usually not one person’s fault.  The problem started long before when each of them formed their perception of what should happen without ever discussing different situations and how to handle them.  A few solutions for this and some tips when working with The Brain.  First, write a custom operating agreement prior to an official partnership.  In this agreement, define all possible problems that could arise and agree on a dispute resolution procedure.  Also define everything having to do with money.  Secondly, give The Brain some freedom to work.  But require that knowledge to be documented throughout the process.  That way, if something happens to that person, the know-how isn’t lost.  Lastly, provide support for The Brain by not overloading them with busy work, easily figured out tasks, and other work that another employee can handle.  Put their strengths to efficient use without taking advantage of their talents.

The Worker – Workers are essential, and a hard-working business partner is not always a bad thing.  Assessing your business partners skills and more importantly their potential to learn is the key when considering a Worker as a business partner.  They may have limited potential and in that case are not worthy of a partnership but would make a great employee.  So, when would you choose a skilled worker as a business partner?  Hard workers in a team environment do several things for a company.  First, they motivate everyone else to work hard.  They show employees that even the bosses aren’t afraid to get their hands dirty.  By itself, they is not enough though.  But it can be extremely valuable if you have a “worker” entrepreneur as a partner that loves to learn new things and has the potential to rise above being at worker someday.  For example, in management.  This type of partner is usually younger, extremely motivated to learn, and appreciates the opportunity to work with experienced entrepreneurs and learn.  They may not get the largest share of the company, but it may be worth giving them a smaller share to motivate them as part of a performance contract where their ownership happens at a certain milestone.  Plus, who better to run a division of the company down the road, than someone who’s actually done each of the positions he’ll potentially be overseeing.  This can be especially valuable, for example, in a manufacturing company.

The Connector – The connector goes by many names: the introducer, the link-master, and the man-about-town.  This person knows everyone, a social butterfly of sorts, and sees inflated value in introducing one person or business to another for a residual commission or a portion of a new business venture between all 3 parties.  This is one of the oldest types of entrepreneurships and is now a dinosaur.  Like ideas, introductions are not worth much.  At the most, a small one-time fee once some sort of deal has closed.  In the 80’s and early 90’s, people actually made money doing this.  But ever since this thing called Google came about, there is no value in one introduction or connecting two parties together.  Especially not a portion of your business by making them your business partner.  If you find yourself seeing value in one connection, you haven’t looked hard enough yourself and would be a fool to give away a piece of your pie for just an introduction.

The Investor – The investor is usually someone who wants their money to work for them.  As stated in the money section above, a good moneyman is there to support financially for the long haul pending milestones are achieved and doesn’t expect one contribution to pay for the rest of their life.  If all you’ll get from them is a one-time cash infusion, investigate other funding options such as a loan before you partner with this person.   Don’t get me wrong, The Investor is necessary to have but when choosing a money partner, find one that can agree on handling that portion of the company as a partner, not just some startup cash. 

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What type of Entrepreneurs make great partners?

In my opinion, a balanced combination of an Investor, 1-2 Brains, and maybe a good Worker make the best teams.  Know who you’re getting into business with first by doing your research, choosing team players, and predefining roles and duties.  Hold your partners accountable throughout the process and if you see some of the warning signs I’ve listed above of bad business partners, run like the wind.

 

For those of you that have identified the right partners for your business, it’s important to make sure that you invest the time and energy necessary to grow those relationships.  This includes communicating regularly, working through challenges together, and celebrating successes.  With a strong team in place, you can focus on growing your new CBD company and achieving your goals.

Employees

As your business begins to grow, you may need to hire additional employees.  This can be a challenging process, but it’s also an important step in ensuring the success of your company. Here are some tips for hiring the right staff and keeping them happy, loyal, and continuously working to advance the company as a whole:

 

  1. Set Clear Goals and Expectations. It’s important to define the skills and experience that you’re looking for in your employees, as well as what success will look like in their roles. This will help candidates understand what they need to do to be successful, while also giving you a better sense of who is the right fit for your company.
  2. Create a Strong Job Description. Your job description should clearly outline the responsibilities, qualifications, and expectations for the role. This will help you attract candidates who are truly a good fit for your company, while also saving you time during the hiring process.
  3. Be Selective in Your Hiring Process. It’s important to take your time when hiring new employees and not rush through the process. This will help ensure that you find people who are a good fit for your company, while also helping to reduce turnover rates in the future. If you’ve properly interviewed them, checked their references, and tested them on their skills, you may only find 2%-5% of the people that applied are possible candidates.  Be prepared for this during your interview process. If you need to hire 2 people, you should expect to review at least 150 resumes.  From here, only about a third of the remaining candidates remain.  So, if you reviewed a hundred resumes, you’ll need to interview about a third of them (50).  18 of those fifty people you interviewed are worth testing to see if they have the skills, they say they do.  For example, if you’re hiring a content writer, schedule a time for them to perform a timed writing assignment.  Make sure you can see their work before hiring them.  You will find of the 18 people you tested, there may only be 5-6 that were up to your standards.  Finally, check the backgrounds and references of these 6 potential candidates.  Then, you will end up with 2 potential employees.
  4. Invest in Employee Training and Development. Once you have hired your employees, it’s important to invest in their skill development and professional growth. This should include thorough training starting with learning about the company and its culture. Then learning the duties of the position, then trying the position followed by tests which must be passed to move on to their final post.  Ongoing training, mentorship opportunities, and other continuing education should happen regularly as it will help your employees succeed and build value in what they’re doing.
  5. Create a Company Culture. People want to be a part of something. Defining your company’s culture can help do this. It will also help attract similar-minded people to come work for you.  And if your culture also provides an enjoyable work environment, your employees will stay longer and remain loyal to you and their work.
  6. Clear Accountability & Rewards. Setting the proper expectations for employees up front is key. Your employees should know in advance exactly what happens when they fail and when they succeed. Set clear boundaries for both allowing them to self-motivate.  It will build confidence and accountability within each employee.  Reward praise hard work, and provide a motivating environment to achieve their goals, and success will surely follow.

 

With the right employees in place, you can focus on growing your business successfully and achieving your goals.  So, take the time to find and hire the right people for your team, and you’ll be on your way to building a successful CBD company.

Suppliers

One of the most important aspects of starting a successful CBD company is finding quality suppliers and building strong relationships with them. This will help ensure that you are getting high-quality products at a fair price, while also giving you access to the resources and support that you need to scale your business.  A supplier gives you what you need that goes into the products you’re selling.  Depending on your business model, a supplier could be someone who sells you other CBD Brands products for resale, a Private Label Hemp-derived product manufacturer making your branded CBD product line, an extractor selling you hemp extracts to make your products, or a food distributor selling you bulk ingredients to manufacture delta 8 gummies.  Here are some tips for working with suppliers as you build your CBD company:

 

  1. Research Potential Suppliers in Advance. Before you begin working with any supplier, it’s important to carefully research their reputation and reliability. Order samples. Try and test the products yourself.  Start your orders out small and build up slowly showing growth and consistency for yourself and to test them.  This will help ensure that you are getting the quality and service that you need from your suppliers, while also minimizing potential risks as your business grows.
  2. Build Trust with Your Suppliers. A key part of any successful supplier relationship is building trust and transparency. This can include being honest about your needs, communicating openly, and working closely with your suppliers to ensure that you are aligned on goals and expectations.
  3. Do Not Haggle with them Every Time you speak. Everyone is working to make money. And if you’ve found quality CBD products or raw materials to make your own, then of course price is a factor.  However, you can’t expect your supplier to continuously lower their prices every time.  When buyers continuously try to reduce their supplier’s prices, there will be a point where the supplier is not making enough money to even bother taking your call.  What you’re essentially telling your supplier is that you don’t care if they make money, and you enjoy taking advantage of their kindness and forthcoming efforts to build a solid business relationship.  When you initially negotiate your first order, thank them.  Let them know you’ll be scaling up your operation and may need to visit this again once your volume reaches a certain point.  Increase your order size, then ask for a larger discount.  And if the market prices change before that time, back any further negotiations up with competitor pricing up as proof that prices in the market have changed. 
  4. Focus on Quality over Price. If you focus your sourcing efforts on finding the best products instead of just the cheapest, you will make more money in the long run. Quality products equal repeat customers. If your business model excels with repeat customers, then focus on buying Quality hemp-derived CBD and THC products at a fair price, and success will follow. 

 

With these tips, you can build strong relationships with suppliers and confidently scale your CBD company as needed.

Vendors

Vendors are a broad category.  This encompasses everything from CBD merchant processing companies, web hosting, shipping box manufacturer, lab testing facilities, accountants, attorneys, or anything other person or company you’ll need to work with to run your business.  When starting a CBD company, it’s important to carefully choose these vendors wisely because of the industry you are in.  If someone is an expert in their field, but not an expert in their field regarding cannabis, then you’ll run into huge problems. 

The cannabis industry has hundreds of well-known companies in every facet of business that will not work with cannabis companies.  This means, your sales rep may sign you up, but your account may get shut down just as quick.  You may build an amazing website and get your first order, just to have your entire website and domain name taken from you.  You may process your payroll for that week to hit two extra days before Christmas to help your employees, but that payroll may not come through, just because your payroll vendor found out you sell CBD products. 

If you don’t know who these companies are and have either assumed or trusted an entry level sales rep, you will waste time and money repeatedly.  Here’s an article with some of the heavy hitting companies never to use as a cannabis company.  But there are plenty more, so do your research on everyone.  If in doubt, give us a call with any questions.

David McGinnis

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.

Startup Capital Funding Sources

One of the biggest challenges an entrepreneur will face is funding their startup business. When starting a CBD company, it’s important to have enough startup capital. This will help ensure that you have the resources you need to grow and scale your business effectively over time.  In many cases, the partners fund the initial business costs, then grow the business slowly over time.  Sometimes, this is not an option.  Many entrepreneurs turn to investors to secure the necessary startup capital, but this often means having to give away the controlling interest in their company for their much-needed startup funds.  If partnered with the right people, like Kevin Harrington, Mark Cuban, or Lori Greiner from Shark Tank, this can skyrocket your business into a multimillion-dollar company almost overnight.  However, with the wrong venture capital company or private investor, it could mean losing everything if something goes wrong.  Here are some CBD startup funding options, each with their own pros and cons.

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Venture Capital

Venture capitalists are investors who provide money to businesses in exchange for part ownership and a share of the profits. Sounds like a great deal, right? Not so fast! Here are some pros and cons of using venture capital to fund your CBD business. 

Pros:

The biggest advantage of using venture capital is that it lets you access funds without having to go through traditional lenders or use your own money. What’s more, venture capitalists often offer more than just cash.  They can also provide valuable contacts and advice on how to grow your business. Finally, since most venture capitalists are looking for high-growth businesses, they may be willing to take bigger risks than traditional lenders which could work in your favor if you have an innovative idea that needs funding.

Cons:

One potential downside of taking on venture capital is that it can dilute ownership and control over your business. After all, VCs expect returns on their investments which means they may want certain terms when it comes to decision making and running the company. Furthermore, since VCs are investing large sums of money upfront, they will naturally expect larger returns down the line which may not be feasible depending on the size and stage of your business. You will also need a professional business plan written by a 3rd-party company analyzing the risks and potential rewards of your venture.  Finally, there’s no guarantee that you will get the funding you need so all the extra work may be wasted effort.  After all, VCs are selective about where they put their money.

Crowdfunding

Crowdfunding is an increasingly popular way to raise money for startups, especially those that are focused on new technology or products that are difficult to finance through traditional methods. With crowdfunding, you can target specific audiences and offer rewards or perks in exchange for donations or investments. You can also use crowdfunding platforms such as Kickstarter and Indiegogo to presell your product before it’s even released, helping you generate revenue while gaining valuable feedback from your target market.

Grants and Government Loans

Another option is to apply for grants or loans from various government organizations and private foundations. Grants are typically awarded based on the merit of your business plan and its potential for success.  If you do qualify for a grant you won’t have to pay it back like a loan would require.  

Loans may also be available depending on your creditworthiness.  Many Small Business organizations offer small-business loans with low interest rates to help entrepreneurs get their businesses off the ground.

Short-term Private Loans to fill orders

In the cannabis space, there are several private investors which will simply loan you money to fill orders.  For example, let’s say you’ve grown too quickly and need a short-term loan to fill an extremely large order.  A private lender would lend you the money for 2 months for a 15% return.  You’d have to show proof of the purchase order and in some cases offer collateral as well.  But in a matter of 1-2 days, you’d be able to get the supplies needed to complete the order.  This is a viable solution for growing CBD companies.

Angel Investors

Angel investors are wealthy individuals who provide financing in exchange for a stake in the company, usually around 10-25%. If you can find an angel investor who believes in your vision, they can provide much needed capital without requiring too much equity in return.  This is one of the more attractive options when it comes to financing a startup.  However, angel investors tend to be very selective about which projects they decide to invest in so it’s important that you do your research before approaching them with an investment proposal.  When presenting your idea to them, stick with one focused idea and actionable methods to success.  Do not bring them multiple business ideas or something extremely complicated. 

Conclusion:

When starting up a CBD company, having enough capital is essential if you want long-term success and scalability.  No matter which funding source you choose, make sure that you do your research beforehand so that you know exactly what kind of deal you’re getting in to. 

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Step #

Business Startup Step 5

Form the Foundation

So, you’ve made your business plan, assembled your team, picked out your product line, found suppliers and vendors, and now want to put it all into action.  It’s time to get “buttoned up” by setting up your corporate entity, registering it with the IRS, obtaining state licenses, and starting a bank account so you can apply for your merchant processing account.  These are the technical steps you’ll need to take and stay compliant with state and federal laws.  This process must be done correctly if you plan on operating a business without running into huge setbacks due to poor planning.  Let’s get started and I’ll guide you step-by-step.

Entity formation

Setting up your LLC, Partnership, or Corporation is a fairly easy process if you understand the basic terms that go along with the application or filing documents.  Here are the basic steps and important cannabis specific details on each below:

  1. Choose a Corporate Structure or Entity Type
  2. Choose the State, or States, you’d like to register your entity in
  3. Select a Registered Agent if filing out of state (in-state optional)
  4. Research available names
  5. Fill out application
    • Entity Name
    • Entity Type
    • Owners, Members, and Directors
    • Registered Agent
    • DBA (may require separate filing)
  6. Pay Fee

Select the right Corporate Structure or Entity Type

Knowing the right corporate structure is very simple within the cannabis industry.  There are a handful of different entity types to choose from, each with their own pros and cons, including a Limited Liability Company (LLC), Corporation (Inc.), Partnership, and Sole Proprietorship.  Formal structures like Corporations and LLCs offer their owners protection because it separates the business assets from the owner’s assets.  Whereas informal structures like a Sole Proprietorship or Partnership do not separate the business from the personal assets. 

This is especially valuable if your company is subject to a lawsuit.  If you have a corporation or an LLC, your personal assets as an owner would not be included.  Whomever was suing the company would only be able to go after the company’s assets.  However, as a Sole Proprietor or Partnership, if someone sued your company, they also may get your car, house, and anything else you own if they win the suit. 

More commonly, this comes into play with creditors.  Business debts such as business loans and credit cards, if protected from a corporation or LLC entity type, would have no effect on your personal credit if the company went bankrupt or defaulted on its loans.  However, if you set up your business as a Partnership or Sole Proprietorship, those debts would fall on you as the owner or one of the owners.

Now, when it comes to starting a CBD Company, you’d be a fool to set up your entity as a Sole Proprietor or Partnership instead of an LLC or Corporation.   The likelihood of a lawsuit or other liability significantly increases when a company sells ingestible or vaping products, and especially a company that sells psychoactive products like Delta 9 THC Gummies or Delta 8 Vape Carts.  It’s a no-brainer.  And in most cases, doesn’t cost any more or less to set it up the right way.  Remember, even if you use a Sole Proprietorship, it still needs to be registered with the state.  So why not set up an LLC and make sure you’re protected. 

What’s the difference between an LLC and a Corporation (Inc.)?

LLCs are extremely flexible and allow owners to run a company and make changes very easily.  Profits pass directly to the owners and are only taxed once to each of the owners.  A corporation, on the other hand, is very structured and strict.  It must have a board of directors and ownership is issued in stock.  Profits are paid in dividends.  Corporations also default to a C-Corp tax status, which means they will be taxed twice, once on the corporate income and another individually once dividends are paid. 

Other factors to consider when choosing between an LLC and a Corporation is that a corporation must have a board of directors and there are strict rules about keeping records and holding meetings.  However, a corporation is preferred if you want to go public someday.  A corporation is also preferred if you’re planning on obtaining financing from Venture Capital, who will most likely take controlling interest in the company’s shares. 

Most startup companies choose an LLC.  This can be changed in the future to a corporation very easily.  It provides a quick and easy way to get started with an immense amount of protection for the owners.  Ownership percentages and profit dispersions can all be defined in the LLC’s Operating Agreement.

Choosing the way, you are taxed.

There are several ways you can be taxed by the IRS if you are an LLC or a Corporation.

An LLC defaults on all income passing through to the owners in their agreed upon ownership percentages.  The LLC is not taxed because all income passed to the owners which are taxed on that income.  This means you are only taxed once. 

A Corporation defaults to a C-Corp Status.  This means that your corporation will pay taxes on the corporate income.  Then as a shareholder, you’ll also pay taxes on the income when you receive dividends. 

However, there is a 3rd tax classification that is widely used by both LLCs and Corporations called S-Corp.  An S-Corp requires owners to also be paid as employees at a reasonable salary.   Paying all or a portion of what would be a dividend payment to owners in the form of a salary allows owners to save money on self-employment taxes. 

In an LLC, for example, all income is passed to the owner which is then subject to both income tax and self-employment taxes on their personal tax return.  If an LLC elects to be taxed as an S-Corp, then the owner would still be responsible for their income taxes but would not have to pay any self-employment taxes on their salary.  Any dividends paid above the salary would be subject to self-employment taxes.  This can amount to some serious savings once you start making money.

As a corporation just starting out, you may also benefit from electing to be taxed as an S-Corp.  Your corporation would then act just like an LLC with income passing to the owners and the same protection as well.  If you decide to choose a corporation over an LLC, you need to understand the differences between electing to be taxed as an S-Corp or C-Corp because there are some other considerations.

S-Corp – An S-Corp is better for smaller corporations.  It’s limited to 100 shareholders, all of which must be US Citizens and can only receive common stock.  Common stock means you have ownership and voting rights.  This also means you can’t have an investor without giving them voting rights on how your company is run.  The benefit of an S-Corp is you are only taxed once, unlike a C-Corp where you are taxed both at the Company level and on any dividends, you receive as an owner. 

C-Corp – A C-Corp is better for larger corporations or once that want to go public.  This is the preferred structure for large investors like Venture Capital funds because there are unlimited shareholders and owners get preferred stock.  Preferred stock comes with no voting rights but are the first to get paid dividends before any common stockholders.  C-corporations are recognized internationally so you can have overseas investors.  There are also benefits over the S-Corp because you can leave money in the corporation.  However, you are taxed on both the corporate income and any dividends shareholders receive. 

How do I sign up to be taxed as an S-Corp?

An LLC or a Corporation can elect to be taxed as an S-Corp by filing IRS Form 8832, the Entity Classification Election Form.

https://www.irs.gov/forms-pubs/about-form-8832

https://www.irs.gov/pub/irs-pdf/f8832.pdf

When should an LLC elect to be taxed as an S-Corp?

An LLC should elect to be taxed as an S-Corp when they make enough money in the upcoming year to pay both a reasonable salary to all owners plus at least $20,000 in dividends. 

 

For example, let’s say there are two owners of an LLC.  They live in an area where an average salary is $30,000. 

 

2 owners x $30,000/owner + $20,000 total dividends = $80,000

 

$80,000 would be the minimum amount of Salaries plus leftover profit to make it beneficial to choose an S-Corp entity tax classification status.  If you don’t feel like doing the math, just use $80k as a minimum of profit your LLC needs to make before thinking about filing for the S-Corp tax status. Get with your accountant once you get close because there are deadlines to file your Entity Classification Election forms for the following year. 

What corporate structure should I choose for my new CBD Company?

Most startup CBD Companies use an LLC to get started.  They are simple to maintain and usually, there are not enough leftover profits the first few years to make it beneficial to use a corporation structure.  Once you are on track to make at least $80k profit in the upcoming year, you’ll want to file your Entity Classification Election form to be taxes as an S-Corp with the IRS and start paying each owner a reasonable salary to avoid some, if not all, self-employment taxes.  However, once you do start making more money than you know what to do with, it may make sense to switch over to a corporation because you can leave money in the corporation till the following year to avoid the next tax bracket or to set aside for upcoming purchases, aka write-offs.  With a C-Corp you can also go public (and take over the world) 😊. 

Florida 1

Choose the State (or states) to file in

Now that you’ve chosen the type of Entity, aka your corporate structure, to form, it’s time to decide where to form it.  There are several things to consider when choosing a state to form your entity:

Location of your Business – If your business is a brick-and-mortar operation, you will most likely have to register your business in that state.  There are still options if you want to start your entity in another state, then register as a foreign entity in the state you are operating in.  This can add several layers of both anonymity and legal protection but requires multiple registrations and reporting for each state.  Most states require you to register your business in that state if you physically operate business in that state.

Registered Agents – If you are registering your corporation or LLC in another state, you’ll need to hire a Registered Agent in that state to operate business and be there to accept any state notices.  Registered agents can cost anywhere from $100 – $500 per year and up.

Registration Fees – Each state charges between $1 – $500 to form your entity.  If you have multiple locations or run a business that is not brick-and-mortar, then this may be something to consider.

Renewal Fees – Once formed, each state requires you to pay a renewal fee every year. 

Legal Issues (should they arise) – Delaware, for example, who holds over 65% of all Fortune 500 companies, has become one of the best states for legal protection.  It is unique because Delaware has what’s called a Court of Chancery which only hears corporate cases.  This may become beneficial to you if your business deals with complex issues that if brought in front of a normal jury would be so confusing to them, you may not get the outcome you were hoping for as a company.  Whereas in Delaware, your corporate case, whether it be a lawsuit or other litigation, would go in front of professionals who understand your business. 

Taxes – Taxes can be a huge consideration when deciding which state to incorporate in.  The more you make that better your chances of success.  There are 3 types of taxes: corporation taxes (C-Corp), State Income Taxes which would affect S-Corp taxed entities, and franchise taxes which are not based on the income.  Instead, franchise taxes can be based on your business’ net worth, profit margins, or even your gross receipts.  Plus, there are usually minimum franchise taxes owed in some cases so your business could be in the red and still owe taxes.  There are still 15 states with franchise taxes.

Owner Anonymity – Some states will publicly list the owners of an LLC or Corporation.  Other states do not disclose this information.  It is then only disclosed in your company’s confidential copy of your Operating Agreement.  For some, especially those who want to avoid conflicts of interest or get around certain licensing requirements, being invisible is very important.

 

Selecting a state to form your entity in can be tricky.  However, when starting out, especially when you haven’t made any money yet, start in the state you operate in.  Once you’ve grown into an established profitable company, investigate moving your corporate entity to a state with better taxes or legal protection should it rise.  The most popular of these states is Delaware for an all-around best choice.  However, Nevada and Wyoming are extremely popular for low taxes as well.  Remember, if you form your entity in these states but operate a brick-and-mortar business in a completely different state, you may also have to register as a foreign entity in that state as well which may negate the benefits all together.

Registered Agents, why you need them & our recommendation

If you are registering or forming your LLC or Corporation in a different state than you operate in, you will need to hire a registered agent in that state.  We recommend Northwest Registered Agent.  They have low per year fees and great customer service. 

Choose the State (or states) to file in

Now that you’ve chosen the type of Entity, aka your corporate structure, to form, it’s time to decide where to form it.  There are several things to consider when choosing a state to form your entity:

Location of your Business – If your business is a brick-and-mortar operation, you will most likely have to register your business in that state.  There are still options if you want to start your entity in another state, then register as a foreign entity in the state you are operating in.  This can add several layers of both anonymity and legal protection but requires multiple registrations and reporting for each state.  Most states require you to register your business in that state if you physically operate business in that state.

Registered Agents – If you are registering your corporation or LLC in another state, you’ll need to hire a Registered Agent in that state to operate business and be there to accept any state notices.  Registered agents can cost anywhere from $100 – $500 per year and up.

Registration Fees – Each state charges between $1 – $500 to form your entity.  If you have multiple locations or run a business that is not brick-and-mortar, then this may be something to consider.

Renewal Fees – Once formed, each state requires you to pay a renewal fee every year. 

Legal Issues (should they arise) – Delaware, for example, who holds over 65% of all Fortune 500 companies, has become one of the best states for legal protection.  It is unique because Delaware has what’s called a Court of Chancery which only hears corporate cases.  This may become beneficial to you if your business deals with complex issues that if brought in front of a normal jury would be so confusing to them, you may not get the outcome you were hoping for as a company.  Whereas in Delaware, your corporate case, whether it be a lawsuit or other litigation, would go in front of professionals who understand your business. 

Taxes – Taxes can be a huge consideration when deciding which state to incorporate in.  The more you make that better your chances of success.  There are 3 types of taxes: corporation taxes (C-Corp), State Income Taxes which would affect S-Corp taxed entities, and franchise taxes which are not based on the income.  Instead, franchise taxes can be based on your business’ net worth, profit margins, or even your gross receipts.  Plus, there are usually minimum franchise taxes owed in some cases so your business could be in the red and still owe taxes.  There are still 15 states with franchise taxes.

Owner Anonymity – Some states will publicly list the owners of an LLC or Corporation.  Other states do not disclose this information.  It is then only disclosed in your company’s confidential copy of your Operating Agreement.  For some, especially those who want to avoid conflicts of interest or get around certain licensing requirements, being invisible is very important.

 

Selecting a state to form your entity in can be tricky.  However, when starting out, especially when you haven’t made any money yet, start in the state you operate in.  Once you’ve grown into an established profitable company, investigate moving your corporate entity to a state with better taxes or legal protection should it rise.  The most popular of these states is Delaware for an all-around best choice.  However, Nevada and Wyoming are extremely popular for low taxes as well.  Remember, if you form your entity in these states but operate a brick-and-mortar business in a completely different state, you may also have to register as a foreign entity in that state as well which may negate the benefits all together.

Choose the right Entity Name for your cannabis company

Setting up your entity is very easy.  But, in the cannabis space, there are some extra steps you must take.  Your entity name is the name given to your LLC or Corporation (Inc) that’s registered with the state so you can legally operate business. 

IMPORTANT: YOUR ENTITY NAME DOES NOT NEED TO MATCH YOUR BRAND NAME, ESPECIALLY IF YOUR BRAND NAME CONTAINS WORDS ASSOCIATE WITH CANNABIS.

Because your entity name will need to be used on several applications such as banking.  You may need to have a different Entity (LLC, Inc.) name to avoid an obvious association with the cannabis industry.  This can cause huge problems when you go apply for things like a business bank account or payroll, both of which will most likely not allow you to open the account if, for example, your LLC entity name is “Hemp Lively”, “Go CBD”, “Canna Care”, or “Green Budz”.   Instead, your Entity name should be something similar such as “H Lively LLC”, “Go C LLC”, “CC Health LLC”, or “GB Products Inc.” respectively.  Before choosing a name for your LLC or other entity type, read this article that goes into this issue further. 

David McGinnis

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.

Entity Formation Registration Links by State

It’s time to form your LLC or Corporation.  Now that you’ve chosen an entity type and picked a state to form in, click one of the links below to go to that states online application process or, if unavailable, the link to download and mail in your registration form.   Here are some helpful links to each state.

Click one of the States below to form your new Business Entity (LLC, Inc.)

EIN (Employer Identification Number)

An EIN, or Employment Identification Number, is required by the IRS.  An EIN is also called your Federal Tax ID Number.  This is the equivalent of a social security number for your company.  It uniquely identifies your company for both taxes and employment filings.  With it, you can also open a business bank account, obtain business loans, and use it to build your business credit. 

Where do I get an EIN Number?

This is by far the easiest part of starting a company.  You can have an EIN Number in a few minutes with a quick online application.  You’ll need your Corporate Name, Address, Contact Information, and some general information about your business activities.  It will also ask for your NAICS Code, which is a code categorizing the type of business you’ve started. 

 

In order to apply for an EIN, you will need your NAICS Code.  Continue reading below to see a list of 2022 NAICS Codes for CBD businesses or businesses selling hemp-derived products.

 

EIN Online Registration
Fee: Free

 

Once you’ve finish the application, you’ll be brought to a screen that shows this. In the top right section is your EIN Number which has this format XX-XXXXXXX. You can now use this to open a bank account and as your company’s identification number for taxes, loans, and business credit.

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What does NAICS stand for?

NAICS is an acronym for the North American Industry Classification System.  It’s the standard business classification system used by the Federal government to collect, analyze, and publish statistical data related to the U.S. business economy.  In 1997, the NAICS replaced the SIC (Standard Industrial Classification) system to unify the classification system with other North American countries such as Canada and Mexico.  This allows a higher level of comparison between these countries.  The NAICS is updated every 5 years.  Its most recent updates were published in 2022.

CBD NAICS Codes

When searching for your NAICS Code as a new CBD or Cannabis Company.  Remember, this is a public list that can be looked up by anyone.  Therefore, if you have a choice between two applicable options and one of them is “All Other…”.  Choose that over a more specific category that can define your business unless mandated because you sell, for example, tobacco or vaping products.

For example:

  • Option 1: NAICS Code 459991 – Tobacco, Electronic Cigarette, and Other Smoking Supplies Retailers
  • Option 2: NAICS Code 459999 – All Other Miscellaneous Retailers

Go with Option #2 if you can.  Of course, if you sell Tobacco Products such as cigarettes, you then must choose option #1.

NOTE:  In 2022, several very common NAICS Codes were expanded and revised which effect the cannabis industry.  Several 1st-page-Google articles from some of the biggest NAICS sites have not yet been updated to reflect these changes.  Please read this entire section before choosing. 

https://siccode.com/page/naics-code-2022-update

 

INCLUDES

NAICS CODE

DESCRIPTION

Gas
Stations

447100

Gas
Stations

Gas
Stations with Convenience Stores

447110

Gas
Stations with Convenience Stores

Convenience
Stores

445120

Convenience
Stores

Supermarkets
& Grocery Stores

445110

Supermarkets
& Grocery Stores

Supplement
Store

446191

Food
(Health) Supplement Stores

Pharmacies

456110

Pharmacies
and Drug Retailers

Chiropractors

621310

Offices
of Chiropractors

Retail
Store (Tobacco, Vape, Smoking Supplies)

459991

Tobacco,
Electronic Cigarette, and Other Smoking Supplies Retailers

Retail
Store (General – a little of everything)

455219

All
Other General Merchandise Retailers

Retail
Store (Specialty Store – one type, use, or niche)

459999

All
Other Miscellaneous Retailers

Hemp-Derived
Product Manufacturer

339999

All
Other Miscellaneous Manufacturing

Ecommerce
(Tobacco, Vape, Smoking Supplies)

459991

Tobacco,
Electronic Cigarette, and Other Smoking Supplies Retailers

Ecommerce
(Specialty Store – one type, use, or niche)

459999

All
Other Miscellaneous Retailers

Ecommerce
(beverages, coffee, spices, honey, ice cream, etc.)

445298

All
Other Specialty Food Retailers

Ecommerce
(skin care, perfumes, etc.)

456120

Cosmetics,
Beauty Supplies, and Perfume Retailers

Ecommerce
(Vitamins & Supplements)

456191

Food
(Health) Supplement Retailers

Ecommerce
(Online Pharmacies & Drugs)

456110

Pharmacies
and Drug Retailers

Ecommerce
(General – a little of everything)

455219

All
Other General Merchandise Retailers

Cannabis
Grown Under Cover (INDOOR)

111419

Other
Food Crops Grown Under Cover

Cannabis
Grown in an Open Field (OUTDOOR)

111998

All
Other Miscellaneous Crop Farming.

Cultivation
Support Services

115112

Soil
Preparation, Planting, and Cultivating

Bulk
Flower and Biomass Wholesale

424590

Other
Farm Product Raw Material Merchant Wholesalers

Cannabis
Delivery Service

492210

Delivery
Services (except part of an intercity courier network, USPS)

Direct
Sales (Tobacco, Vape, Smoking Supplies)

459991

Tobacco,
Electronic Cigarette, and Other Smoking Supplies Retailers

Direct
Sales (Specialty Store – one type, use, or niche)

459999

All
Other Miscellaneous Retailers

Direct
Sales (beverages, coffee, spices, honey, ice cream, etc.)

445298

All
Other Specialty Food Retailers

Direct
Sales (skin care, perfumes, etc.)

456120

Cosmetics,
Beauty Supplies, and Perfume Retailers

Direct
Sales (Vitamins & Supplements)

456191

Food
(Health) Supplement Retailers

Direct
Sales (Online Pharmacies & Drugs)

456110

Pharmacies
and Drug Retailers

Direct
Sales (General – a little of everything)

455219

All
Other General Merchandise Retailers

Operating Agreements

If you’re starting a new CBD company, writing an operating agreement is essential. An operating agreement is a legal document that outlines the ownership and day-to-day operations of a business. It serves as the foundation of your business, protecting it from potential disputes between partners. It also ensures that each member involved in the business understands their rights, responsibilities, and liabilities. In this blog post, we’ll discuss types of operating agreements and provide some tips on how to write one for your new CBD company.

Types of Operating Agreements

The type of operating agreement you need depends on the size and structure of your CBD company. There are two main types of operating agreements: Member-managed LLCs and Manager-managed LLCs. If you’re running a single-member LLC or a multi-member LLC with all members managing the business themselves (i.e., without hiring any outside managers), then you need a Member-Managed LLC operating agreement. A single member operating agreement is by default, a member managed operating agreement.  On the other hand, if you have multiple members in your CBD company who are hiring outside managers to manage operations, then you need a Manager-Managed LLC operating agreement.

Writing Your Operating Agreement

Once you decide which type of operating agreement is right for your CBD company, it’s time to start writing one! Here are some tips to help get you started:

  • Be sure to include details about each member’s roles and responsibilities in the business
  • Define each member and manager’s voting rights
  • Include information about how profits will be distributed among members. This includes how often, what minimum reserves must be met before distributions, and why percentage of profits are put towards growing the company
  • Outline procedures for adding or removing members from the business
  • Detail what happens if there is a dispute between members. Think of every possible thing that can go bad.  Be as specific as possible and write a dispute resolution for each. 
  • Include details of what happens and who’s responsible if the company needs a cash infusion because they are out of money. This can include things such as a 24-hour cash call and what happens if a cash call is not met such as a dilution of a member’s ownership or the option to be bought out and at what price.  This is just an example but an important one.  Most disputes are about money.
  • Include procedures for closing the business when it’s no longer profitable
  • Make sure that all relevant laws are considered when drafting the agreement
  • Have it reviewed by an attorney in the state you’ve incorporated in.

 

Most disputes between members of a startup company are not necessarily intentional.  It’s been my experience that each member usually has their own perception of what should happen in a given situation that was not defined at the time of the agreement.   This will cause problems in your business with partners.  It is important to spend the time drafting a thorough Operating Agreement AND making sure each partner understands every line of it. 

As a good rule of thumb and a critical part of the business development process, once an Operating Agreement has been drafted, mandate all potential members sit down together and go line be line making sure each person understands all parts.  You can even have each member get their own legal representation, however that can become a legal nightmare in and of itself.  The important things it that all members understand what’s required from them, how the business should be run, and what happens when expectations are not met. 

CANNABIS BUSINESS FOLDER HUNDRED DOLLAR BILLS WITH A CANNABIS LEAF ON TOP 1 1

Banking for Cannabis Companies

Banking for CBD and other Cannabis companies is no different than any other commercial banking except for one potential problem that can occur during signup, your Entity Name.  When opening a business bank account, you’ll be asked to provide your Entity Name, EIN, and NAICS Code.  Pending you keep your NAICS Code general, the only thing besides you openly telling your banking representative that you’re in the cannabis or CBD business is your Entity Name.  Make sure, as stated previously in this and other business blogs, that you do not use any words associated with CBD, Hemp, or Cannabis in your Entity Name.  If your brand name includes them that’s one thing.  But your entity name does not have to match your brand name.  Shorten it up and tack an LLC on the end but do not include words associated with cannabis.  Because if you do, and you write that name on your business bank account application, they will most likely deny your application. 

The bank may also ask questions about the nature of your business.  You don’t have to lie, just be very broad with your answers.  For example, if you’re opening a Delta 8 Vape ecommerce shop and are asked what type of business D8V LLC is.  Simply say it’s an ecommerce startup and you haven’t finalized your product line yet.  Explain you’ve set up this LLC, EIN, and Bank Account to be able to open wholesale accounts with suppliers to see which products you want to sell. 

One of the reasons they are asking you these things is to offer you other services like merchant processing and payroll.  Do not “shit where you eat” my friends.  Just get the bank account at the bank.  Do not get anything else there.  Any additional services through your bank will come with extreme scrutiny about your business and may cause your banking institution to then close your bank account. 

If you follow these steps, you can get a bank account almost anywhere. 

Why is banking so difficult for hemp businesses and CBD companies?

The best explaination is from an article written by Ryan LeCloux, a legislative analyst in Wisconsin.

“Financial barriers for hemp businesses Hemp businesses have experienced difficulty in securing loans or bank accounts due to federal laws. Previously, when hemp was listed as a controlled substance, financial institutions were at risk of being prosecuted for serving hemp businesses under federal money laundering laws and other banking laws. In February 2014, the U.S. Treasury Department provided guidance in accordance with a memo issued by the U.S. Department of Justice (DOJ) that allowed financial institutions to individually decide whether to serve marijuana-based businesses, at their own risk. This memo was an extension of the Cole Memo issued by DOJ in August 2013 that effectively limited enforcement of federal marijuana laws in states that legalized marijuana with strong enforcement mechanisms. Many financial institutions still refused to serve hemp businesses and the Small Business Administration (SBA) even established a policy in April 2018 forbidding banks from providing loans to any “hemp-related business” unless the business could prove it was legal. The statement specifically mentioned “paper, clothing and rope” as legal products, but it did not specify what other activities or products are considered legal.

 

The issue of hemp businesses being denied financial services appeared to be resolved when the 2018 Farm Bill removed hemp from the federal list of controlled substances. In accordance with the farm bill, the SBA reversed its policy in February 2019 and allowed loans to be made to Hemp businesses. Despite the change made by the farm bill, many hemp businesses are still being refused financial services. As recently as May 2019, hemp businesses in Wisconsin have had their bank accounts closed or were denied from opening accounts. Some financial institutions have cited a lack of federal regulations on businesses in Wisconsin have had their bank accounts closed or were denied from opening accounts. Some financial institutions have cited a lack of federal regulations on hemp and CBD as the reason they are not serving hemp businesses. These institutions worry that without federal regulations they run the risk of not being in compliance with existing financial regulations. Until federal regulations are developed on this subject, individual financial institutions are left to decide whether to serve hemp businesses.”

State Licensing

In 2018, the Farm Bill made all hemp-derived products with less than 0.3% Delta 9 THC legal and authorized all interstate commerce.  It then gave each state the power to create their own State Hemp Program for both Cultivation and licensing requirements to sell hemp-derived products.  Within these programs, some states set guidelines only for cultivation.  Whereas other states set guidelines for mandated licensing to sell CBD products and pay state taxes on the revenue. 

In most states, state licensing for industrial hemp and hemp-derived products is broken down into separate licenses for each stage of the process including growing, processing, handling, manufacturing, and sales.  However, there are slight variations to the definition of each of these which can be quite confusing if you are looking at multiple states.  Furthermore, there may be additional licensing and permits for activities such as food manufacturing or retail food establishments.  Here’s a breakdown of the most common state licenses.  Keep in mind, not all will apply to every state. 

Grower/Producer – This license usually covers hemp farming and cultivation and is usually governed by the state’s Department of Agriculture

Processor – In most states, a Hemp Processor License is required to extract hemp into concentrates.  However, some states also incorporate finished hemp-product manufacturing into this license.

Handler – In most states, a Hemp Handler License covers storing and transporting industrial hemp.  However, some states also include retail sales in the Handler License.

Manufacturer – Most states do not have a finished product manufacturing license. However, there are a handful of states that do.  However, if you’re manufacturing hemp-infused food products, a manufacturing food permit and registered food manufacturing facility is required. 

Wholesale/Retail – A wholesale or retail sales license is required in some states to sell finished hemp-derived products.  Some states require this in addition to other state licenses such as a manufacturing or processing license.

It is always recommended to contact the state’s governing bodies to verify all information is up-to-date before starting your cannabis business.

Over 200 hours went into the research of the State Hemp Licensing article below.  It includes a state-by-state guide to hemp product licensing.  The article is current as of January 1, 2023.  It lists all governing bodies, all hemp licenses, every state’s USDA Approved State Hemp Programs, all applications, and links to apply for each state license. 

David McGinnis

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.

Legal

Understanding the Legalities of Your Market

Covering your company legally in the cannabis space is paramount.  This does not mean you need to spend tens of thousands of dollars on attorneys for everything.  However, there are a few instances where I would use them.  This article, and other cannabis business resources blog posts will help with some of these items.  But there are two issues I’s consider having a second set of eyes on, preferably by an attorney. 

First, you should verify the legality of any local or state cannabinoid laws to answer things like, “Is Delta 8 Legal in my state?” to ensure you’re complying with the law.  There’s nothing like building an empire around something that’s illegal. 

Man holding hundred dollar bills with cannabis leafs on the left 1200x628px 1

A History of Legal Loopholes for Hemp-derived Products

In the old days (2016-2018), hemp-products were non-psychoactive and marijuana products were psychoactive.  The U.S. Farm Bill of 2018 split the two cannabis types, hemp, and marijuana, by the amount of Delta 9 THC in the hemp and finished hemp-derived product.  Using a threshold of 0.3%, the government thought they “nipped this in the bud” so to speak (pun intended).  However, with better extraction techniques and basic chemistry, the hemp industry overcame this in just a few years with the mass production of Delta 8 THC converted from CBD.  As if that wasn’t enough, Delta 8 was followed by Delta 10, THCo, THCp, and HHC, with dozens of other potential psychoactive naturally occurring and synthetic cannabinoids and terpenes on the horizon to take their place, should a state ban them.  

To make matters more complicated, the original 0.3% Delta 9 THC per dose in a hemp-derived product has also been manipulated with the introduction of a larger gummy.  With a simple 3.6g gummy and a high Delta 9 THC hemp extract, a hemp-compliant 10mg Delta 9 THC gummy, which is a standard dose of a medial marijuana edible, now stays below the 0.3% threshold and is perfectly legal.

As a counterattack to bring hemp product back to a non-psychoactive product type, states around the USA have slowly been implementing new laws banning certain cannabinoid like delta 8, selling the maximum mg per serving of THC instead of a percentage, and banning synthetic or converted cannabinoids.  Every few months, a new regulation comes out in at least one state banning delta 8 or other hemp-derived product specifications.

Keeping up with the changing cannabinoid state laws is nearly impossible, which is why I’ve put out a state-by-State Guide on Delta 8 Laws. 

David McGinnis

Is Delta 8 Legal in your state? Delta 8 THC laws are changing every day. In this State-by-State guide, we'll walk you through Federal and State laws affecting the Sale and Manufacturing of Delta 8 products. You'll find links to state agencies, statutes, hemp manufacturing and retail licenses, and helpful resources. Does state law turmp federal law or the 2018 Farm Bill? We cover it all, even the states that say delta 8 is illegal but the laws show otherwise. Buy, Sell, and Manufacture Delta 8 THC products with peace of mind that you're not breaking the law. Over 300 hours went into the research of this article and it's current as of January 2023.

Over 200 hours of research went into this State-by-State Guide on Delta 8 THC Laws.  And what I learned during the process was alarming.  I originally googled “Delta 8 THC State Laws” and “Is Delta 8 Legal in” each state.  I read over 100 state-by-state guides and found that none of them were alike.  This was not surprising as the internet is filled with misinformation.  There were some obvious mistakes as well referencing Marijuana Statutes that didn’t apply to hemp, siting definitions of “cannabis”, “marijuana”, and “tetrahydrocannabinols” that also don’t apply to hemp, and naming THC a Schedule I drug which is correct but once again does not apply to hemp.  I also noticed states putting out Notices to the public that contradicted the written law in hopes of stopping legal business activities like selling Delta 8 Gummies or Vape Pens. 

It’s a lengthy read but not if you only need to look up one state.  I’ve put all links to cited laws and state websites for your reading enjoyments.  As usual it’s always recommended to consult an actual attorney regarding legal matters.  I am not an attorney, but much closer to one than most of the other authors out there.

As industrial hemp laws regarding hemp-derived products change, almost daily, it’s a good idea to consult with your attorney regarding the legality of hemp-derived products in your state.  This is especially true if you sell psychoactive products such as Delta 8, HHC, or other cannabinoids that can be made by converting a cannabinoid such as CBD into a psychoactive cannabinoid. 

Secondly, if you have business partners, have an attorney draft, and thoroughly explain your new company’s operating agreement prior to signing it. 

Why should you have an attorney draft and explain your company’s operating agreement?

An operating agreement is imperative if you have business partners.  It explains how the company runs, who’s in charge of what, what happens in certain situations, and the requirements of each member.  There are several problems that can arise with an improperly drafted operating agreement or one not understood by all partners. 

 

Most notably is the difference between a member and a director or manager.  If you are a director of an LLC or corporation your fiduciary responsibilities are for the company, not yourself.  This means every decision you make must be in the best interests of the company, or you can be removed as a decision maker.  A member is simply an owner of all or part of the company.  If you have a member-managed LLC, then each member needs to understand that being a director or a member-manager means all decisions must be made in the best interest of the company, not the member-manager or director.

 

Next, define every possible thing that can go wrong and make sure solutions are clearly stated.  In my experience, most disagreements with business partners haven’t been intentional.  Instead, they were simply different presumptions of what should happen in certain situations.  If you define these, especially when it comes to money, you can avoid these issues. 

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Protect your Brand with Trademarks & Wordmarks

Lastly, make sure you are not in violation with any Trademarks or Wordmarks with both the name of your brand or other logos and marketing pieces.  Furthermore, if you have anything that needs to be trademarked or word marked, it’s better to do that now than later.

An important step in starting any business, especially a cannabis company, is understanding the legal implications behind doing so. Before you dive into setting up shop, make sure that you understand all local and state regulations surrounding cannabis businesses. The legal landscape is always changing, so it’s important to stay up to date with the latest laws and regulations that affect your business.

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Step #

Business Startup Step 6

Build Out Your Departments

The next step is to plan and build each department in your new cannabis business. This step is important even if you only have one person in the entire company. Planning this now saves an immense amount of headache later once you’re busy with orders. Each department should have specific duties, venders and suppliers, specific technology associated with certain tasks, and any employees that are needed to fill duties. Below you will find a checklist of each department and roles, duties, tasks, and even some cool technology and venders to use for each. Make sure you’ve got each part of your business planned out now to ensure you can properly execute your business plan in the last stage of your business development process.

Only two more steps to go to complete your new CBD Company.  The next step is to plan and build each department in your new cannabis business.  This planning is important even if you only have one person in the entire company.  Planning this now saves an immense amount of headache later once you’re busy with orders.  Each department should have specific duties, venders and suppliers, specific technology associated with certain tasks, and any employees that are needed to fill duties.  Make sure you’ve got each part of your business planned out now to ensure you can properly execute your business plan in the last stage of your business development process.  Below you will find a checklist of each Department and some key parts of each. 

Startup Business Department Checklist

Administration

  • Compliance
  • LLC or Corporation Renewal
  • Legal Oversight
  • Licensing
  • Management
  • Website Management
  • Budgets for each department
  • Merchant Processing (credit card processing)
  • Setup and Monitor Bank Accounts

Accounting

  • Bookkeeping
  • State Taxes
  • IRS Tax Returns

Payroll

  • Payroll Company

Human Resources

  • Hiring New Employees
  • Training New Employees
  • Managing Hours and Time Off

Manufacturing

  • Standard Operating Procedures
  • GMP Standards
  • Safety Measures
  • Ordering Supplies
  • Inventory Checks

Marketing Channels

  • Social Media
  • SEO
  • Paid Ads
  • Email
  • SMS
  • Content
  • Affiliate Marketing
  • Trade Shows

Sales

  • eCommerce
  • B2B Wholesale
  • Sales Commision Plans for Employees

Fulfillment

  • Shipping Boxes
  • Shipping Software
  • Shipping Label Printer
  • Customized Packing Slips
  • Standard Operating Procedures
  • Shipping Policies
  • Choosing the right Shipping Carriers for Cannabis Products

Customer Service

  • Return Policies
  • Customer Service Scripts
David McGinnis

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.

Checks and Balances

Now that you’ve defined these departments, planned them out, and even set them up, ask yourself this question.  What happens if something doesn’t get done, someone is out sick, or someone gets fired or quits?  Who will handle that person or department’s responsibilities.  This is called a Checks & Balance System.  It’s basically a backup plan for every situation and can easily be solved with proper planning and cross-training of departments.  Another way to implement business operations is to create systems where every task is checked by another party.  For example, the order packer puts the products in the box with the packing slip, and before the box is taped closed and the shipping label is put on, the second fulfillment person checks to make sure the order is correct.  Or, one of the owners double checks the payroll to be correct before finalizing it.  These types of 2nd-level business systems allow a business to operate should something go wrong.  It also creates a system of accountability.  Plan your business now and it will run smoothly as it grows, and things go wrong. 

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Step #

Business Startup Step 7

Execute Your Business Plan

The final stage is upon us.  It’s time to execute your plan and open for business.  Do not rush this process.  It will not be perfect, and you will run into issues so leave plenty of time from the time you start this phase to your official launch date. 

Goals & Milestones

Within your business plan, you should have already set several short and long-term goals.  It is now time to break those goals and milestones within each goal into actionable steps with realistic expectations of growth.  To properly do this you need to get off to a good start. 

Check all systems

Check all systems within your organization before opening for business.   Not doing this will cause the customer to first experience this, instead of your company.  A bad first experience will cause you to lose customers.  It will also cause Google to lower the chance of your rankings because your bounce rate percentage will be through the roof.  The first customer experiences are some of the most important ones so make sure everything is operating smoothly.  These include:

  • Making and testing products.
  • Walking through every signup and checkout step on your ecommerce website.
  • Make sure all your SEO is setup correctly on your website.
  • Test marketing pieces like your weekly newsletter and SMS Campaigns
  • Logging in to every vender and technology account you have
  • Double check your company email to make sure there aren’t any issues with any of your accounts.
  • Run through every task from marketing to payroll
  • Make sure you are properly stocked with products
  • Have a plan in place for every department with issues that may arise.

 

Soft Launch

It’s time to get ready for launch!  A proper launch needs to be done in two steps.  First, do a soft launch.  A soft launch is when you’re open for business but only notify friends and family.   You want honest feedback from people you trust that will always be there.  Give away some free products in return for providing feedback on the entire experience and address any issues that arise. 

Grand Opening

If all systems are a go, put your marketing and operations into full gear with your official Grand Opening.  Pay attention to quality manufacturing and customer service.  You want all reviews to be five stars and positive feedback.  When I first started Hemp Lively, I did a follow up phone call with every customer for the first 6 months to see how the products were working and address any of the issues customers had.  Of course, you won’t be able to do this forever, but a personal touch in the beginning will pay off.  I still have most of the same customers today.

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Conclusion

You now have all the tools needed to start building a successful hemp brand! Remember to always stay true to yourself and remain focused on delivering high-quality products and top-notch customer service.  Starting a successful CBD company requires research, planning, dedication, and hard work.  But it doesn’t have to be intimidating.  With this comprehensive blueprint for launching your own CBD company, we hope we have given you all the information needed to get started on this exciting new venture! If Hemp Lively can help you in any way with our Wholesale Hemp Program or our Private Label Manufacturing Services, sign up for any account today and we’ll help you launch a successful cannabis brand.  Don’t forget to check out our other Business Resources Blogs and good luck.  To your success!

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