In the past year, the CBD market has gained significant attention from companies and investors. Even the common business owner has noticed the allure of a market that is ripe for development. The momentum has caused analysts to predict that the hemp market will grow to $20 billion and beyond by the year 2024.
The Hype
Ever since the 2018 Farm Bill was passed and removed hemp from the Controlled Substances Act, several companies have rushed to develop CBD product lines. In fact, many of the companies that have adopted CBD products are shops that average consumers visit every day like Urban Outfitters, CVS, Ulta Beauty, Walgreens, and more.
The CBD movement has been marketed to sell products that help with anxiety, ADHD, pains and aches. Although there are those that remain skeptical, the scientific literature is looking bright. Even celebrities, such as Martha Stewart, are partnering with companies to create CBD–related products. But it’s not only large corporations and celebrities that have a chance to capitalize on this new frontier. Many small business owners and entrepreneurs realize they have a chance to build a very lucrative business within an industry that is on the rise.
The Struggle
Although the Farm Bill of 2018 technically allows the legalization of CBD products with significantly low THC content, not all state laws correspond with the statue and it is still illegal at the federal level. The FDA has prohibited the sale of CBD in any unapproved health products, dietary supplements or food. This means that everything except for a drug named Epidiolex. Right now, the FDA can officially file cease and desist orders to any companies selling or marketing items that make health claims about CBD, especially if those products involve interstate trade of the cannabis extract. This can be extremely problematic. For example, a company can order a delivery of CBD from Kentucky and have their cargo raided in a state such as Oklahoma.
What does this mean for CBD merchants?
This is essentially providing a framework as to why payment processing companies will reject merchants who are not making significant volumes. The risk is too high. There are multiple grey areas that could, at any moment, require the processor to cease providing payments or even be forced to close their business. Because of this, merchants are finding themselves in situations where they receive a notice from PayPal, Stripe, and other processing companies that they have 15 days before they must find another payment processor.
It’s beyond frustrating.
The trick for those starting out is to find a payment provider that specializes in CBD transactions. Normal payment processors will not accept a young business due to the extremely high risk that is associated with hemp and CBD. Unfortunately, it is likely that these specialized payment processors will charge more. Additionally, due to the circumstances surrounding the CBD market, you might be able to only accept a few cards, such as Mastercard and Visa, instead of being able to accept all major cards. This naturally limits your customer’s ability to buy and thus your possible income.
Marketing must also take a creative approach. Many social media platforms that are crucial to startups due to their cost-effective marketing tools won’t be friendly to CBD advertising. They will most likely take down CBD ad content due to the terms and agreement policies that restrict such products.
What is the plan?
Assuming you can gain capital and insurance, you need to find a payment processor. Expect to be charged higher than normal fees due to the risk involved, especially those who are willing to accept you early on. Additionally, understand the limitations that come with getting started in the CBD business. Understand that you are only going to be able to accept few cards and for some processors, only debit.
If you are starting an online store, make sure to invest in software that will keep your loss at a minimum. For example, some CBD businesses use applications that will weed out any client’s address that is not in a state that allows the sale of CBD products. Thus, this decreases the risk of losing profit to a raid or disposal.
Marketing will take a lot more effort but there can be creative ways to do plan. One way can be to sell one item that does not contain CBD and to heavily market this item and use it as a springboard to allow traffic to your web page.
Another method could be to write blogs with high SEO ratings, creating organic and sustainable traffic to your site. It is going to be crucial to conduct a lot of cost-benefit analyses since money and options will be tight. However, if you can stick to a well-designed plan and keep loss at a low, then your business will begin to grow.
How to scale your business
Once your volume grows to $250,000 or more, it’s time to make the appropriate steps. You’re in the stage now where you will fall within the guidelines for a payment processor to help implement card payments into business. With the full flexibility of a major payments company behind you, you can get advanced reporting on individual products and their performance. In addition, you can expand into integrated payments (a mobile app for your business) and allow customers to purchase from anywhere they can receive a wireless or Wi-Fi signal.
If you’re planning to get into the CBD and recreational hemp market, consider the levity of the current federal and regulatory environment first. If you’re up to the challenge, dive into some of the steps mentioned above and let us know how we can help.
If your current volume is $250,000 a month or more, we will gladly help you move to the next level and explore a host of card, online, and mobile payment solutions for your business. Please fill out the form below and a member of our team will reach out shortly.