When a new industry appears – and experts predict that the industry will have a compound annual growth rate of more than 125 percent over the next several years – people with investment capital tend to stand up and take notice. That industry is the cannabidiol (CBD) industry, and venture capitalists everywhere are scrambling to fund new CBD startups and reap some of those amazing potential returns.
Are you one of those would-be investors? Are you considering investing in a CBD startup or starting a CBD brand of your own? When you look for information online about the outlook for the CBD industry, most of what you’ll read will be quite bullish. The fact, though, is that it’s unwise to expect that you’ll be able to just throw a bit of money at a CBD company and get rich. Although the potential for profit is great, the CBD industry also has several possible areas of concern that you should be aware of before beginning.
So, should you invest in CBD? Consider these factors first.
Other CBD Brands Already Have Traction
If you’re thinking about launching a new CBD brand, you should know that the world already has many CBD companies, and not all of those companies are going to survive the next few years. Many of those brands already have plenty of traction and have generated significant brand loyalty. Some CBD companies have managed to get their products into stores like Vitamin Shoppe and GNC. It’s going to be difficult for a new brand to complete with that level of visibility. In the UK, brands like VSAVI have exploded onto the marketplace and found great success. Whatever region you’re in, you’re going to find many existing brands that have been in the industry much longer than you.
Launching a CBD Brand Isn’t Easy
Selling CBD isn’t quite as easy as selling other products because CBD comes from hemp, and hemp is a tightly regulated crop. Before you can even have a product to sell, you’ll need to:
- Find a source of hemp and ensure that the crop is grown in accordance with the laws in your region
- Find a way to extract the raw CBD oil from the hemp
- Find a way to make the raw CBD oil into a finished consumer product
It is theoretically possible for CBD brands to vertically integrate themselves by growing and extracting their own hemp, but that’s an extremely expensive proposition that’s fraught with potential difficulties at every stage. Inexperienced farmers are losing money left and right as they discover that hemp is an incredibly challenging crop to grow. Extracting raw hemp oil in an efficient and solvent-free manner requires equipment costing hundreds of thousands of dollars. If you want to try producing your own CBD oil from the field to the bottle, you can potentially lose an enormous sum of money.
It’s also possible to start a CBD brand without vertical integration. Hemp processing companies around the world are set up to manufacture finished CBD oils, edibles, capsules and other products for brands like yours. All that you need to do is buy the finished goods, put your label on them and start selling. Going with a white-label CBD manufacturer does have an inherent challenge, though, in that you’re essentially selling the same products that many of your competitors are selling. If you can’t find a way to differentiate your brand, your products will never sell.
The CBD Industry Has Limited Advertising Options
Getting a new CBD brand off the ground isn’t easy because there are limited advertising options open to you. Major online ad networks such as Google and Facebook will not accept CBD-related ad placements. You may have trouble getting into print media or on the radio. Getting the word out about your brand, in other words, will be difficult. You’ll need to be creative. In the CBD industry, success often requires finding ways to forge relationships with influential online publishers and social media personalities. Getting your products into physical stores can also help. If you want to launch a CBD brand or invest in an existing CBD brand, you have to be someone who knows how to think outside the box a little in terms of marketing, or you have to partner with someone who is a creative marketer.
The Legal Status of CBD Is Questionable in Some Regions
CBD is a non-psychoactive compound that has no recreational purpose. It comes from hemp, though, and hemp is cannabis; it’s the same plant as marijuana. It’s simply bred in such a way that it contains little to no psychoactive THC.
The fact that hemp and marijuana are the same plant gives it a questionable legal status in some regions. In the United States, for example, the federal government only recently made industrial hemp legal to grow. The U.S. Drug Enforcement Administration, meanwhile, still considers all “marihuana extracts” Schedule I prohibited substances – that’s just never been enforced with CBD products. The U.S. Food & Drug Administration has the authority to regulate CBD products, but they have not done so except in cases of CBD-infused foods and CBD products marketed with unsubstantiated medical claims. At any time, the federal government could deem CBD a drug with a medical purpose and regulate it as such.
It’s possible that the machine of federal CBD regulation in the United States has already been set in motion. In 2018, the drug Epidiolex became the first cannabis-derived medication to receive FDA approval in the United States. Epidiolex treats certain rare seizure disorders. A second CBD-based drug is already on the way as well. Zygel is a topical CBD product that treats behavioral issues associated with Fragile X syndrome. As with Epidiolex, the FDA has given Zygel fast-track status because no approved prescription drug currently exists with the same purpose. While fast-track status doesn’t guarantee approval, the eventual approval seems nearly certain if the drug works since CBD has virtually no known harmful side effects.
The approval of Epidiolex – and potentially Zygel – as prescription medications will lead to a question that the FDA will eventually need to answer: Is it possible for CBD to be both an unregulated dietary supplement and a regulated prescription drug with an accepted medical purpose? America’s CBD brands could one day find themselves on the wrong end of that decision.