August 22, 2022 by Adam Hoeksema
As the madness surrounding the reefer industry fades into corporate interest, companies supplying everything hemp are tripping over themselves to keep up with the high demand. But the CBD industry isn’t all pun and games, it’s a legitimate business opportunity for many entrepreneurs.
There are several good reasons to start a CBD business, and we’ll cover a lot of them in this article, but without a solid business plan, it’s going to be very hard to compete. What’s more, there are unique challenges to the CBD industry that relate to old stigmas and prejudices.
So, if you’re looking to take it seriously, take a look at our guide to writing up a CBD or hemp business plan below.
Thinking of Starting up a CBD business?
The first thing to point out, in case you don’t know already, is that hemp CBD and cannabis CBD have very different regulations. The THC in cannabis is what makes it different than the hemp source, so if you’re going to be making anything with that, get your federal laws down. It’s still Schedule 1, so you can’t trade between states.
It’s also worth mentioning that the laws around CBD in general are not fully formed, so be sure to get legal counsel from the start.
Otherwise, let’s take a look at some encouraging statistics:
- CBD is rapidly gaining in popularity as a treatment for pain, concentration, and as a dietary supplement.
- The industry is expected to hit $20Bn in sales in the next couple of years
- Hemp and CBD are finally federally legal since 2018after a long battle against widespread hysteria
- Sales hit $4.6Bn in 2020, just two years later.
- There’s still a stigma around the use of CBD, so marketing and funding can be tricky to come by.
Okay, the last one isn’t particularly encouraging, but it does mean that there are fantastic opportunities and niches available for people who want to lead the trend away from the fear and terrible puns of the mainstream and into the new and exciting world of CBD applications.
These challenges also mean you will have to do even better on your business plan than you would with another, more generally accepted enterprise.
The Importance of a CBD or Hemp Business Plan
Regardless of the casual and easy-going associations that many people have with all things hemp, all business is serious business, and if you think you can approach your CBD business in the same way you might make money at a festival, you’ll be caught off-guard by people who know what they’re doing and are trying a lot harder.
irrespective of the commodity, the fact is you’re running a legitimate business, and without a business plan, you’re going to be taking shots in the dark against people a lot more prepared than you are.
Further, as we mentioned, not everyone shares those casual attitudes, and the CBD world comes with its own struggles when relating to funding and marketing; there’s a lot of false and misleading information out there, and, quite frankly, dinosaur-era thinking when it comes to hemp products.
While these attitudes are shifting steadily, there’s a lot of catching up to do, both legally and socially, and this means you’ll have to provide an outstanding and professional example in order to compete.
A business plan will include a compilation of your market research, financial projections, and overall business direction. And if compiling it, you’ll have a much clearer path toward your goals in business
A business plan will help you develop your growth strategy, understand what is realistic, get to know your market and the specifics of your customer base, and show you how to reach them with your marketing and outreach. It will also show you what you’re up against; part of a business plan involves thorough research into your competitors!
One of the most important reasons to have a business plan, however, is to illuminate the areas in which your intuitions are entirely false. Without putting in the work, you’re likely to have ideas that aren’t based on reality and it will be far too late for you to find out once you’re fully invested.
Perhaps most importantly, though, a well-made business plan is the only way you’re ever going to convince sensible people to support you with funding, especially in the hemp industry.
We’re going to go into more detail about where to look for funding later on, but before that, take a look at our CBD business plan template to help you get an idea of what you’ll need before you start asking.
Step-By-Step CBD Business Plan Template
The business plan for your CBD company will need to be able to describe your business model. Business models and business plans are not the same things, and you’ll need to learn the difference before you get started!
In case you don’t know already, a business plan is the framework of your company, and the business plan is the strategy you’re going to use to work with that framework. For example, with CBD you’ve got loads of models you can use to make money:
- Grower – you can supply the raw material for making CBD products
- Producer – you can manufacture CBD or hemp consumables
- Dispensary – you can buy and sell CBD products
- Marketer or Commentator – You can promote or discuss various aspects of the industry or the chemicals themselves
There are plenty of other models for making money with CBD and hemp. Each will have a more detailed business model attached to it, and each will need a business plan to form the strategy, moving forward.
So, once you’ve got your business model down, here’s the step-by-step route to forming a business plan for it:
Step 1. Executive Summary
This will be the first page of your business plan document. Much like the intro to an online article, it will typically be written last (so it’s a bit disingenuous to call it step 1) because it will be a summary of, and lead into the contents of the rest of the document that follows it.
luckily, it’s very easy to complete once you’ve done your research.
Step 2. Company Description
Now that you know your business model, you’re going to work on articulating the motives for your company, who you are, and why you’re here. If you have a lot to think about in this regard, you might not be ready to get off the ground just yet, as your business plan will require you to adhere relatively closely to a certain direction, and if you have none, the plan isn’t going to come together.
If you know what you’re about, start this section with a pitch. Remember, as much as this whole document is an exercise in strategy, it’s also going to be a marketing device for investors or funders if and when you decide to start making money.
Don’t be afraid to show your enthusiasm and excitement here, but – as it is with any step in this document – don’t make outlandish claims and don’t make promises you have no intention of fulfilling.
3. Products and services
In this section of your business plan, you will be identifying and itemizing everything you’ve got as a revenue stream. Oils, gummies, raw hemp, sprays, candles; whatever you’ve got in mind that you’ll be selling, needs to go in here. Describe what they are and what they do.
Alongside these items, you’ll want the prices for them, including any discounts and thresholds for change. I.e., if you will do a summer discount on hemp baskets, list the lowest sale price alongside the standard.
Step 4. Market Research
This is where it begins to get tricky. You will compile your market data in this section and it needs to be accurate and comprehensive. You should have an ideal customer profile for every item you sell.
If you don’t have the data for this yet, you need to get out there and find it. Before compiling a business plan, you should know who your customers are, what they want, and how what you’re selling is providing that in a way that is different from their current options (your competition).
Market research takes many forms, and that’s a story for a different article, but you can read up on how to go about it online. Just be sure that investors will be scrutinizing your process closely, so do it right.
Step 5. Business Strategy
With all these plans, strategies, models, etc. It can get a little bit blurry when it comes to understanding exactly which synonym you’re following, but in this context, your business strategy page will display the roadmap you’re expecting to take to reach your potential customers.
This will include marketing strategies, your sales funnel, your prospect nurturing processes, and your overall path to customer conversions and follow-up. This might also be a good place to demonstrate you know the laws, and that you have a deep understanding of the licensing, taxes, and other limitations you may face when selling your products.
Step 6. Human Resources
This isn’t just about making a list of everyone you’re going to be employing; in fact, that’s probably not necessary. But you should have a profile of the key players in your company and what their roles are.
Again, don’t hype them up to unreasonable proportions; investors will spot this immediately and lose trust in your judgment. A simple and short blurb on their roles, responsibilities, and experience is enough. Make sure these aspects reflect what they’re hired to do.
Step 7. Financial Papers
And here we are at the unavoidables. There’s a good chance an interested party will skip straight to this section since it’s a litmus test of your competence, honesty, and preparedness.
Your financial documents are only as good as your research and without real-life reports and the subsequent accuracy of your projections, you’ll be laughed out of the room when it comes to applying for funding.
These documents paint a picture of the financial future of your company, and even if you have accurate data, if you’re too optimistic with your projections, again, your judgment will come under fire.
There’s not much we can do to help you with the research that goes into these figures but we can provide specialized, personalized templates for you to store them. ProjectionHub’s Dispensary Financial Projection Templates let you plot five years into the future and come with free support if you need any guidance with them.
They’re also fully customizable to the specific needs of your business, whether CBD or cannabis and can vastly improve your chances of succeeding in investor pitches or loan applications.
And that’s more or less all there is to building your business plan. Easier said than done, of course, but once you’ve got that down it might be time to start looking for funding.
Who Wants to Pay for a CBD Business?
In order to determine your financial needs, you’re going to have to understand all of the factors listed above and more. You’ll need a robust business plan, and a good sense of direction and you’ll need to know how to hit your waypoints between rounds of funding.
One thing you might struggle with is finding funding from mainstream sources who have no experience in the industry. This is doubly so if you also have no experience in the industry. So to begin with, research your potential income sources or individuals and try to make a short list of those you want to approach based on their history.
You’re going to save yourself some trouble if you already know where to look for this funding before you leave the house. From the beginning, there are various options to find startup money:
Bootstrapping – Do it Yourself
With this funding source, you’re essentially self-funded. You might be able to build your startup as a side gig and channel funds from your main job into the new project, or you might be using savings or credit cards to get the initial kick-start to your business.
There are a few other ways, but essentially what it comes down to is you taking on full financial responsibility for your seed funds, and that obviously comes with 100% of the equity share, but at 100% of the responsibility and effort to come up with the money, and usually a slower growth curve, so choose wisely with this one. You need to be able to pay your staff and rent, even if you’re not profitable.
Loans – Get a Bank to Fund It
Banks and other financial institutions are a good way to take on plenty of capital without handing over any equity in your company. This leaves the direction up to you and allows you to get a huge boost to your startup funding.
Unfortunately, they will want that money back, and with substantial interest; especially if you’re not even established yet. In fact, they might not lend you anything at all until later funding rounds, and whatever they do lend may be attached to your house or your car, or something else you’ll end up losing if you default.
Further, banks demand their money back regardless of your company condition, so if you go under, you’ll still be on the hook.
Investors – Be Charming
Investors come in many forms and are a common source of funding for every stage of your company. Early-stage investors, e.g. angels, will be more than happy to take on your project if it’s got a persuasive business plan and looks to be on the right track for profitability. Also, if your company fails, they’ll take the hit – not you!
However, investors will want a share of your equity so that when you do make it big you’ll have certain people demanding things from your company and potentially diverging from your desired path and towards their own.
The process of selecting investors should bear this in mind, as you would ideally want someone with the same ideals and same vision for your company.
The CBD industry shows no sign of slowing down, and as attitudes change towards hemp and marijuana and governments acknowledge the medical, financial, and cultural implications of many of the compounds that comprise it, it’s becoming a more and more appealing industry to get involved with.
However, the industry is still rife with legal, ethical, and societal challenges that hold the hemp industry back, and this increases the risk of any venture related to it. Still, for the right entrepreneurs, this also creates large markets and plenty of occupiable niches.
In order to best take advantage of these, you’re going to need a solid CBD or hemp business plan. Not only does it have to be complete, but it also has to be accurate and outstanding to help make sure your investors consider the risk worthwhile. And, hopefully, now you’re on the right track to designing it.