The changing legal status of hemp and CBD in the United States has sparked a green rush of new shops selling hemp-based cannabidiol (CBD) in skin creams, oils, gummies and a wide variety of other products (NOTE: all references to CBD throughout this article refer to hemp-derived CBD). In small towns and big cities, new shops are popping up all over the place to get a piece of the estimated $23.7 billion market.
With such great prospects for this exploding new industry, online sales should be thriving too, right? Not so much. Or at least not yet. Despite the federal regulatory changes that opened the door for CBD sales, U.S. law still states that CBD is “subject to the same laws and requirements as FDA-regulated products that contain any other substance.” That statement is causing hesitation amongst many of the businesses that support ecommerce merchants, such as payment processors and shipping companies, resulting in much slower acceptance of CBD sales than many CBD merchants would like.
For those that have already launched a CBD company or are considering it, there are a number of obstacles that will need to be overcome before making the first online sale:
- Finding a platform – When it comes to CBD, not all ecommerce platforms are created equal. BigCommerce recently unveiled new services that enable CBD sales on its platform and works closely with payment and shipping partners that are also CBD-friendly. Other platforms recently started allowing the sale of CBD products on their platforms after previously kicking merchants off for selling CBD. Different platforms have different rules about selling controversial or high-risk products. Some don’t allow any. Others allow those products but impose stricter guidelines or charge extra to use a different payment service. Merchants should take the time to research their preferred platform’s limitations and terms of service. Pro tip: Reach out to their sales team because what’s listed on the website might not apply to all products, particularly those considered high-risk.
- Getting paid – While physical stores can default to in-person cash payments for CBD sales, ecommerce stores have had to piece together alternatives. Some have had to resort to taking checks or money orders, which drastically slows down the process thereby limiting liquidity and cash flow. It’s also not very customer-friendly in a world where consumers are used to having their credit card on file with Amazon for one-click purchases. To accept credit card payments, CBD merchants often have to resign to working with high-risk payment processors with extreme requirements. This also means that merchants might have to hold tens of thousands of dollars in escrow or pay higher fees on every transaction.
- Finding a bank – Banks don’t tend to jump right into new industries with murky legality. When Colorado legalized cannabis a few years ago, dispensaries were stuck doing business in cash because banks wouldn’t allow them to hold accounts, which also meant armed guards were stationed at dispensaries to protect the amount of cash going in and out every day. CBD businesses are running into the same issues. Not every bank is refusing to handle CBD-related financial transactions, but many are. Credit unions, on the other hand, were recently given the OK to start doing business with legally compliant CBD companies, so they might be a good option to explore. I expect banks will eventually loosen up their restrictions as well. The U.S. House passage of the SAFE Banking Act in September 2019 allowing banks to work with cannabis companies in the U.S. where the substance is legal indicates a move in that direction.
- Shipping – Once you get your online CBD shop up and running and find a way for customers to pay you, you’re going to need a way to deliver their orders. The legal ambiguity of various CBD products is causing confusion here too. Even if you partner with a private shipping processor as many ecommerce brands do, they usually work with FedEx, UPS, DHL and the U.S. Postal Service to actually make the deliveries. FedEx has a policy banning CBD shipments, but DHL, USPS and UPS all allow CBD shipments provided the hemp products contain less than 0.3% THC and comply with all applicable laws. Go figure.
- Standing out in the crowd – With literally thousands of new CBD stores popping up everywhere, getting customers to buy from you instead of a competitor is a huge challenge. Many consumers are just learning about CBD and its reported benefits, and are not yet loyal to a particular brand – that’s where smart marketing comes in. Engage with your audience by creating compelling content – via email campaigns, social channels and directly on your website – that raises awareness of your brand and differentiates you from competitors. Conduct surveys that help you better understand what customers want and need. They’ll show you where you fail to meet their expectations and could open new opportunities. Also, when picking an ecommerce platform, make sure to select one that has SEO and built-in content capabilities to power your customer marketing efforts. Simple features such as customized checkout options and the ability to integrate with WordPress for content can also help you stand out from competitors.
A word to the wise: be careful not to make health and medical claims in marketing materials. Remember what the Farm Bill says about FDA regulations? They frown on (meaning, you risk an enforcement action) any claims that CBD can cure or mitigate diseases or ailments, whether it be insomnia or a serious ailment like cancer. Instead, stick to messaging that focuses on your company culture, how you are trying to help your customers and what differentiates you from other sellers to help build your brand name.
Despite these obstacles, thousands of “greentrepreneurs” are jumping head-first into the industry. Just like any new industry, a lot of legal ambiguity remains, but we expect it to clear up as people become more comfortable with the product category. Consumers are clearly demanding the products. Businesses are eager to sell them. It’s only a matter of time before CBD products are treated just like any other product.
The above does not constitute legal, tax, professional or financial advice and BigCommerce disclaims any liability with respect to this material. Please consult your attorney or professional advisor on specific legal, professional or financial matters.
Meghan Stabler is vice president of product marketing at BigCommerce.