Texas is a fruitful state to start a cannabidiol (CBD) business. It is a state with an ever-expanding population and a growing economy. In addition, it has significant potential for CBD businesses because of these factors and predicted future demand for CBD products. Starting a CBD business can seem overwhelming, but this article will guide you through the essential steps and resources you need to have before getting started.
The planning process involves some research, budget planning, and regulatory approval steps. Get ready to thoroughly engage in business law research and strategically plan for security measures. You will also have to adhere to municipal codes and communicate with the local commerce leaders. Federal and state laws and regulations can often change, so it is critical to keep up to date with policy developments and market trends. Whenever possible, consult with legal experts or business advisors to ensure compliance and profitability.
This article will cover how to start a CBD business in Texas. The main points include:
Researching Policies and Market Trends Affecting the CBD Industry
- Determining the Best Business Structure for your Company
- Drafting a business plan
- Obtaining the required licenses and permits
- Developing standard operating procedures (SOPs)
- Sourcing high-quality CBD products
- Developing a website and marketing strategy
- Planning a Branding Initiative
- Establishing compliant and customer-friendly payment processing
- Inventory control and diversion prevention plans
- Insurance options
- Launching your business
- Registering your CBD business with the state of Texas
- Opening a business banking account
This general guide provides some tips for the planning process, but continue to research and read broadly to ensure a successful start.
Research Policies and Market Trends Affecting the CBD Industry
- Research Policies and Market Trends Affecting the CBD Industry
Begin by understanding the CBD industry, its trends, potential customers, and competitors. Familiarize yourself with different CBD products, their uses, and the target market. Research should include policy developments, medical studies on CBD’s effects, and consumer trends.
Choose a Business Structure
A business structure reflects the ownership and legal composition of your business. There are many business structure options, and some of the most commonly used ones include sole proprietorship, partnership, limited liability company (LLC), or corporation. Each has its own implications for taxes, liability, and management, so consult with an attorney to determine the best fit for your CBD business.
There are several common business structures to consider, such as sole proprietorship, partnership, limited liability company (LLC), corporation, S corporation, cooperative, and benefit corporation.
When a single individual owns and operates a business, it is considered a sole proprietorship. In this structure, personal liability has no limit. It is one of the simplest and most common forms of business ownership.
A partnership can be formed if there are multiple individuals or entities involved in the business. In a general partnership, all partners are equally liable for the business’s obligations, while in a limited partnership, liability is limited for some partners. A limited partnership refers to one or more general partners and limited partners with limited liability.
A Limited Liability Company (LLC) is a common choice for small businesses. Limited liability protection and flexible taxation options are provided by an LLC. It can be taxed as a disregarded entity, partnership, or corporation.
A corporation can provide limited liability protection to its owners or shareholders. It is a more complex structure than an LLC and requires more intensive paperwork and compliance.
An S Corporation (S Corp) is a tax designation that can be applied to an LLC or corporation. An S Corp allows the business income to “pass through” to the shareholders’ personal tax returns, avoiding double taxation.
A cooperative structure might be suitable if the CBD company is community-driven and owned by its members. Members vote on major company decisions and share in its profits and benefits.
A Benefit Corporation (B Corp) is a for-profit business that includes social and environmental goals in its mission. This structure may appeal to companies with strong commitments to sustainability and social responsibility.
Make sure you consult an attorney or a business advisor. Experts in various fields are able to provide personalized guidance tailored to an individual’s specific needs. They also are up-to-date on business laws and regulations.
Register Your Business
Register your CBD business with the relevant authorities in the state of Texas. You can find resources and information on the Texas Secretary of State’s website on how to register your business. The site also provides information on business structure and tax information.
In preparing to register your business, consider your company’s name. Think of a name that will enhance your branding. For registering your business, choose branding that is impactful and meaningful for both your target audience and yourself.
Open a Business Bank Account
Keep your business finances separate from personal finances by opening a dedicated business bank account. Banks and financial lending organizations have strict requirements regarding the type of accounts they handle. Many Texas banks and financial organizations still regard CBD as a high-risk business and may refuse to service a CBD business.
Draft a Business Plan
Although you may not have confirmed all of your plans for sourcing and selling products, it is never too early to start writing your comprehensive business plan. Outline your business goals, marketing strategies, financial projections, and operational plans. You must be prepared to present verbally or in written form your plans at any point. You never know when you might run into a potential investor!
Even if you do not have all the parts of a plan in place just yet, keep in mind your business plan is a draft. Revisiting and revising ideas is part of the process and progress as you formalize a business vision and mission. It is better to be proactive about addressing weaknesses and seeking opportunities for growth and increased resources. You will most likely need a business plan to seek business license approval, investor funding, and/or other business scenarios.
To start a draft of a business plan, outline and develop the following components:
- Mission and vision
- Founder(s) Information
- Ownership Percentages
- Management and Financial Plan
- Market analysis
- Product Line
- Marketing and Sales
- Compliance Plan
- Marketing and Branding
- Community engagement initiatives
The U.S. Small Business Administration offers helpful resources for writing business plans.
Obtain the Necessary Licenses and Permits
Research and secure the necessary licenses and permits to operate a CBD business in Texas. This process might include a general business license, sales tax permit, and any special permits required for handling CBD products.
You may also have to seek permits from the municipality in which your potential business will operate.
Check the Texas Department of Health and Human Services website for information about selling consumable hemp products and applying online for a license. Consumable hemp product (CHP) retailers of CHP consumable hemp products must be registered with DSHS, so you will need an approved business license from the state of Texas before you can begin operations.
This requirement applies to companies that sell any of the following CHPs processed or manufactured for consumption that contains hemp. These products include food, a drug, a device, or a cosmetic product. Here are some examples of CHP commonly sold by a CBD business:
- CBD gummies
- CBD oil
- Foods and drinks infused with CBD
- CBD drugs sold over the counter
- Cosmetics and lotions containing CBD
You will pay an initial fee of $258 for a license (please check the website for the most current fee amount). The license will be valid for one year. The application process also requires fingerprinting and a criminal background check.
When white labeling or private labeling products, businesses must adhere to the same regulations, even if they are placing their own label on a product that is manufactured by another business.
If you plan to manufacture, produce, and sell CBD products in Texas, you need a hemp license. The Texas Department of Agriculture website has information on cultivating, manufacturing, and selling hemp products. The site features information on consumable CBD product licenses to manufacture, process, repackage, sell, or relabel CHP products.
Keep in mind you will not be able to sell smokable hemp flowers no matter the THC% since Texas bans the manufacturing and selling of smokable flowers. Keeping track of policy developments and planning for the future is important for potential flower sellers
Third-Party Lab Testing
As a responsible CBD vendor, you must ensure the products meet safety and quality standards. You must ensure thorough third-party independent lab testing has deemed products free of heavy metals, pesticides, harmful microorganisms, and residual solvents. Become familiar with all requirements for product testing, ingredient listing, dosing, and potential risks.
Comply with State and Federal Laws
- Comply with State and Federal Laws
The remaining complaint is critical to remaining in business in a highly regulated industry like CBD. CBD businesses must adhere to both state and federal regulations. The hemp industry is in its infancy considering it was only in 2018 that the Farm Bill federally legalized hemp and hemp-derived CBD products under 0.3% THC.
One way to promote the highest levels of compliance is to develop Standard Operating Procedures (SOPs) that guide procedures. SOPs can outline clear security and safety plans, inventory practices, customer service activities, and opening and closing procedures. SOPs help employees stay compliant with everything from customer support, age verification, marketing, labeling, and packaging and purchase transactions. They also help them achieve optimal job performance and confidence in performing high-security procedures like age verification steps.
Source High-Quality CBD Products
Find reputable suppliers for your CBD products. Ensure that the products that you sell meet quality standards and that these results can be verified by a third-party lab. Source only products from trusted sources, since these products will help reinforce your brand as a premier retailer. Confirm specific certifications that enforce best manufacturing procedures such as cGMP (Current Good Manufacturing Procedures), non-GMO, organic, and Kosher.
It is important to join to learn about Texas professional associations for CBD growers and retailers. The members will be valuable sources of information and resources. By developing contacts through local, state, and national networking efforts, you will be in the know about high-quality CBD products.
Consumers like to support locally made wellness products, so promote your state and county’s best CBD-infused products.
Create a Website and Marketing Strategy
Spend time developing your website so that content and images resonate with your target audience. Content marketing, which provides educational value to your target audience, is a very effective way to engage and persuade potential customers to try new CBD products.
Effective branding depends on mindful use of your online presence through a frequently updated website and social media platforms. Social media is a great way to profile different products. You can educate the customers on pricing, promotional bundles, and the different therapeutic potential uses of CBD.
Focus on Effective Branding
You can establish a standout brand by associating your company name and image with top-quality CBD products. White-label or private-label arrangements with established CBD manufacturers reinforce customer trust in your product quality and consistency.
When considering visual representations of your branding, consider how the logo, color pallet, and other elements can be optimized to create a powerful branding effect. You should also create a brand guide to specify the design and use of the logo. If you are unsure of how to tackle branding challenges, hire a branding specialist.
Sustainability and Environmental Plans
Check your municipality and state requirements regarding a business’s responsibilities by adhering to environmental regulations, municipal codes, and other policies. Noise pollution, hours of operation, sustainability efforts, and other factors need to be considered in planning your business if it is a physical site.
If it is an e-commerce business, consider some challenges related to packaging and shipping. You can also partner with other businesses known for their effective sustainability practices in the CBD industry.
Secure Payment Processing
Consider various options for processing payments to effectively plan your payment process. Consider important factors such as the types of payments accepted, required security measures, associated fees, and ease of use for both you and your customers.
By thoroughly planning your payment processing options, you can ensure a smooth and efficient payment experience for your business. Look for payment processors that are willing to work with CBD businesses, as the industry is still considered high-risk for some financial institutions.
Find Insurance Options that are Suitable for your Business
Explore insurance options to protect your CBD business from potential liabilities. Some common insurance coverage required by Texas includes bodily damage and theft.
Officially Launching Your CBD Business
- Officially Launching Your CBD Business
Some business owners have a soft launch, hard launch, or a combination of the two approaches to advertise their business. A soft launch is an informal way to make the community aware of this milestone. A hard launch can be more formal and involve a more extensive campaign. Once your business is up and running, monitor its performance closely. Be prepared to adapt your strategies based on customer feedback and market trends. Monitoring will give you the opportunity to notice key consumer trends. You may discover insights into more effective social media engagement or how to leverage your customer loyalty program.
Closing Advice on How to Start a CBD Business in Texas
The emerging CBD industry is influenced by regular policy changes and a highly competitive market, but it should be a lucrative and personally fulfilling endeavor for CBD business owners unfazed by these challenges. Remaining compliant with regulations and focusing on providing customers with high-quality, fully tested products can lead to a successful CBD business in Texas.
Contact Client Verge for More Information
If you would like more information on how to start a CBD business in Texas or another state, please contact us. Client Verge would love to discuss your business plans with you.
Below are some frequently asked questions (FAQs) addressing the topic of how to start a CBD business in Texas.
How long does it take from the start of the planning process to opening a business’s doors?
The process of starting a business involves various factors like securing funding, obtaining necessary approvals, locating suitable retail space, hiring and training employees, and addressing other related concerns.
What are some of the main costs of opening and operating a CBD business?
Here are some of the main expenses for a new CBD business:
- Licenses and permits
- Commercial lease or property purchase
- Product testing and labeling
- Employee salaries and benefits
- Payment processing
- Security equipment
- Inventory and CRM software
- Marketing expenses
- Website development
What is the best business structure to start a CBD company in Texas?
The best CBD business structure should be chosen based on several factors. You should discuss your specific goals, the nature of the business, liability concerns, insurance coverage, tax implications, and the number of owners involved. The efficiency and compliance with fiscal and operational needs are essential for a structure, although no structure is superior to others.
Possible business structures to consider include sole proprietorship, partnership, Limited Liability Company (LLC), and S Corporation (S Corp). A sole proprietorship has unlimited personal liability, while a partnership is suitable for multiple individuals or entities. An LLC or S Corp tax designation can be applied to an LLC or corporation.
What is the most common type of insurance for this type of retail business?
Liability insurance including bodily injury and property damage is a common option for CBD businesses. Some insurance plans include equipment damage or breakdown, theft, employee and worker-related claims, and transportation issues.
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