The hemp business is a budding industry, projected to more than double in revenue by 2022 to $2.6 billion. Since the federal ban on hemp was lifted in 2018, there has been a surge in the number of startups in this industry.
Thinking of starting a business in this space and taking advantage of the massive opportunity? There are several factors you should keep in mind before going all in.
Familiarize yourself with government regulations
The 2018 Farm Bill legalized much of the industry across the country. However, startups must immerse themselves in the state-by-state regulations.
For example, in Iowa, both marijuana and hemp-derived CBD are jointly considered a Schedule I controlled substance (and, therefore, illegal, with some exceptions). This is the law until the Iowa Hemp Act becomes fully implemented in 2020. Until then, farmers cannot legally grow hemp in Iowa and production will likely not be legalized until the 2020 growing season.
States also differ (and veer from the federal government) when it comes to the types of products can legally be sold with CBD.
For example, Colorado allows hemp to be legally added to food, while Missouri allows it to be added to alcohol. Other states, like Georgia and California, side with federal authorities and ban it from foods.
When considering starting a business in this industry, a hemp entrepreneur should seek the guidance of an industry lawyer to help navigate the shifting rules of each individual state.
Have a solid business plan
It takes a good amount of startup capital to enter the hemp industry. Startups are seeking investments from $6 million to $30 million or more. With this being a brand-new market and with regulatory still nascent on a state-by-state basis, banks may still be a bit apprehensive about lending to hemp or CBD businesses.
Investors (who may not be well-versed in the industry) will seek organizations that have a strong team and visionaries who can provide a detailed plan of action, starting from product development to a go-to-market strategy. It may be beneficial to stay close with key legislators in states in which you plan to operate as well.
Create competitive advantages
Startups in the hemp space must create competitive advantages that are more than simply product features. Oftentimes, startups will have ideas for products that, at the time, are equipped with a feature that’s a competitor product does not have. However, the competitor could simply copy the idea and add it to their existing product. The competitive advantage is, thus, lost.
One method to differentiate is through brand value (e.g. we are the first in the industry, we are the only one, etc.). These aspects can’t easily be copied or replaced by a competitor, giving you a truly competitive advantage.
Differentiating features are good to have. Competitive advantages are even better.
Companies with a comprehensive plan in place often have the best chance of raising money. With the hemp industry being brand new for everyone, now is the time to educate yourself, be prepared, make smart decisions and capitalize on this booming business.