The benefits of private label merchandising are insurmountable for industries as tumultuous as CBD (cannabidiol and cannabinoids), but they don’t come without risk. Selling CBD products is becoming increasingly more acceptable, especially after passing the 2018 Farm Bill. And starting a business in a niche industry, like skincare in the CBD market, is a great way to climb the ranks in terms of reputation, popularity, and profitability.
What Counts as CBD Skincare Products?
There are tons of CBD oil products on the market today. Most come in the form of consumables like CBD gummies, CBD oils, hemp oil/hemp extract, vapes, etc. Skincare is an entirely different market and includes topical lotions, salves for hydration, cleansers, cosmetic products, hair care, and other tinctures that is not meant to be consumed.
Why does this matter? Because there are regulations for intended use cases, meaning cosmetics has a different regulatory requirement than food.
When dealing with CBD, you’ll have to comply with both FDA regulations (Food and Drug Administration) related to CBD and cosmetics regulations. The FDA requirements you must adhere to involve the concentration of THC and the source of CBD used in your products.
The CBD you obtain must originate from hemp, not marijuana. Both are types of cannabis, but hemp plants product a fraction of the psychoactive ingredient, THC. Of the oil extracted from the hemp plant, it must contain less than 0.3% THC. Make sure your supplier tests the extracted CBD regularly and each product’s formulation, otherwise you could face legal and financial punishment.
There are two laws in the US to be mindful of: the Federal Food, Drug, and Cosmetic Act, and the Fair Packaging and Labeling Act. Under these two laws, your products don’t need to be pre-approve for the market by the FDA unless there are color additives. CBD cosmetics are not subject to pre-approval.
Having said that, labeling is important and must contain all relevant information without health and wellness claims. Yes, that’s a tough one to wrap one’s head around—selling a product made of natural ingredients on the basis of benefiting the buyer’s health without stating what those benefits are. The reasoning behind this is because those benefits are not evenly distributed across every user. Some customers might get 95% of the benefit while others might get 5%. Claiming those benefits outright is misleading, which is against the labeling guidelines.
Though not required, labeling for CBD products should state the amount of CBD active in the product, the manufacturer, and the distributor.
How to Start a CBD Skincare Business
Now that we’ve covered (in brief) the legal requirements to keep your current or future CBD skincare line afloat, here are a few simple steps to starting up your business. There are challenges and risks with each step, so we’ll also cover potential solutions you can follow to provide the highest quality products with minimal setbacks.
Finding a Supplier
The supplier you choose can make or break your own company. At the bare minimum, your supplier should be transparent about business practices and trustworthy. The rest depends on your business goals and what you want the company to represent. Are you a marketplace for brands and suppliers to promote their products? Are you selling your own products using a supplier’s reputation to boost your sales? Are you selling only your branded products with minimal supplier recognition?
If you’re starting your own line of products, then using a private label program with a supplier is one of the best choices to make. You’ll cut costs because you won’t be buying branded CBD or products. But not only the cost, you can partner with several suppliers to ensure your products stay lawful and high quality without sabotaging your brand. White labeling is a cost-effective solution here that can see your CBD skincare business soar.
Do some research about available suppliers and find out if you want broad spectrum, full spectrum, THC-free, and more. You could also look into buying wholesale CBD if you approve of the quality, or even custom formulations.
Creating Your Brand and Assets
In line with typical business operations, you need to create your brand. That includes forming a legal entity (e.g., LLC, corporation, partnership), getting permits, creating your site, and your brand identity.
In the USA, permits differ by state as well as what can be sold, so you should research regulations for the state in which you want to sell.
Regarding brand identity, be cautious of your logo and brand name. Blatantly showcasing your dedication to selling CBD products by including “CBD” in the name or somewhere in the logo of your business can be a red flag for banks and payment processors. That doesn’t mean every bank will instantly turn you down, but the CBD industry is already high risk. You can lessen the blow by excluding its reference from your brand name.
Open a CBD-friendly Bank Account
You need to be transparent about your skincare line when speaking with banks. You may be inclined to open an account as a skincare company, but banks will eventually find out that you’ve only been half-truthful. Many banks don’t want to do business with companies in high-risk industries, including CBD.
Research banks meant for high-risk companies or specifically CBD retailers. They do exist and by using one you’ll avoid complications with payment processing down the road. The merchant account provider you choose to work with will most likely be able to help you connect with the right banks. But before you can open a merchant account, you need a bank where funds will be deposited.
Getting a CBD Merchant Account
You might be inclined to start your new white label CBD skincare business using a popular payment service like PayPal or Stripe. As stated before, your skincare line is unique in that it includes CBD. Even though that CBD isn’t being ingested, it still falls out of the terms of service for these low-risk processors.
To prevent your payment gateway from getting shut down and your funds frozen, you should obtain a CBD merchant account. Stripe is notorious for holding funds. There are perks to using services like Stripe, but they are short-term benefits. The long-term solution is to use a high-risk merchant account like those provided by DirectPayNet.
The Problem with Popular Payment Services
You may be wondering, “why can’t I use Stripe for my CBD business?” Stripe, PayPal, Square, and the like are popular for a reason: they are really easy to use. Almost instantly, you can open a new account, integrate the service on your site, and have an operational, user-friendly payment gateway. Rates and fees may not be the most attractive, but convenience comes with a price.
Even though you are technically selling beauty products, your white label CBD skincare line still contains CBD which is a big violation of terms. It’s true that these services could be much more transparent regarding what they do and don’t accept, but keep in mind their main goal is to have as many businesses as possible operating with their service. They give you the green light on Day 1 and then later perform investigations that could shut you down.
We can’t fully blame the service for this. A lot the blame goes back to the acquiring bank and credit card network used to move money. This is also why it’s equally important that you get an appropriate bank account as well as a CBD merchant account.
Benefits a Merchant Account for Private Label CBD Skincare Provide You
Chargebacks and fraud are two of the biggest elements to a CBD business. It’s the reason these businesses are labeled high risk and why banks and payment processors often refuse to work with them.
Chargebacks happen because a customer skips the proper route for receiving a refund and demands it directly from their bank. The bank gives them a refund, charges you for it along with a fee, and your chargeback number goes up. If it gets too high, your account could be terminated. That’s obviously not good, so what can you do to prevent chargebacks? The right merchant account provider, like DirectPayNet, will come equipped with chargeback prevention strategies to help reduce your chargeback ratio and lower your business’ risk.
Fraud is also a major issue. Many high-risk businesses suffer from higher levels of friendly fraud, card-not-present (CNP) fraud, and stolen identity fraud. You should research CBD merchant accounts that include fraud protection, as well as ones that can help you find and install fraud protection plugins for your payment gateway.
Talk to DirectPayNet About High-Risk Merchant Accounts for Your Private Label CBD Business
CBD is a high-risk industry, and that likely isn’t going to change for a while. Take the proper steps to secure your private label CBD products sales and scale your business for unmatched profitability.