Should you start a CBD subscription service in 2021?
Interest in e-commerce has grown to an all-time high in recent years. More Americans than ever before have common groceries delivered right to their doorsteps on a regular basis, saving themselves time spent traveling, browsing and queuing in an increasingly convenience-oriented world.
One of the fastest growing niches in e-commerce is the natural health and wellness market, led by the multi-billion dollar cannabinoids industry.
What’s driving the popularity of cannabinoids?
The popularization of cannabinoids is largely due to scientific research around beneficial compounds in medical cannabis. Cannabidiol (CBD), easily the most abundant non-psychoactive cannabinoid in cannabis, is increasingly well-documented as having significant potential for both medicinal and therapeutic applications in the future of medicine.
Today, celebrities and professional athletes make up a large contingent of CBD’s most ardent endorsers and spokespeople. This rapid emergence of CBD into the popular mainstream has largely piqued consumer interest, and the e-commerce business model has worked very well in keeping up with demand for CBD products across the country.
So how feasible is a CBD subscription service in 2021? In this post, we go over important considerations for prospective CBD entrepreneurs, as well as the advantages and disadvantages of entering a fairly saturated e-commerce market with numerous partnership opportunities and established competitors already in place.
An Overview of industry trends & the 2020 COVID boom of door delivery services
The pandemic-triggered lockdowns of 2020 have had a transformational effect on small and medium-scale retail service models. California cannabis delivery services, for instance, make a good case in point. Throughout the initial round of lockdowns in the Golden State, everything from CBD oil to cannabis gummies and edibles were purchased using in-state couriers.
According to the California Cannabis Delivery Alliance, a trade association representing over 200 delivery services, members saw anywhere from 75-100% increases in sales volume.
As vaccines roll out and travel restrictions begin to ease, consumers are showing no signs of reverting from the use of delivery services. A research survey by Kinsey and Co. shows that over 15% of Americans — i.e. just under 50 million online shoppers — are now signed up for one or more subscription services to have products regularly delivered to their doors.
The subscription e-commerce space has been growing by more than 100% year over year for the past five years, and is slated to reach a market size of $473 billion by 2025.
Pandemic or not, consumers are very much attracted to the idea of curated products out of their niches of interest being delivered to them on a recurring basis. If industry trends are any indication, subscription services aren’t going away anytime soon, creating exciting opportunities for aspiring CBD entrepreneurs.
The role of consumer trends in the feasibility of a CBD subscription service
Since the opioid crisis began in 1991, there’s been a steady growth in interest around natural medicine and wellness in light of public disenchantment with synthetic drugs.
Today, sports medicine is perhaps the most illustrative example of consumer interest shifting away from synthetic compounds and toward natural extracts like CBD.
CBD shows impressive potential as an alternative to non-steroidal anti-inflammatory drugs (NSAIDs), which have become somewhat notorious for their myriad side effects including stomach ulcers and severe allergic reactions.
CBD’s analgesic properties also make it viable as an alternative to synthetic painkillers, many of which are highly addictive with considerable abuse potential. This is why high-CBD strains of cannabis are often listed in medical marijuana prescriptions for patients with chronic pain disorders.
A significant amount of current consumer interest in CBD is rooted in its medicinal and therapeutic potential coupled with its lack of serious side effects.
Products like organic CBD drops are particularly well suited to the subscription model. Not only do they take advantage of the trend towards all-natural wellness products, but they also require re-purchasing at regular intervals.
For aspiring entrepreneurs, these consumer trends are highly complementary to the feasibility of starting a CBD subscription service in 2021.
Cost Considerations Determining Viability in the Subscription E-Commerce Market
In a burgeoning new market teeming with competing small and large businesses, perhaps the most critical considerations for new entrepreneurs are the costs and prices around their subscription services.
If a business sends out subscription boxes on a regular basis, for instance, examples of cost items to determine the pricing of a service would include:
- Product Expenses are the cumulative cost of the items in each box, which include everything from sourcing of materials, assembly of components and so on. In CBD’s case — and when not in a partnership with a product provider — this would be the sourcing of hemp from farms, extraction of cannabinoids, refining, bottling and packaging as well as the costs involved in obtaining a certificate of analysis (COA) from third-party product testers
- Salary Structure will depend on various factors relating to the size and complexity of the subscription service. Is it a family business or a lone entrepreneurial venture? Are there employees involved in the packing of each box, or partnerships with warehouses for storage solutions?
- Fixed Recurring Expenses such as packing supplies, boxes, product inserts, business email providers, web hosting fees and business management software. Advertising and marketing partnerships should also be priced into this category if applicable
Tiered subscription services that offer different boxes with different levels of membership must formulate their cost vs. pricing assessments for each box type. It’s important to strike a balance between keeping prices competitive while simultaneously maintaining sufficient profit margins to stay in business. As in any industry, the ability to properly tend to cost considerations during a business’ nascent stages and scale appropriately with growth will ultimately determine the viability of any subscription service.
Proactivity against tech literacy gaps between age groups
Conventional wisdom would argue against having a purely online presence as a CBD subscription service, given this might present accessibility challenges for older age groups with lower interest or activity levels on smart devices.
To avoid effectively shutting out a significant percentage of the online shopping community, it pays to have a diverse selection of contact options (phone, email etc) on top of onsite shopping included on the insert provided within every subscription box.
This same principle should be applied to payment processors as well; regardless of a subscription service’s target demographic, a prudent strategy to acquiring as much consumer interest as possible would be to include more conventional pay channels — such as opt-in recurring debit card payments — with contemporary methods of webpay, such as PayPal, Skrill and Venmo.
Institutional interest in the future of cannabinoids & the legal cannabis industry
The progress in cannabis legalization set in motion by the Agriculture Improvement Act (aka the “Farm Bill”) of 2018 started largely with momentum gained from research into agricultural and industrial applications of hemp. The development and widespread adoption of hempcrete, a sustainable bio-aggregate alternative to concrete, is just one example of this phenomenon.
Research is currently ongoing on the viability of rapidly-renewable hemp-sourced biofuels to ease the world’s reliance on petroleum-based diesel and other fossil fuels, which are finite resources harmful to the environment.
Hemp farms themselves have also been identified as one of the most effective natural carbon sinks on the planet, absorbing up to 15 tons of carbon per 2.5 acres in a process known as “carbon sequestration.” According to the European Industrial Hemp Association (EIHA), hemp’s rapid growth rate makes it one of the most practical CO2-to-biomass conversion tools available today.
Institutional interest as well as investment into research and development around industrial hemp has served to incentivize the creation of large hemp farms, in turn expanding partnership opportunities for new legal cannabis businesses. This directly benefits everything from small local CBD startups to large dispensaries operating in multiple states.
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