Whether you’re trying CBD for the first time, just starting out, or perhaps you’re an avid CBD consumer, either way, the following has more than likely crossed your mind, “Why is CBD so expensive?“
Sound familiar?
Well, you will never question or wonder why again as this article explains EVERY SINGLE COST associated with growing, manufacturing, and selling CBD.
For me to transparently justify the high costs for CBD products, I need to make sure you FULLY understand why CBD is in such high demand.
ARTICLE READING TIP:
If you completely understand the importance of taking CBD daily, please skip to the section, “Current CBD Product Cost Averages.“
However, if you do NOT know why CBD is revered by millions of people worldwide, please continue reading.
What is CBD?
CBD, short for Cannabidiol, is a single phytocannabinoid out of the 120 identified phytocannabinoids naturally derived within the Cannabis plant. The beneficial effects of CBD stem from its known capability to connect, support, and work with the human body’s Endocannabinoid System (ECS).
Here’s a brief analogy of what the ECS does.
DID YOU KNOW?
(A written description of the photo below)
The responsibilities of the ECS in our bodies are comparable to the responsibilities of a computer maintenance software program.
- Regulate several VITAL systems operating functions.
- Provide system updates as new internal data is received.
- Protect system from performance-diminishing issues.
Industry Professionals Weigh In
I asked Christopher Visser, Founder of several successful online Cannabis-based companies, the following question,
“Is CBD, specifically the Endocannabinoid System, really that important to living a better, healthier life?“
Here is the very subtle response I received:
“The ECS seems to only be considered important to the people who care about their health.”
Eloquently direct.
Now, check out what Asher Milgrom, Ph.D. stated at the end of one of his educational CBD videos:
“CBD causes a cascade of homeostasis through our entire Central Nervous System and our entire Immune System.”
I think we can all agree that CBD seems to be VITAL for our health and wellness and is potentially tremendously valuable to all.
Do you agree?
If you said “yes” in agreement (like me), then could we also justifiably claim the following reason to be true?
A Preemptive Justifiable Reason For High CBD Costs
This isn’t the sole MAIN reason, but it definitely is one of them…
One of the main reasons why CBD is so expensive is that CBD is in extremely high demand.
The three main reasons for this high demand are as followed:
- CBD is a non-GMO, holistic, and organic alternative (more expensive to manufacture)
- Millions of people (worldwide) have ALREADY found value in CBD and buy it monthly
- Every day more and more people are becoming aware of the powerful effects of CBD and this continued enlightenment further increases the demand
While we feel the above reason is justifiable on its own, I know it’s NOT the answer you want to hear. Thus, to give you that answer, I want to help you understand the CBD industry a little better.
Here is a detailed list of the key reasons and specific causes that directly influence the final suggested MSRP for CBD products.
Complete List Of Reasons
This section will now cover the specific reasons that cause CBD products to be so expensive. I will also list these reasons chronologically in regards to when the costs are accrued during the growing, extracting, manufacturing, and selling processes.
Government Oversight + Licensing + Fees
CBD sales still struggle from the reprisal of decades of prohibition, which puts CBD in higher demand but also at a “higher risk” to do business.
As America got riled up with CBD over the last 3 or so years, it immediately caused all hemp producers and CBD suppliers to become a target, and since, we’ve been fighting for the right to grow and distribute our CBD products.
The FDA (US Food and Drug Administration) commits to sound, science-based policy on CBD. They have stated that they understand there is a significant interest in cannabis and that there may be benefits. However, they are waiting to get their ducks all in a row in the name of “Public Health.”
In 2018, President Donald Trump signed the 2018 Farm Bill into action. They are allowing the Department of Agriculture to start implementing programs. This bill provides the support our nation’s farmers have needed.
The 2018 Farm Bill is a wonderful stride for the cannabis community; however, because of the governmental oversight, this means business licenses and all sorts of fees are now required.
Staying within the limits of the law also includes the methods that farmers will take on processing and extraction of CBD oil and other CBD products.
Methods, Processing, and Extraction
Once the hemp plant is grown and harvested for drying and processing, it will get prepared for extraction. Extraction is when all the pesticides, heavy metals, and contaminants will come out, which helps to produce a high-quality CBD oil.
Companies can use a few different extraction processes and various high-quality product solvents. Here are the most common:
- Supercritical CO2 extraction utilizes temperatures and pressure for its extraction processes.
- Butane and propane extraction uses exceptionally high heat and temperatures, resulting in the most subpar quality of CBD.
- Organic ethanol extraction is where the raw cannabis is soaking in ethanol, and the liquid is filtered through. It is a more refining and expensive process but provides for the final product being more stable with a quality-filled product for its users. (This is the extraction method we use here at Cannabidiol Life.)
These are considered the best CBD extraction methods although only one of them really is the best.
Nonetheless, this extraction process takes laborers to do the work and inspectors to make sure the processes and extractions are staying within the confines of the law.
Because of the need for specific temperatures and pressures, some localities are at hard luck to try to meet those requirements without costly equipment indoors to keep up with the standard.
Alright, now let’s talk about how tough credit card processing can be for CBD Companies.
Slim Banking & Finance Options
There are credit card processors, banks, online financing, and many other monetary services needed with any business. Unfortunately, financial providers and banking institutions are not jumping at the opportunity to work with CBD companies as many view the Cannabis industry as a risk factor that they’re not willing to make.
Without full support and access to all financial services/options/institutions, it makes running a cannabis company very demanding.
In addition, simple things like offering all credit card solutions (Visa, Master Card, Discover Card, American Express, etc.) is a challenge in itself. The reason for this is that each type of credit card has its own rules that they want their clients to abide by.
- The biggest financial risk here is the potential of credit card processing “down-time.” Basically, it is not being able to process cards online during financial institution rule revisions or during new merchant processing applications
- The direct and ongoing financial stress here is the cost of manpower demanded to always stay up-to-date and compliant
These two obstacles alone have forced countless CBD brands to close their doors before even being able to launch. If by chance a CBD company obtained banking approval, they are then introduced to the following two profit-crushing fees because the CBD industry is labeled as “high-risk”:
- High-Risk Merchant Card Services
- Reserve Withholdings
“High-Risk” Merchant Credit Card Processing Fee’s
Even though there isn’t a single piece of scientific evidence that shows CBD to be lethal, let alone harmful to consumers, the entire CBD industry is forced to operate as a “high-risk” business. When a CBD company is just starting, as you can imagine, they have no rapport or standing in the finance community and often have to prove themselves trustworthy first in order to get approved or obtain lower rates.
The oxymoron here is even if a new CBD brand successfully builds and operates a profitable and trustworthy CBD business with thousands of loyal customers obtained over consecutive years, the brand will still be considered high-risk and forced to pay higher rates.
This is because the brand isn’t the entire issue, it is the labeling of the Hemp industry as a whole that continually forces CBD companies to pay more. Furthermore, due to constant revisions of financial rules, even having gone through establishing yourself or your brand, the merchant processors can “pull out” whenever they see fit. While this “pull-out” scenario was very common between the years 2016-2020, it is slowly becoming a thing in the past.
One thing that hasn’t changed is the super high percentage rates charged per credit card transaction and despite these already high card transaction fees, the bank will more than likely also withhold a set percentage for all sales generated for the first 6-months.
This mandatory hold of funds is known as a “Reserve” and was created to protect both the customers and the banking institutions from fraud.
Let’s take a closer look at what these fees average out to be.
MERCHANT FEE COST ANALYSIS
The main difference between a CBD business (high-risk) and a standard operating business (non-high-risk) is the substantial amount of money that is both withheld for Reserves and charged per transaction. It looks something like this:
- WITHHELD – 10% – 15% of all sales generated for 6 months and is paid back 6 months in arrears. This is a detrimental amount of money that puts a serious strain on the success of any new start-up.
- CHARGED – 4.5% – 6.5% per credit card transaction. This mandatory transaction fee is 2%-3.5% higher in comparison to companies that are not high-risk.
AVERAGE OF TOTAL FEES PAID OUT TO BE ABLE TO PROCESS ONLINE CBD ORDERS:
14.5% – 21.5%
(average of 18%)
A REAL LIFE CBD BUSINESS SCENARIO
Let’s put the above fees into perspective with the following real-life example.
THE SCENARIO:
- CBD brand sells 100 bottles of CBD oil
- Each bottle is priced at $100 apiece
- Each bottle was also sold individually (100 credit card transactions)
- Total amount in generated sales = $10,000.00
Using this scenario, we will now take the 10,000.00 in sales and minus out all costs to give us our first look at what it costs to make CBD products.
COST/PROFIT BREAKDOWN:
- For each $100.00 bottle sold, there was about 18% or $18.00 withheld (figure above).
- $18 per bottle x 100 bottles sold = –$1,800.00
- Next, let’s assume each bottle costs $30 to manufacture.
$30 x 100 bottles = –$3,000.00 - Shipping costs = $5.95 in shipping fees per order.
$5.95 x 100 shipped orders = -$595.00 - When you add up costs (1,800 + 3,000 + $595) this equals to a baseline operating cost = –$5,395.00
TOTAL:
$10,000.00 (sales)
–$5,395 (baseline costs and fee’s)
= $4,605 Left For Profit
When you take a hard look at the real life scenario numbers above, you immediately see how quickly profits are depleted with only considering the baseline costs.
Now, we must also tack on the following costs:
- produce higher-quality products (accurate only for CBD brands who go the extra mile)
- 3rd party lab tests
- all operational costs
- marketing costs
WHAT IT TAKES TO PRODUCE HIGHER-QUALITY CBD PRODUCTS
It’s pretty safe to say that most, if not all CBD brands have either made a claim in the past or are currently voicing that they offer “THE BEST CBD ON THE MARKET.” You can find variations of these self-proclamations on every CBD website; it’s astonishing.
So, as a consumer, when every site is making the same claim, we naturally tend to shop for the cheapest option or at least the best bang for your buck, which is totally fine.
However, here’s something I never want you to forget…
NOT ALL CBD PRODUCTS ARE CREATED EQUAL!
It is normal to want to get the cheapest option to help save on money. However, when you are talking about something you are putting in your body to help with your health, the cost of CBD shouldn’t be the only thing on your mind, in my opinion anyway.
Yes, the price of CBD does matter, but we believe that not buying sub-par CBD matters more.
THE GOLDEN RULE FOR BUYING CBD PRODUCTS ONLINE
If you aren’t offered a 3rd party lab report or if there aren’t any 3rd party lab results/C.O.A.’s available to read and verify potency,
RUN FAR AWAY!
3rd-Party Lab Tests
A reputable CBD company will always have their products tested from third-party labs and have a certificate of analysis (COA) for every CBD product they sell and this must be completed at least once a year.
The Two Tests Needed, What They Test For, & Their Costs
- Cannabinoid Potency COA, which verifies the CBD potency found in the product; $65-$90 per test.
Here at Cannabidiol Life, we have 58 different CBD products.
58 products x $65 = Annual Costs $3,770.00 - Full Panel Quality Verification COA, which verifies and determines that there are non-detectable readings of harmful chemicals, pesticides, & heavy metals; $600 per test.
A COMPLETE LIST OF EXACT COSTS TO PRODUCE CBD
For Cannabidiol Life to able to produce the highest quality CBD oil products, this is an up-close and personal look at what we’ve paid and what we continually pay as well as our higher standards of operation in order to continually do what we do best; manufacture the best CBD products in the U.S.
- Certified Organic Ingredients = 15% average ingredient cost increase in comparison to non-certified organic ingredients
- Cannabinoid Potency COA = $3,770 annually
- Full Panel COA = $600-$4700 annually
- USDA Organic Processor Certification = $1,200 annually
- USDA Organic Certified Farm Land = $700 annually
- Exclusive Extraction Technology Machinery Build Out = $250,000
- GMP Compliant & Certified Buildout = $26,000
- Verified Reviews Costs via TrustPilot = $400.00 a month
- Highest Quality Hemp Seeds (Cherry Wine) = $1.95 per seed
- 55 Gallon Drum of Organic Non-denatured Ethanol (most expensive) = $4,125 annually
- 10 Employees & staff: Average $30,000 monthly
As you can see, the costs are tremendous if you want to produce the best CBD.
FINAL THOUGHTS
CBD could potentially offer tremendous value to pretty much everyone, right? So, invest in yourself by investing in a healthier you and a happier tomorrow. The next time someone asks the question “why is CBD so expensive?” out loud, we recommend doing the following two things:
- Invite them to read this article so they can learn the specific reasons why!
- Respond to their question with this question, “Well, how much is finally getting the relief you want and living a higher quality of life worth to you?”
If you have any other questions or concerns, please never hesitate to use our LIVE CHAT feature (bottom right) or visit our Contact Us page for all communication options.