This post was originally posted in Green Entrepreneur.
When building a CBD brand, don’t overlook shipping compliance and fulfillment.
It’s estimated by 2025, the US CBD market could reach $16.8 Billion, a massive jump from the projected $4.7 billion in 2020. The CBD industry has exploded in a relatively short time, mostly due to the change in classification of certain types of CBD from the Hemp Farming Act in 2018.
With growing evidence of health benefits from CBD products and an increase in consumer acceptance, CBD sellers have been diversifying their sales channels, including ecommerce, dropshipping, and retail channels, to meet consumer demand.
Like with any other wild west market, the rules and regulations surrounding CBD can be unclear, creating confusion amongst sellers. Not only should the seller have a clear understanding of the CBD laws, they should also have a good fulfillment strategy to ensure a seamless customer experience. Oftentimes, CBD sellers will outsource their fulfillment needs to a dedicated fulfillment company, also known as a 3PL or third-party logistics provider.
It’s so important to have sure footing when building a business. As a seller it’s imperative that you know how to legally ship CBD, choose the carrier that is best for your product, and find a quality fulfillment partner best suited to your customer’s needs.
Is CBD Legal to Ship?
The short answer is yes. However, there are important guidelines sellers need to understand and follow. CBD must meet the following criteria in order for it to be considered legal and shippable.
The CBD needs to be hemp derived and contain less than <.03% THC
Under the Hemp Farming Act of 2018, legal CBD is defined as a cannabidiol derived from strands of hemp with less than 0.3% THC. This classification of CBD is legal in all 50 states and can be shipped across state lines.
CBD extracted from marijuana can only be legally sold in some states and has different regulations than hemp derived CBD. As of November 2020, the total number of states that have legalized recreational use of marijuana stands at 15.
The seller must work with a licensed grower and producer of CBD
The seller is obligated to have the necessary documentation that demonstrates they are working with a licensed CBD grower and producer. There are large, reputable wholesalers in the US and Europe who have years of experience growing and selling hemp so providing this documentation should be standard practice.
Third party verification of the CBD
The seller must provide a certification of analysis (COA) which confirms the level of CBD, THC, and other compounds in the CBD product. This certification must be conducted by a third party and the seller must accompany all batches purchased from the CBD grower and producer. The COA report will ensure your customers are receiving a purse product that contains exactly what is on the label and is advertised.
Which Carriers Will Ship CBD and How do Their Rules Differ?
Immediately after the Hemp Farming Act of 2018 was passed and the doors to legally sell CBD opened, the shipping companies, including USPS, UPS, and FedEx interpreted the laws in different ways leading to confusion for both the sellers and employees at the shipping companies. As a result, packages containing CBD were seized, accounts were frozen, and businesses were disrupted.
Fast forward to 2020, the shipping companies have a much better grasp of the CBD laws and defined clear rules around shipping CBD through their networks.
Using the United Postal Service to mail CBD is relatively straightforward and as of June 2019, the seller can ship using USPS if they meet these conditions:
- A license from the state’s Department of Agriculture authorizing the license to produce industry hemp.
- The CBD is hemp derived and contains .03% or less of THC.
The seller is responsible for their own compliance and the seller is not required to present the documentation at the time of shipping. However, USPS may request the necessary documentation at any time and the seller needs to have them readily available.
Shipping CBD using UPS has similar requirements to USPS. The only difference is that UPS will not accept shipments containing hemp products, including hemp derived CBD, from any location that sells marijuana or marijuana products.
While the seller does not need to present any special documentation at the time of shipment, UPS reserves the right to ask for the state necessary licenses and proof of the contents of the CBD.
DHL will ship CBD products as long as the seller meets the following requirements:
- The CBD is hemp derived and contains .03% THC or less.
- The seller complies with all state and federal regulations.
- The package that the product is being shipped in does not have any branding or labeling indicating the contents of the box.
Unlike USPS, UPS, and DHL, Fedex has included hemp and marijuana derived CBD on their list of prohibited items for shipping. However, some sellers have been given written permission by FedEx to ship their CBD products. Sellers should check with their local CBD rep or fulfillment company to see if they qualify for an exception.
How to Choose a Fulfillment Partner for Your CBD Products
As the CBD market continues to mature and sales channels expand, more CBD sellers are outsourcing their fulfillment to 3PLs. Similar to other industries, outsourcing fulfillment to an experienced operator can drastically improve your ability to scale quickly and cost effectively.
Top four benefits of outsourcing fulfillment:
- Lower your shipping costs. As much as 70% of your fulfillment cost can be tied to the shipping of your package. 3PLs leverage their buying power with multiple carriers to get heavily discounted rates on behalf of the seller. Additionally, carriers are continually rolling out new shipping services and should be able to optimize your shipping strategy to improve your overall service.
- Reduce operating costs. You might be surprised on how much you can save by outsourcing your fulfillment. Once you factor in rent, racking, labor, and other fulfillment essentials, it becomes clear that it’s far more cost effective to outsource fulfillment.
- Improve delivery speeds while reducing costs. Some 3PLs have a network of facilities that can place your products closer to your customers. As a result, your customers will get their products faster and you’ll save money on the shipping costs.
- Allow you to focus on your core business. Working with an experienced 3PL who understands your business can be critical to your company growth. They can seamlessly manage the bulk of your fulfillment needs with little oversight, freeing you and your team up to focus on your product and the growth of your business.
How a Fulfillment Partner can Help Your CBD Business Grow
You might be thinking, isn’t every 3PL the same? Why would one be better than another when it comes to CBD fulfillment?
The truth of the matter is that not all fulfillment companies are created equal and most don’t have a lot of experience shipping and managing CBD products. Given the relatively nascent CBD market, there’s still no tried and true playbook for CBD sellers to follow so it’s critical they work with a knowledgeable and flexible fulfillment company to help them scale their business.
Here are some things to consider when evaluating fulfillment partners:
- Understanding CBD compliance. It’s simple, your fulfillment partner should be well versed in the laws and regulations surrounding the storage and shipping of CBD products. They should be alerting you when there are new rules and regulations, not the other way around. While shipping carriers no longer require accompanying CBD documentation at the time of shipping, they can request it and put your products on hold at any time. Having a partner who can quickly resolve these issues is a must.
- Expanding to retail (now or later). Even with ecommerce sales at an all-time high, in-store retail sales still outpace ecommerce by a factor of 10 to 1. Major retailers, including CVS, Wholefoods, and Urban Outfitters, are stocking their shelves with CBD products and the list of retailers doing the same continues to grow. Working with a fulfillment partner who understands how to work with retailers, including managing EDI connections and routing guides, is invaluable when entering this space. Retailers have strict processes on how they issue purchase orders and receive the orders so any deviation from their guidelines can put your relationship at risk.
- Value added services. As you scale your business, you’ll likely need to lean on your fulfillment partner for services outside of the standard pick, pack, and ship. Custom kitting, branded tape, and returns management are all examples of services that a fulfillment partner should handle to make your job easier.
When you’re building a brand, every detail matters. While shipping, fulfillment, and supply chain logistics aren’t very exciting to figure out, they are incredibly important to your business strategy, product cost, customer experience, and overall company growth trajectory. Forging good partners across the board will help your company thrive. Picking a fulfillment partner should be no different.