The CBD market has grown exponentially since the legalization of hemp at the federal level in 2018. Though a few industry leaders dominate the landscape, the continuous development of new ways to enjoy cannabinoids provides enough room for startups to grow and flourish.
Previously, our team tackled how you can create a unique brand for your CBD business. Today, we’re going to discuss how to find the best location for a newcomer like you. This can make or break your startup because choosing a known hotspot for CBD products might seem like the most sensible move, but as you will learn in this article, there’s more to it than that.
Online vs. Brick-and-Mortar Shop
Before we show you the ins and outs of location-hunting, let’s talk about whether or not you should do it in the first place. Several CBD businesses exist purely as online retailers and have achieved great success through the e-commerce model. So, why should you go through the trouble of finding commercial space for your CBD startup?
Captures the unserved or underserved markets
If you have done your due diligence, your research will highlight the geographic locations where hemp goods are not readily available. The reasons for such a market condition vary. For example, the relevant laws in that area might have recently changed, so the other cannabis players have not entered it yet.
By being the first or one of the pioneers, you will attract the attention of more prospective customers and gain their loyalty to your CBD brand. This also offers an excellent way to create a niche and further develop your UVPs (unique value propositions).
Strengthens your connection with customers
Online CBD shops are more convenient because customers can place their orders with just a few clicks. However, expect to have limited engagement with the customers unless they opt to communicate through your hotlines, live chat, or email.
On the other hand, a brick-and-mortar CBD store provides plenty of opportunities to connect with customers. You can share your recommendations based on your experience with the products, thus demonstrating to others that you genuinely believe in what you’re trying to sell them. Answers to their questions about CBD will also be tailor-fitted rather than the generic responses that online shops typically provide.
Physical CBD stores can also be a channel to educate the public about the therapeutic benefits of cannabinoids. You can host small community events where you or other experts can go over the latest trends in the CBD industry and then hand out free samples that the attendees can try.
Quickens the closing of a sales transaction
Purchasing a CBD product from a brick-and-mortar shop is as simple as paying at the cashier. The customer gets to take home the product immediately, and you receive the money just as quickly.
An online purchase takes about two to five days to arrive at the customer’s doorstep unless you offer same-day shipping. There is also the possibility that the goods will go missing or be damaged along the way.
Something to Think About…
Which of the three primary business models will you choose, given your capabilities, resources, and financial goals?
Some prospective customers also refuse to provide their credit card details for security reasons, and CODs (cash on delivery) will be remitted to you after several days or weeks. These problems are less of an issue if you have a physical store where every transaction is handled and closed on the spot.
Take note that these two business strategies are not mutually exclusive. You may opt for a hybrid business model, wherein you own a brick-and-mortar shop while marketing and distributing the products through an official website or online shopping platforms. Picking this route will demand a lot more time and effort to establish and operate, though.
The Risks of Establishing a CBD Business
Despite being removed from the list of illegal substances, hemp and its derivatives still face legal obstacles due to the ever-changing state laws. It’s understandable, to be fair, because of the limited research and clinical trials conducted to fully understand the impacts of cannabinoids on our health and wellness.
Stay up to date with these state laws is essential in finding the best location for your CBD business. You must play it safe, especially since you need the appropriate permits to start. This applies even when you’re already operating the store. Pay careful attention to the state and federal laws related to hemp to avoid getting your goods seized or having your store shut down.
Please refer to this page for more information about relevant legislation that might affect your CBD business.
Analyze the Demographics of Prospective Locations
Once you have made a shortlist of areas where you can legally sell and distribute CBD products, the next step is to find out the demographic profiles of those locations.
Demographic Factors to Consider for Your CBD Business
- Civil Status
- Educational Attainment
- Employment Status
The demographic information influences the types of products you will sell at the store, how you will market them, and the price range you will follow.
For example, suppose the location is near a residential area where low-income families live. In that case, your store should offer various CBD products to help resolve the problems your prospective customers face, such as elevated stress levels, body pains, and sleep difficulties. The pricing should also be within their means to encourage customers to switch to CBD products.
It would be even better if you could obtain data regarding the cannabis usage of the population. Do they use cannabis products primarily for medical purposes or recreation? Are they partial to CBD edibles or vaping products? Certain companies sell this information, but if you’ve got experience conducting surveys and statistical analysis, go ahead and conduct your own study to understand better the market you are about to enter.
Pay Attention to Zoning Laws
Zoning refers to the assignment of certain sections of a town or city to specific purposes, such as residential, commercial, or industrial. Since the CBD business falls under the retail category, you should restrict your search for spaces only in assigned areas for retail operations.
Take note that some cities and municipalities also have particular regulations on cannabis-derived products, so double-check with an experienced lawyer or the local authorities before leasing or purchasing a commercial space.
Strike a Balance
The traffic in the location you’re eyeing has a massive effect on the market awareness of your CBD brand and the profitability of the brick-and-mortar store. Of course, you’d want a high-traffic area where people come and go, day and night.
Unfortunately, those places have some caveats that will make you hesitate. First, a commercial space in an area with plenty of residents and visitors commands a higher rent or property value. Since you are just starting as a cannabis entrepreneur, expect to have difficulties in your cash flow if you will fail to capitalize on the prime location of the store.
Another factor to consider is the market saturation in the area. More often than not, your CBD business will face stiff competition from other similar shops in the area, such as dispensaries, health and wellness stores, apothecaries, or even conventional pharmacies.
A high-traffic area does not necessarily mean that you’d get a lot of customers, too. If your target market does not frequent the location, attaining your sales targets will be an uphill battle.
Given these downsides, the best way to approach your search for the ideal commercial space is to strike a balance between traffic and market saturation. Consider the surrounding areas of the central business district of the town or city. For example, an uptown location near the suburbs will allow you to tap an underserved market while being relatively accessible to those who work or live in the central area.
Here are the other crucial points that you must take into account while evaluating the potential of commercial space for your CBD business:
Transportation: Is the location accessible through multiple public transportation systems? Or is it accessible only by private vehicles or walking?
Parking Space: Does the space have around five to eight parking spaces for you and your customers?
Accessibility to Delivery Trucks: Even if you don’t offer delivery service to your customers, your supply might have to be shipped to your store through delivery trucks.
One way to assess the location is to visit the area at different times and days of the week. Spend at least one hour there, and try your best to count how many people will walk past the commercial space. Check the nearby establishments and institutions, too. For instance, a location near a bar or university may be good for business if your target market is young people.
Consider the Costs
We know that launching a brick-and-mortar CBD business will cost more than an online store. However, if you’re dedicated to this business model, below are the typical costs that you might incur depending on the location you have picked for your CBD shop:
Mortgage and Interest Rates: If you intend to purchase a property for your business, make sure that you are financially ready to pay the mortgage and interest rates. There are also closing costs, including appraisal fees, taxes, and transfer of title, that are considered out-of-pocket expenses for your property buyers.
Rent: Your budget for your CBD business must include the rent if you opt to lease rather than buy a commercial space. There isn’t a fixed rent-to-revenue ratio that every store must observe, but the consensus is that retail shops should have rents that are within 5% to 10% of their average income.
Property Tax: You’d have to pay the property tax if you own the space. Renters, on the other hand, depending on what is stated on the lease agreement. Go over the fine print before signing any document.
Remodeling or Repairs: Some commercial spaces are ready for occupancy, while others need to be remodeled or repaired before you launch your CBD business.
Upkeep and Utilities: Operating a physical store requires regular maintenance and utilities. Consider those costs when making your budget to set the correct sales targets for a healthy cash flow.
A brick-and-mortar CBD business may not be for everybody, but if you’ve got what it takes, it can be a lucrative venture with high growth potential. Choosing the best location for it is critical, especially for small-time players. Remember the tips and reminders we shared in this article to avoid legal problems and wasted resources.
If you need further guidance on looking for the ideal commercial space for your CBD business, feel free to speak to our team here at The CBD Guru.