I struggled with getting this to work, but I finally managed it. Specifically, I got Snatcher working. I thought these instructions might be helpful to anyone who's running into issues:
#1: Use a known, tested and working Sega Genesis backup (a .md file). I used my Streets of Rage backup.
#2: Get These Programs: Ultimate GEN-MD Forwarder Maker for 3DS, HackingToolkit3DS, XVI32 and Notepad++
#3: Open "Ultimate GEN-MD Forwarder Maker for 3DS". 1.3 confirmed working.
Select Open GEN-SMD File and select Sega Genesis rom.
Rename the game's name & publisher to that of the Sega CD game's name and publisher.
Set Icon Artwork (40x40), then Select Banner artwork (if you want it to be different than the icon artwork), set name and publisher to that of Sega CD game you intend to create a .cia for.
Set Resolution to 256x224 (pixel perfect). This results in no stretching/distortion on the 3DS screen.
Click Finish, save the .cia file as the name of the Sega CD game you intend to create a .cia for.
#4: (for US/English users) Extract HackingToolkit3DS > HackingToolkit3DS-9 > PackEnglishV9
Enter "PackHack" folder
Run SetupUS.exe if first time using application.
Then open HackingToolKit3DS.exe once, then close it.
Drop the .cia file created in step #3 into the "PackHack" folder and leave it there for the remainder of the process.
Open HackingToolKit3DS.exe
Type CE to "extract the .CIA file", press Enter
Enter the name of your .cia file WITHOUT the .cia extension. Ex: Snatcher.cia = Snatcher
Type "y" for "Decompress the code.bin file.
Hit Enter to continue then close the application.
Three folders "ExtractedBanner", "ExtractedExeFS", and "ExtractedRomFS" will have been extracted into the PackHack folder.
#5: Open XVI32 (or any other Hex Editor program you installed instead) and load the "code.bin file" from the ExtractedExeFS folder created in step #4.
Click on the magnifying glass icon. Type rom.bin in the text string box then click OK.
The results will take you directly to text on the right side that reads "romfs:/rom.bin".
Change the rom.bin text line to rom.cue
The line should now read "romfs:/rom.cue". Save and exit the app.
#6: Enter the "ExtractedRomFS" folder created in step #4.
Open retroarch.cfg using Notepad++.
Click search, then type "sdmc".
Once located, rename system_directory = "sdmc:/" to system_directory = "romfs:"
Save and close the application.
#7: Locate your Sega Saturn bios. Be sure the bios matches the region of the Sega CD game.
Rename bios file to bios_CD_U.bin
Add bios_CD_U.bin to the "ExtractedRomFS" folder.
Add the all the .cue and .bin files for the Sega CD game directly to the "ExtractedRomFS" folder.
Change the name of the .cue file to "rom". Example: Snatcher.cue = rom.cue
#8: Open HackingToolkit3DS.exe.
Type CR for "rebuild a .CIA file".
Type the name of the game WITHOUT spaces or special characters. Hit enter.
Minor version enter "0".
Micro version enter "0".
Hit Enter to create the new .cia file.
The new file will appear in the "PackHack" folder as GAMETITLE_Edited.cia, example: Snatcher_Edited.cia
You're done!
-Save file directory for Sega Games: sdmc:/retroarch/forwarders/<CIA Title ID>/savefiles.
Thank you to Impossible_Ignitz for writing the original guide!!