Franchising in the cannabis industry

Franchising in the cannabis industry has attracted widespread interest in recent years, and frankly, this isn’t a surprising trend. When the Times Franchise selected ONE Cannabis as the first cannabis franchisor to be included in their 2019 annual Dealmakers Award, the licensed cannabis business franchising gained significant credibility and attention.

Fast forward to 2021, Cannabiz Media is tracking a growing number of licensed cannabis franchises in the Cannabiz Intelligence business intelligence base. As shown in the graphic below, three franchisors dominate the cannabis industry franchise landscape in the US and Canada. The current franchise leaderboard includes:

• Inner Spirit Holdings, Ltd.: 39 stores
• Dutch love cannabis: 27 stores
• Cookies: 26
• Uncle Sams Cannabis Ltd.: 8th
• From Earth Inc.: 6
• The Peak Pharmacy: 6
• ELEV8 CANNABIS LLC: 4
• Eufloria LLC: 3
• Feel state: 2
• Curious wellness: 1
• Moodz cannabis: 1
• Unit street: 1

The bottom line is that franchising makes sense in the cannabis industry, especially for pharmacies and retailers, where the franchise business model has proven itself in various industries since the US franchise laws were introduced in the 1970s.

However, franchising in the cannabis industry is different from franchising in any other industry because cannabis is still illegal at the federal level. A cannabis franchisor and / or franchisee could get into technical trouble or shut down at any time based on current state cannabis and franchise laws.

State franchise sales laws are administered and regulated by the Federal Trade Commission (FTC), and it is a crime to sell a franchise without complying with franchise sales laws. It is important to note that ignorance is not a viable defense (i.e., accidental franchising is still a crime).

Although registration with the FTC is not required, the laws apply to any company that meets the criteria for being franchised. The criteria are:

1. The company (franchisor) has a trademark, name, or other commercial symbol that the recipient (franchisee) will use.
2. The company provides the recipient with essential assistance in the way he works. This could include a “marketing plan”, “syndicate”, or “significant support or control”.
3. The company charges the recipient for its services.

The franchise definition is often compared to a three-legged chair. All three parts must be in place or the business is not a franchise – no matter how obvious the other two parts are. Point 2 is where businesses have a lot of leeway, but that leg of the chair varies by jurisdiction.

In other words, at the country level, things are changing a lot. Just as each state’s cannabis laws are different, so are their franchising laws. The key here is that state franchising laws preempt federal franchising laws. In addition, different states have different registration and filing requirements for franchise businesses.

In fact, it is these state-to-state differences that make some states more attractive to franchise than others. Currently, there are no franchise business registration or filing requirements in 26 states, making them much better options for franchising in an industry that is already riddled with regulations.

For example, Curio Wellness announced in August 2021 that it would operate its retail business in several states under a new name, Far & Dotter. Of the states the company plans to franchise in, five require no registration at all (Massachusetts, Missouri, New Jersey, Ohio, and Pennsylvania), four require franchise registration (Illinois, Maryland, Michigan, and Virginia), and only one requires that the franchise is formally filed before they can sell to franchisees (Florida).

Looking at the data in Cannabiz Media’s Cannabiz Intelligence, cannabis franchises with active and pending licenses are spread across the United States and Canada, with most currently located in Ontario and Alberta, Canada, followed by California and Oklahoma in the United States . Here is the breakdown of the leaderboard by state or province:

• Ontario: 35
• Alberta: 23
• California: 17
• Oklahoma: 13
• British Columbia: 11
• Missouri: 5
• Massachusetts: 4
• Newfoundland and Labrador: 4
• Oregon: 4
• Michigan: 3
• Colorado: 2
• Manitoba: 1
• Maryland: 1
• Washington: 1

Why franchising is growing in the cannabis industry

Franchising offers advantages and disadvantages for franchisors and franchisees. For franchisors, it is a solution to get access to the capital and labor needed to expand. In other words, the franchisor can expand their presence and build their brand with money from franchisors without running into debt.

In the cannabis industry, franchising allows a company to expand at a crucial time – before state legalization. A franchisor could build a strong branding presence as the preferred brand with a broad consumer audience before full legalization opens the market across the country.

For franchisees, being able to own a business without feeling alone is one of the greatest benefits of franchising in any industry. Franchisees should get support, training, systems, and more from franchisors so they don’t have to figure it all out for themselves. They can run their own businesses within certain franchisor parameters, pay the franchisor a fee for using the systems, brands, etc. provided, and keep the remaining profit. For many entrepreneurs who are comfortable following a system, franchising takes some of the risk of starting and running a business.

Since the cannabis industry is full of small corner shops, franchising provides an easy way for business owners struggling to be successful on their own to join a proven company with pre-existing systems of success. Additionally, people looking to get into the cannabis industry have the opportunity to work with a well-known brand and get the support they need from the start when they decide to become a franchisee.

The future of franchising in the cannabis industry

Once cannabis is legal at the federal level, it is very likely that franchising will become even more popular in the cannabis industry. According to data from Cannabiz Media’s Cannabiz Intelligence, Canada has twice as many cannabis franchises legal cannabis for adults than the United States.

The challenge for US cannabis franchisors going forward will be to reconcile federal and state laws. In both the cannabis industry and franchising, state laws take precedence over federal laws, so we can assume that even after cannabis has been legalized at the federal level, franchisors will still have to follow a patchwork of regulations in order to expand their branding presence across the country .

Additionally, it remains to be seen whether cannabis franchisees will be profitable. Franchise royalties and franchise marketing fees can be very expensive, and when added to other fees and taxes cannabis companies have to pay, it can be difficult for a franchisee to make a profit.

Looking to the future, Mike Weinberger, Chief Franchise Officer of Item 9 Labs (which acquired ONE Cannabis Group and its Unity Rd. Franchise model in March 2021) told Marijuana Business Daily: “Unity Rd Million US dollars. The one-time franchise fee is $ 100,000 and Unity Rd. Charges a 5% license fee and a 2% marketing fee based on gross sales paid monthly. ”

In return, Weinberger says: “We help you with the licensing, we take care of your branding, your construction, your real estate, all your training, ongoing support, selection of the POS system, supply chain – we do everything so that you can work on your business instead of working in it. ”The company expects 300 Unity Rd franchise stores to open over the next three years.

Running a cannabis business is expensive. Franchising a cannabis business is even more expensive. It is up to the franchisors to provide the training, systems and support necessary to ensure that franchisees can compete and make a profit in the markets in which they operate.

As in all industries that have adopted the franchise business model, these are the only franchisors who will survive.

You can keep track of cannabis license holders, key contacts and more in the Cannabiz media license database. Subscribe for comprehensive financial research data, M&A targeting, and ratings Cannabiz Intelligence ™ – the business intelligence base for the cannabis and hemp industry. Schedule a demo to see it in action.