McWeed, Cannabis King, Starbongs - The Franchising of the Cannabis Industry

cannabis franchising

It is expected that every nascent industry will adopt franchising at some point. The cannabis industry doing this is not surprising. In 2019, after the Franchise Times selected ONE Cannabis as the number one cannabis franchisor in the country, other cannabis business franchises started making waves—attracting widespread interest and attention and gaining higher credibility at the same time.

Today, there are dozens of licensed cannabis franchise establishments in cannabis-legal states. Every month, the Cannabis Intelligence business base records a higher number than the last. It's all thanks to the growing number of cannabis laws being approved across North America.

The three dominant cannabis franchisors in this region are Dutch Love Cannabis with 27 stores, Cookies with 26 stores, and Inner Spirit Holdings with 39 stores. Others include Uncle Sam's Cannabis, The Peak Dispensary, ELEV8 Cannabis LLC, Curio Wellness, and Eufloria LLC.

Overview of Cannabis Franchising

The cannabis franchise system is similar to franchising in other industries. The major difference is that cannabis franchises may differ from state to state due to the drugs being federally prohibited. In contrast, franchise laws for other industries are uniform across all state borders.

The various complexities of cannabis legislation are perhaps the greatest barrier to gaining entry into the cannabis sector. The compliance rules and regulations in this sector are almost on the same level as those of the weapons and oil sectors.

Franchising helps make a market more accessible to its customers. Dispensaries and cannabis stores, as well as the production niche of the sector, are easier to navigate once they've been franchised. Cannabis franchising opens the door to numerous opportunities for operators to benefit from. It provides a means for new businesses to learn from existing successful companies.

Currently, the U.S. cannabis industry primarily comprises independent stores that are yet to exploit the full potential of their businesses.

Federal Laws and Cannabis Franchise Cannabis franchisors and franchisees operate at risk of being shut down by the feds at any time. The Federal Trade Commission (FTC) is tasked with administering and regulating federal franchise state laws.

Cannabis businesses cannot register with the FTC. Hence, it is a felony to trade in these franchises. However, some states have legalized the sale of cannabis and, as such, permit the franchising of some cannabis businesses. Some of the requirements to get franchised include:

The franchisor must have a registered business name or trademark that the franchisee would use.

The franchisor must have a marketing strategy in place to improve the franchise's business.

A standard fee must be paid by the franchisee to the franchisor.

All three requirements have to be met for a business to be franchised. At the state level, franchising laws are not uniform. In a state, each municipality could have different franchising laws than the neighboring municipalities. For this reason, some cannabis operators prefer some states to others for franchising.

It is important to point out that not all legal states have cannabis franchising laws. Only 10 out of 36 do. For an industry that is already drowning in rules, regulations, and restrictions, this is better than nothing.

Franchised Companies in the U.S.

Curio Wellness disclosed last year that it would be franchising its retail businesses under a new identity called Far & Dotter. This new name would be registered in different states, including Illinois, Virginia, Missouri, Ohio, Michigan, Massachusetts, and New Jersey. Not all of these states have mandated requirements for franchise registration. Florida is the only state where they'd have to file to sell to franchises formally. CBD franchises are currently legal Federally, but how long will their moat last if we see full cannabis legalization at the Federal level.

Cannabiz Media's Cannabiz Intelligence reports that Ontario, Alberta, California, and Oklahoma have the highest number of active and pending cannabis franchise licenses across North America. The leaderboard published on the site shows that Ontario is currently leading with 35 permits in total. Alberta comes next with 23 and California with 18. Washington, Manitoba, and Maryland have one each, placing them at the bottom of the list.

The Merits of Franchising In The Cannabis Industry

Franchisors and franchisees have a lot to gain in the long run. For instance, franchisors would be getting a readymade solution to solve expansion problems related to capital and labor. That is, the franchisor gets to expand its brand without wasting too much time testing and trying out different strategies. Through this process, debt is avoided.

Cannabis franchising would allow hundreds of businesses to broaden their horizons during this tricky period. It would help franchisors develop thick footprints across the global cannabis markets before the federal government finally legalizes cannabis. When the country finally has legislation to decriminalize cannabis fully, these franchisors will more or less be the preferred brand of millions of consumers across the country.

Franchisees, on the other hand, have the opportunity to network with other cannabis businesses. The feeling of being alone would be eliminated. These businesses and their owners would receive support, advice, working solutions, and even training from their franchisors. They would only pay a set amount to access their franchisor's assets like their trademark and registered systems. In fact, franchising helps take a lot of risky decisions off the hands of cannabis entrepreneurs. Hence, more time can be directed at solving more critical tasks.

Final Note

The future of franchising in the cannabis industry in the United States, Canada, and even globally is bright and promising.

As soon as cannabis is decriminalized and totally decriminalized in the United States, it is inevitable that the concept of franchising will be more prominent than it is currently.

Canada has the highest number of franchises, but it most likely won't hold onto this rank once cannabis is legal in America.

The main challenge is finding a balance between federal and state cannabis and franchise laws to ensure franchisors can continue to spread their impact across legal cannabis states.

Note that franchising is not a cheap process. Franchisors charge royalty fees and marketing fees, which are most of the time on the high side. And franchisees still have to pay other fees and taxes. At the end of the first month of being franchised, there's a high probability that the business will only break even. However, it gets better down the line.