Marijuana Business Magazine March 2020
March 2020 | mjbizdaily.com 75 Cannabis companies accelerate growth and footprint by selling retail franchises B uilding a franchised company around the rapidly growing cannabis industry seems like a natural fit—it can be a quick way for newcomers to get started with an established brand. But because both marijuana and franchising are so heavily regulated, marrying the two is likely to be a complicated process. Still, several cannabis entrepreneurs are turning to franchising to help them expand their businesses quickly. According to attorneys Eleanor Vaida Gerhards and Matthew Kittay of Fox Rothschild, franchising enables a cannabis business to: • Expand its footprint quickly. • Use other people’s money. • Leverage its market knowledge. • Make advertising dollars go farther. “It’s another way to spread the risk, expose the brand—and (it) makes a lot of sense for certain kinds of brands,” said Kittay, who is based in New York. While there are a handful of companies intentionally building their businesses around the franchise model, there are others that could fall into the “accidental franchise” trap. Most cannabis franchise concepts in existence today are in states where there is not a franchise registration law. However, businesses with multiple stores could accidentally meet the definition of a franchise—and, if they are not compliant with franchise law, it could result in felony charges and rescinded deals with vendors and clients. Some cannabis entrepreneurs are turning to franchising to help them build their businesses quickly. Franchising can be a good way to spread the risk of operating a cannabis business. But because both franchising and marijuana are so heavily regulated, setting up the framework can be tricky. Here’s what you need to know if you’re considering franchising your cannabis company: • Hire a team of consultants who are knowledgeable about the legal issues surrounding franchising as well as the complexities of cannabis compliance. • Start by operating in just one state to ensure the company remains in compliance. • Avoid the “accidental franchise” trap by knowing how a franchise is defined in your area. • Simplify your business down to its most important elements to avoid compliance issues. Cannabis One will franchise its retail stores under the Unity Rd. brand. Courtesy Photo 61% 21% 13% 5% Distribution of 3,800 Franchise Brands Source: Frandata 2017 Early Stage (0-25) Emerging (26-100) Regional (101-500) National (500+) Of the 3,800 franchise operations in the United States, the majority have fewer than 25 locations.