Through Franchising, the Normally Risky Cannabis Industry Becomes More Measured and Secured
Cannabis is one of the hottest growing industries in America. With more and more states jumping on the legalization train and full federal legalization seemingly a fait accompli, the outlook on legal weed is very bullish. However, challenges abound in the legal cannabis industry. Issues with taxation, banking, regulation, supply chain, and security make everything harder in cannabis.
Everything is also more expensive in cannabis: taxation, banking, licensing fees … again, the list goes on and on. Coupled with the irony that the industry seems to attract a lot of new entrepreneurs, and you have a situation where a cannabis business operating today is growing up under the harshest conditions imaginable. With that in mind, there is an option that could go a long way towards addressing a portion of that spectrum: franchising.
Cannabis and Franchising
The basic franchising model provides the franchisee not just its trade name, products, and services, but an entire system for operating the business. The franchisee generally receives development support, operating aid, training, brand standards, quality control, a marketing strategy and business advisory support from the franchisor. This model ensures more stability, security, and possibly immediate capitalization for the franchise owner. Cannabis franchising would utilize the same basic franchise model and export it to the cannabis industry.
Legal cannabis is a highly regulated industry with complex rules that vary from state to state.
By adding these franchising features, the normally risky cannabis field becomes more measured and secured. Franchisees are required to follow pre-established standard operating procedures of already successful business models. Furthermore, this model ensures that a franchise partner is in lockstep with the licensee in terms of audits, inventory, compliance, record-keeping, etc. In other words, franchising could potentially make a risky investment, like cannabis, more secure and equitable. This model also benefits the lender by ensuring that the franchisee follows already established, successful business models and is financially backed by larger organizations.
Most lending institutions want to see a sufficient operating history, and the franchise model ensures that franchise stores follow already established operating procedures, which adds a layer of security to the lending organization. In this context, a franchising model happens to be a great fit for the cannabis industry. Perhaps you have heard, banking is kind of an issue in cannabis. Legal cannabis is a highly regulated industry with complex rules that vary from state to state. For banks and credit unions, cannabis is a very tough business to bank. With its heavy compliance needs, a financial institution will see risks around every corner.
The franchising model could greatly enhance the bankability of the cannabis industry.
Coupled with the fact that in any particular state, there will only be a handful of financial institutions banking the space and you have a scenario where banks and credit unions will likely be highly selective. So, how can we improve the picture? With a franchise partner in place, you have pre-set SOPs, a proven business model, and (at least optically) someone looking over their shoulders (aside from the state). I believe a franchising model could greatly enhance the bankability of the cannabis industry.
Cannabis and Social Equity
With the increased focus on states implementing social equity programs, perhaps embracing franchising could also be a great addition as part of a state’s social equity initiative. It’s important to recognize that not everyone will like it, nor qualify, perhaps. But for a certain spectrum of the demographic that could benefit from explicitly following pre-set marketing, accounting, inventory, operations, pricing, and HR methods, it could work wonderfully.
It should be noted, however, that due to the current legal status of THC products on the federal level, certain key aspects of a typical franchising model are not possible. Federal trademarks, for example, is not a possibility at the moment. Registering with the FTC would be another major blocker. On a state-by-state basis, there are certain limited strategies one can pursue to frame out the “franchise.” Currently, there are several groups offering cannabis franchises, like Curio Wellness’s Far and Dotter, One Cannabis, Unity Rd., and Bud’s Place, which is a consumption lounge model.