skip to Main Content
A Thing of the Future – Cannabis Franchising

We often work with cannabis businesses that want to license their brands to third parties. Licensing is a great way to expand the reach of a brand and make some revenue without the capital expense of funding and owning a new location outright. For states that restrict ownership of marijuana businesses to state residents, licensing can be a good way for a non-state resident to get into the market.

But any time a business enters into a licensing deal where the licensee is in the same line of work as the licensor, challenges arise. Specifically, that licensing agreement can be interpreted by state and federal regulators to create a quasi-franchise. As we’ve written before, this can cause problems because franchises must comply with a bevy of state and federal rules with which non-franchises do not have to contend.

Just because franchises are regulated, however, does not mean they are to be avoided forever. The first cannabis company to execute on a well-planned franchise model is going to do well indeed. To date, there hasn’t been a lot of movement of would-be marijuana franchisors.

Part of the reason is that would-be franchisees want to see established brand and operations value before entering into a franchise agreement. To demonstrate that value, a franchisor company’s best bet is to show positive performance at multiple locations. A single cannabis retail store may do great business, but from the outside looking in, it is difficult to know whether that store is benefitting more from its location or its local team or its marketing or its branding. But when multiple locations that carry the same branding, use the same business practices, and are consistently putting up big numbers, they become enticing to potential franchisees.

Market consolidation in the cannabis industry is already happening — a first step in creating the types of chains that can be precursors to franchises. In Colorado, more and more retail stores are becoming part of corporate retail chains. Washington State recently increased its cap on direct ownership of marijuana businesses, allowing an individual to own up to five retail-licensed businesses, and it too is seeing similar movement toward consolidation.

In looking for potential franchise locations, California’s new demand-rich market is a logical target. California also boasts some of the nation’s most restrictive franchise laws, providing significant protections for franchisees. Franchises must register with both the Federal Trade Commission and with the state of California.

California also requires the Franchise Disclosure Document, a large comprehensive document defining the ins and outs of the franchise relationship, to be registered with the state. California franchisors are prohibited from terminating franchise agreements early without good cause, and a franchisor cannot stop a franchisee from selling or transferring the franchise to a different person who meets all the franchisor’s current standards for new or renewal franchisees. If a franchisor wrongfully terminates a franchise, the franchisee is entitled to the fair market value of the franchised business and its assets as damages.

Though California has the strongest protections for franchisees, most other states offer similar protections. A franchise isn’t a relationship a franchisor can enter into on a whim; it is a significant long-term commitment of time and money, and this is as true for the cannabis industry as any other. Nonetheless, it is only a matter of time before we start seeing cannabis franchises proliferating.

Hilary Bricken

Hilary Bricken

Hilary Bricken is an attorney at Harris Bricken, PLLC in Los Angeles and she chairs the firm’s Canna Law Group. Her practice consists of representing marijuana businesses of all sizes in multiple states on matters relating to licensing, corporate formation and contracts, commercial litigation, and intellectual property. Named one of the 100 most influential people in the cannabis industry in 2014, Hilary is also lead editor of the Canna Law Blog. You can reach her by email at [email protected].

This Post Has 0 Comments

Leave a Reply

Your email address will not be published. Required fields are marked *

Recent Stories

Big Weed is on the brink of scoring big political wins. So where are they?

Competing agendas have stifled the effectiveness of the burgeoning industry on Capitol Hill. Marijuana advocates are stuck in the weeds. Cannabis policy has never had a rosier outlook on Capitol Hill: Democrats control both Congress and the White House, seven new states just legalized recreational marijuana, and the cannabis industry has gained powerful new allies…

Advocates for recreational marijuana in Delaware ‘optimistic’ this is the year

Delaware lawmakers who support legalizing recreational marijuana are taking a run at it for the sixth straight year, and the lead sponsor says he’s “feeling optimistic.” First introduced in 2017, a bill to legalize weed fell four votes short of passage in the Delaware House of Representatives in 2018 but since then has not reached…

Guns or marijuana, but not both

While marijuana became legal for adults to purchase in Montana on New Year’s Day, a key federal agency has confirmed a fact underreported in coverage of the state’s new marijuana program: It remains illegal under federal law for individuals to simultaneously possess marijuana or marijuana products and firearms, and penalties for violating that law are…

As Oklahoma’s medical marijuana industry booms, regulators struggle to keep up

Row by row, Oklahoma Bureau of Narcotics and Dangerous Drugs agents and Garvin County deputies cut down 2,500 marijuana plants and loaded them in a dump truck for destruction during an April 2021 raid near Pauls Valley. The grow operation had a Oklahoma Medical Marijuana Authority license, but had not obtained an additional permit from…

More Categories

Back To Top
×Close search
Search