Last February, we covered the launch of what was reportedly the first cannabis dispensary franchise offered in the United States. A lot has happened since that time. As more states have made the move to legalize or decriminalize marijuana, and as scientific research continues to dispel longstanding misconceptions about the effects and health risks associated with cannabis, cannabidiol (CBD) and other marijuana compounds, new businesses are popping up all over the country, and more and more of these businesses are turning to franchising as a way to grow their brands.
As explained in a recent article from Franchise Direct:
“According to JWTIntelligence, about 20% of American adults now have access to legal marijuana, and retailers . . . have been quick to jump on the new potential revenue stream. For example, Colorado saw well over $1 billion in cannabis sales in 2017 alone. . . . Brightfield Group predicts the CBD market will soon be a $22 billion industry.”
In addition to dispensaries, there are now franchise opportunities for cafés that sell cannabis and CBD products, medical marijuana businesses, and other retail-based outlets. As of the end of May 2019, cannabis has been fully legalized in 10 states and Washington D.C., and many other states have taken intermediate steps such as decriminalizing marijuana, and legalizing the use of marijuana for medicinal purposes only. Of course, at the federal level, marijuana is still a Schedule I controlled substance. As a result, prospective franchisees face a number of unique legal issues above and beyond those involved in buying a franchise in virtually any other industry.
Should I Buy a Marijuana Franchise?
So, if you are thinking about buying a marijuana franchise, should you? This is a loaded question that requires careful examination of a variety of different factors. For example:
- How much risk are you comfortable with? We still don’t know what is going to happen with marijuana at the federal level; and, while many states are moving toward legalization, these efforts have stalled in some locales. While many view the worst-case scenario of aggressive federal enforcement as unlikely, at this point it is still a possibility.
- Could changes be on the horizon? The cannabis industry is still evolving; and, even if marijuana eventually becomes fully legal in the United States, there is a strong chance that cannabis and CBD-based businesses will need to adapt as consumer preferences develop and trends come and go. Franchisors typically reserve broad rights to require their franchisees to finance the cost of “upgrades,” and this could significantly increase your overall investment in the business.
- Can you negotiate favorable franchise agreement terms? While start-up franchisors are often more willing to negotiate the terms of their franchise agreements, the lack of competition in the cannabis industry may lead some franchisors to hold firm. But, if you can negotiate favorable terms regarding issues such as termination, renewal and mandatory upgrades, this will help mitigate the risk of buying a cannabis or CBD franchise.
Learn More From National Franchisee Attorney Jeffrey M. Goldstein
Our firm offers four tiers of fixed-fee franchise business review packages for prospective franchisees. If you are thinking about buying a marijuana franchise and would like more information, you can call 202-293-3947 or contact us online for a free initial consultation.
