Should You Franchise Your Dispensary? The Backstory
Although franchising has a history dating back hundreds of years—many of the colonies and expeditions to the New World were undertaken by franchisees of the Dutch and English crowns—the modern story of the franchise really takes off in the post-WWII United States, when franchises such as Midas Muffler and Holiday Inn spread the model far and wide.
Of course, this format doesn’t work for everyone. In 2019, Subway was the largest chain in the country with nearly 24,800 franchise locations. But the company had been under fire for decades, ever since critics noted the company encouraged franchisees to open excessive numbers of locations, thereby cannibalizing their own businesses. That—plus a punitive stance towards minor franchisee infractions—has driven the chain to steadily close locations for the last several years running.
So…what does this imply for a cannabis franchise? As we hinted earlier, there are major differences. For one thing, food-service franchise agreements often mandate strict adherence to chain-specific recipes and products. Franchisees who want to go off the beaten track by serving unauthorized products often run afoul of their contracts.
But because of cannabis’ complicated legal status, there are also limits to how strict cannabis franchises can be. Cannabis products can’t be transported across state lines, for instance, so multi-state operations must devise other ways of offering consistent and recognizable products to all their customers.
Dispensary Franchise Pros and Cons
That’s a great prompt to dig into some of the specific reasons you may—or may not—want to consider entering into a cannabis franchise arrangement. Here are a few of the most important.
- A Faster Road to Market: The regulations around cannabis can be onerous, adding considerable time and expense to the race to open your door. In addition to handling the regulatory side of things, franchisors often help with crucial decisions such as site selection.
- What’s In a Name?: Brand recognition can be a huge deal in the cannabis field; just look to smash-hit strains like Gelato and Sour D for proof. A franchise agreement with a well-respected brand can get you on the road to building a clientele from Day One.
- Lower Costs by Leveraging Buying Power: One of the major upsides of being a franchisee is being able to benefit from the buying power of a larger corporate entity. As we referenced earlier, given cannabis’ legal status there are limits to this benefit, but in general, franchisees can expect lower operating costs than equivalent independent operators.
- Ongoing Support and Guidance: If a franchisor is committed to offering the necessary training, marketing materials, legal guidance and other needs to a startup, that’s potentially a huge win for you. As with all such business decisions, it pays to solicit honest assessments from those who have worked with any potential franchisor in the past. And needless to say, never forget to read the fine print.
These are all noteworthy upsides to operating a dispensary franchise. But what about the drawbacks? Here are a few:
- Losing Creative Control: Running a business isn’t just a game of filling in the blanks; many owner-operators relish the freedom to make business decisions like choosing marketing materials or altering your store layout without waiting for other peoples’ approval. If you love problem-solving on the fly, a franchise may not be the best fit for you.
- Bye Bye Privacy: It’s common for franchisors to demand detailed reporting of all aspects of a franchisee’s business affairs. If you’re not comfortable having every detail of your business dealings scrutinized, you may want to reconsider a franchise opportunity.
- Who’s Really Paying the Bills?: In some franchise arrangements, the franchisor provides marketing, training, and other materials as part of the agreement. In others, the franchisee is required to buy these assets from the franchisor, sometimes at a greatly inflated rate. Just as with the list of pros, it’s vital that you don’t neglect to read the fine print.
Deciding which business model to choose for your dispensary is a huge deal. Fortunately, there are pros on hand to help with crucial decisions like how to market and grow your dispensary.