For many people, cannabis is a hard industry to break into. There are large start-up costs. Depending on location, it’s easily upwards of a million dollars. Add on the complexity of banking within cannabis, and a dream quickly becomes unattainable.
There are also immense regulations to adhere to. For those new to cannabis, it can be a challenge to understand all the laws and requirements without some outside assistance.
For a lot of prospective dispensary owners, the barriers to entry are just too great.
That is exactly why dispensary franchises are becoming a popular option.
What is franchising?
A $451 billion dollar industry, franchising is a type of business license that allows a franchisee to “have access to a business’s (franchisor) proprietary knowledge, processes, and trademarks in order to allow the party to sell a product or provide a service under the business’s name.”
Some common franchises include McDonalds, Anytime Fitness, and Super 8 Hotels.
In order to franchise a business, the franchisee usually pays an initial start-up or franchise fee, as well as annual royalties, or a percentage of sales. The are many benefits of franchising. It’s like being handed a business to run, often with a high chance of success because it’s already an established brand. Things like brand recognition, menus, vendor relationships, marketing materials, and standard operating procedures (SOPs) already exist and are handed to you.
The downside is the business owner loses freedom to decide the name, colors, design, aesthetic, vendors, and often, products. There is also a cost to franchises in the form of royalties.
For some, the pros of being able to open a business and achieve a goal outweigh the cons. That’s what makes franchising such an interesting business tactic. It opens the door for people who otherwise wouldn’t enter the industry.
What makes a cannabis franchise different from other industries?
Starting a cannabis dispensary franchise is much the same as traditional franchises, but with a few notable differences rooted in compliance.
Since cannabis is federally illegal, you can’t ship products across state lines. This means that every product must be grown in-state. That’s a major difference from a pizza franchise where all stores use the same products across the country.
Cannabis franchises either have to have in-state grow operations to supply their franchisees, or allow each store the flexibility to grow or source their own local supplies.
Another major difference is in profitability. A marijuana franchise won’t be as profitable as traditional franchises because of 280E, a tax rule that doesn’t allow cannabis companies to deduct operating expenses (that other industries can deduct). This means more money is paid in taxes, and your business gets fewer deductions, and thus, less profit.
Should you franchise a marijuana business?
Building a cannabis business is unique and complicated. Starting with licensing, the marijuana industry is unlike any other. There are dozens of regulations, some conflicting, that leave even the most experienced business owners confused.
That’s all before you even get a license to consider building a dispensary. Once you get your doors open, you need daily focus on compliance, state reporting, taxes, banking, and inventory, in addition to the normal tasks of business ownership like staffing, payroll, merchandise, marketing, accounting, security, and more. If you’re in a competitive or saturated market, the barriers to success are great (though it can be done!).
Franchising, in the traditional sense as well as in cannabis, can be a great option for new business owners because it eases the barrier to entry. This is why first-time dispensary owners who want a turnkey solution to quickly enter the market are a common demographic for franchises.
Having a team of people and a proven business model to help navigate the complexities of cannabis is worth every penny to some owners.
Another reason to consider franchises is if you are a current dispensary owner and your store is struggling, or if you’re not as successful as you’d like to be. Independent shops have an increasingly difficult time staying competitive, especially in saturated markets. Re-opening under a known brand, and with management support, could be a way to save your business. Since you already have the building and infrastructure, the start-up costs would be minimal.
Benefits of franchising a cannabis dispensary
As we’ve seen, the cannabis market continues to grow exponentially. Established markets, like Colorado and Oregon, are seeing expansion and consolidation. Newer markets, like Oklahoma, Michigan, and Massachusetts, are opening stores rapidly as legalization allows. And states without any current legalization have entrepreneurs hungry for the chance.
In many states, there is a surging opportunity. But not everyone is equipped to get to market quickly. Franchising is a good way to maximize opportunity as the market grows and create a sustainable and profitable business as the market matures.
The primary benefits of choosing to open a marijuana dispensary franchise are:
- Quick time to market - Not having to navigate regulations and make all the decisions yourself means you can get your doors open faster. You also get support with site selection.
- Less risk - While every business has risks, opening a brand with name recognition, a proven playbook, and built-in support may minimize the risk of opening a small business.
- Brand recognition - A familiar name is often enough to bring customers to your store. A franchise could mean a built-in customer base from day one.
- Training and support - A team of experienced professionals with a proven track record are on hand to provide legal guidance, marketing materials, and access to a trusted partner network. They can also provide training to staff, which is important because in new markets, many dispensary team members will be new to the cannabis industry and require more education and support to maintain compliance.
Current marijuana dispensary franchise options
While franchising is a sound business option, and other industries have seen a ton of growth and success in franchising, the fact that cannabis is federally illegal makes franchising a lot more difficult, and so far, rare.
This is because in the U.S franchisees are required to register your trademarks with the United States Patent and Trademark Office (USPTO) and are regulated by the U.S. Federal Trade Commission (FTC). Because franchisees will use your trademarks, you need to have rules around how those trademarks can be used.
The challenge here is that the USPTO is a federal agency, where cannabis is illegal. Getting trademarks for marijuana-related franchises is thus much more difficult than other industries.
But it can be done, and we’re starting to see players enter the space, including Eufloria Franchising, a nationwide marijuana franchise opportunity with both CBD-only and marijuana dispensary options.
Q&A with CEO of Eufloria Franchising, Eric Dangler
To get a better understanding of the cannabis franchising space, I chatted with Eric Dangler, CEO and co-founder of Eufloria Franchising, LLC, about why he started a marijuana dispensary franchise, what makes their model unique, and why franchising is a great option for some prospective dispensary owners.
Q: What makes Eufloria different from the other franchise options available?
A: One of our biggest differentiators is that we have business models available for both THC markets and CBD entrepreneurs in states that have not yet legalized THC. We enable people at any experience level to succeed in the greatest growth industry of our generation.
The other primary differentiator is we are the first U.S. trademarked dispensary franchise.
Q: How does the CBD franchise business work?
A: Since CBD is federally legal, you can open CBD stores across the U.S. We offer franchise opportunities as CBD-only stores.
Then, down the line, if your state legalizes cannabis, you can quickly shift into the THC store model. This will allow a quicker time to market for entrepreneurs in these up-and-coming states. It also puts a lock on prime dispensary locations which quickly disappear after legalization.
Q: What is the greatest benefit of the franchise model to the cannabis industry?
A: Opportunity in the market is on the rise. Demand in mature legalized markets is still very healthy and emerging markets offer even more opportunity. The greatest benefits of franchises are 1) speed to market and 2) a proven business model.
It’s simple, we offer a full turnkey operation for dispensaries. We help you to open faster, pinpoint the right market, recommend the right product mix and technology, ensure compliance, assist with pricing plans, and empower you with a winning brand, business plan, training, operational support, and marketing materials to drive a clear competitive advantage.
There are many small decisions that every new business owner has to work through to open a business. We give you the answers and make it much simpler to get your doors open. Many people in cannabis haven’t owned businesses before. Franchising gives you a built in support to increase your success. We are committed to high-performing, profitable operations for long-term success, as well as legally compliant business practices.
Q: Why did you decide to start a marijuana franchise business?
A: I’ve had several businesses over the years, but didn’t have any experience in cannabis. When Oklahoma legalized and I wanted to open a dispensary, I looked into franchising because I wanted someone to guide me through the process, since it’s such a complex business. There weren’t any.
Clearly there was a need for a franchise in the space. So, I decided that as I build, I’m going to build with franchising in mind. I wrote everything down, vendors, prices, paint codes, and I built my own dispensary with standardization in mind. I only brought on vendors who could scale. So it came out of a need and opportunity.
We just came online in 2019. Currently two dispensaries in Tulsa are open, each with a different model. These are the model stores that potential franchisees can come and tour. Two more stores around Oklahoma are nearing completion and another 10+ locations are in various stages of development.
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Which store layout is best for your dispensary?
Q: What is the process for opening a Eufloria franchise?
A: To start, you can visit our website and fill out the Franchise Request form. From there, the discovery phase will begin. This is when we get to know each other and determine whether Eufloria Franchising is a good fit for your planned THC or CBD business, as well as which model to build.
We have the Full Shop Model, which is more of a traditional cannabis dispensary layout, often as a standalone building.
We also have what we call the Kiosk Model, which is a small footprint layout that could fit inside another type of store, or alongside other businesses, like cannabis cafes or wellness centers.
We will provide a franchise disclosure document (FDD), which is a legal disclosure document that contains information about franchising with Eufloria, fees, expectations, etc.
We are looking for people with a passionate interest in entering the cannabis market and are aligned with our brand values and business standards. Prospective franchisees should either have experience with retail operations management or be open to hiring an operations lead to ensure success.
Initial investment for franchising is between $76,550 and $99,750, plus a $10,000 franchise fee for CBD only or $164,550 - $237,000, plus a $40,000 franchise fee for legal cannabis dispensaries. These are estimated costs based on Oklahoma averages, and prices differ for the Kiosk Model.
Q: How can we learn more about Eufloria Franchising opportunities?
A: To learn more about franchising and whether it’s a viable option to help you reach your cannabis industry goals, visit us at eufloriameds.com then click on the 'Franchising’ tab.
If you're ready to start a conversation, you can either contact me directly or click 'Get Started' to submit a request.
Thank you Eric for your insight and expertise. And thank you for choosing Flowhub as your preferred point-of-sale vendor for all franchise locations. It's an honor to work with you!