Franchising is one of the giant economic forces in the U.S. given the fact that this business model generated approximately $451 billion in 2018. Are we about to see cannabis enterprises built upon this model? Anyone intending to enter cannabis franchising needs to think about and find remedies to the following major bottlenecks.
Conflicts Between State and Federal Laws
Despite the legalization of marijuana for recreational or medical use in various states across the U.S., cannabis remains a Schedule 1 substance at the federal level. This creates major legal issues for businesses which wish to operate franchises in the cannabis industry. For example, a franchise owner cannot ship products across state lines in order to sell the excess products from one state in another state where supply is limited. This makes the possibility of prices nose-diving a real concern since gluts inevitably result in plummeting prices.
Tax Issues
According to the federal tax code, marijuana businesses aren’t eligible for any deductibles on the costs that they incur during the execution of their business activities. For example, marijuana businesses cannot deduct the cost of buying business premises and yet other enterprises which don’t transact in Schedule 1 substances can claim tax deductions on this business expense. These tax disadvantages mean that cannabis businesses will struggle to be profitable unless they can find ways to be super-efficient regarding non-deductible expenses.
Limited Consumer Awareness
Marijuana has been prohibited for long and certain stereotypes about the substance still exist even where prohibition has ended. Cannabis franchisees would therefore have to do a lot to educate their prospective customers in order to make sales on a consistent basis. This added challenge of performing customer education on an ongoing basis isn’t faced by franchises in other industries, such as the fast foods industry.
Limited Investor Interest
Currently, investors aren’t too eager to put their money in an industry which still faces legal uncertainties. This explains why US-based marijuana companies are generally undervalued when compared to their Canadian-based counterparts, for example. While this limited investor appeal exists, any cannabis franchisers that set up shop may struggle to attract investors unless the legal space changes for the better.
In the true entrepreneurial spirit, every challenge presents a business opportunity. The cannabis franchise space is therefore open for the taking for those individuals who devise ways to bring a franchise concept into the cannabis space in a way that ensures that investors will earn a return despite the challenges above. Sproutly Canada Inc. (CSE: SPR) (OTCQB: SRUTF) (FRA: 38G) and SinglePoint Inc. (OTCQB: SING) hope that enterprising individuals will take up this challenge and devise franchises which will spur the growth of the cannabis industry even more.
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