Buying a Franchise

Think Twice about Marijuana Franchise Opportunities

Marijuana is completely illegal in 23 states and three U.S. territories. It is fully legalized in four states, and elsewhere it’s complicated. That’s enough legal flexibility that cannabis franchises are starting up. Several different cannabis-related companies, from e-commerce sites to herbal wellness centers, have announced the availability of franchise business opportunities.

Should you consider getting in on the ground floor with a cannabis franchise?

A Forbes article points out the marijuana franchise opportunities drawbacks:

  • Cannabis may be decriminalized in some states, but it is still illegal under federal law. That means that a franchise selling cannabis could be shut down at any time by federal authorities. Since it hasn’t happened yet, it’s impossible to predict what might set off a legal challenge.
  • The beauty of a franchise business opportunity is that it has been tested and proven successful over time. That doesn’t really apply to any current marijuana-related business, because they’ve all been open for just a few years. The franchisors also don’t really offer the value of name recognition, economies of scale, or other common franchise advantages.
  • Profit levels are also uncertain. All businesses have an element of uncertainty, but cannabis prices are volatile and taxes on cannabis are very high — 25% in Washington state. Add franchise fees to the mix and profits may never be robust.

The American Bar Association points out that cannabis franchisors can’t be expected to guide new franchisees through the legal complexities. Many of the new cannabis business founders sold the substance illegally before becoming lawful vendors; few have a strong legal background. What’s more, shoppers are likely to expect cannabis franchisees to be able to clarify their legal situation as customers. Add the fact that franchises are forbidden in some state laws on cannabis (Washington, for example, specifically limits cannabis businesses to a single location). Franchisees can expect to be in what can only be considered an uncertain legal position.

Some cannabis-focused franchises are taking a safer route by selling hydroponics systems, affiliate websites, or an e-cigarette system. In each of these examples, the franchisor never sells marijuana to the franchisee. Others are putting language in their franchising agreements that put the burden of legal issues squarely on the franchisees, specifying that the franchisees have the responsibility to follow all laws in their area and that the franchisor is not responsible for legal issues.

Franchise lawyers have been speculating about these potential legal issues. Here’s a list of possibilities mentioned on various legal blogs around the internet:

  • Given that marijuana is still a Schedule I substance, can a lawyer even legally give advice to a client who intends to sell it?
  • What if the instructions for the franchise system include illegal acts?
  • Can a cannabis business deduct business expenses on a federal tax return if the business is illegal under federal law?
  • Attorneys are blocked from “knowingly facilitating” crimes. Would advising a cannabis franchisee fall under this rule?

At this point, marijuana franchise opportunities may offer more interest — and more profit — to franchise lawyers than to franchisees. Read more about other top 100 franchises.

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