A marijuana dispensary franchise offers a convenient way to operate a marijuana business. If you’re a marijuana business owner, you might consider expanding your operations by investing in a cannabis franchise or converting your existing operation to a franchise operation.
A franchise can streamline your business considerably. But franchising can come with added costs and less control. Here’s how to weigh the pros and cons of marijuana franchising so you can make a decision that aligns with your business goals.
Understanding Marijuana Dispensary Franchises
What exactly is a marijuana dispensary franchise? In a franchise model, you’ll operate a dispensary under an established brand name. The parent company is known as the franchisor, while the individual operators are franchisees.
Marijuana dispensary franchises are still required to have the same licensing and permits as any other cannabis business. But as a franchisee, you’ll have the benefit of the parent company’s resources and experience to guide you through the process.
Just be aware that you’ll have to pay a franchise fee for the right to sell and distribute cannabis products under the franchisor’s name.
Miracle Leaf Health Centers represents one of the more common marijuana dispensary franchises. Franchisees can choose between single-unit and multi-unit options, and the company offers extensive training and support.
The downside is that your franchisor will largely dictate your business operations, so this business model isn’t appropriate for those who want more control over their business.
Pros of Owning a Marijuana Dispensary Franchise
There are some excellent reasons to maintain a dispensary franchise rather than manage your own brand. Some benefits include:
- Established brand recognition
- A built-in customer base
- Training and support from the franchisor
- Assistance with marketing
- Lower risk of failure
- Access to supplies and equipment
- Strong business network
- Proven strategies
Together, these benefits can translate into better sales. For instance, the U.S. Census Bureau has calculated that franchise businesses bring in $180,193 per employee, while traditional businesses only bring in $156,295 — a difference of roughly 20%.
Cons of Owning a Marijuana Dispensary Franchise
Despite these advantages, there are reasons you might reconsider investing in a marijuana dispensary franchise. Drawbacks include:
- High initial franchise fee
- Some franchisors charge ongoing royalty fees
- Guidelines are set by the franchisor and may be restrictive
- May come with ongoing fees for things like marketing
- Limited flexibility in business decisions
- No guarantee that the franchising company will thrive
- Potentially high competition and market saturation
- Franchisees must share financial information with the franchisor
If you’re already an established cannabis business owner, you also may find it particularly restrictive to own a franchise under another company name.
Factors to Consider With Dispensary Franchises
What should you do if a franchise opportunity comes your way? Before you make a snap decision, think about some of the key factors behind owning a marijuana dispensary franchise.
Legal and Regulatory Considerations
As a cannabis business owner, you’re probably already familiar with the tight regulations surrounding cannabis businesses. Owning a dispensary will require different licensing than operating a production facility. Will the franchisor assist with the process of obtaining licenses and permits?
Market Trends and Consumer Demand
What are the market trends for your prospective operating area? Some franchises have already done the research and can provide you with valid, region-specific data on the demand for products in your area, which will determine how profitable your dispensary is likely to be.
But even if your franchisor offers this data, make sure to do some research on your own to ensure this is the right business for your immediate community.
Every franchise comes with costs. The most common costs include:
- An upfront franchise fee
- Ongoing royalties
- Equipment costs
- Marketing fees
- Licensing fees
While some of these costs are a one-time, upfront payment, others will be ongoing and can take a bite out of your revenue.
Profitability and Return on Investment
Most importantly, you’ll need to evaluate your potential for earning a profit. Market trends will give you an important part of the equation, but with a franchise, you’ll also have to consider your initial investment. How much are you investing in the franchise?
Remember to account for all of your costs, including franchise fees, equipment fees and ongoing royalties. Your decision should seek to balance your potential earnings with the return on your investment.
Alternatives to Dispensary Franchising
Franchising isn’t for everyone, nor is it the only path to business ownership. You might also consider some of the following alternatives to opening a marijuana dispensary franchise.
Joint Ventures or Partnerships With Existing Dispensaries
You might consider partnering with another established business. Like franchising, this arrangement will spare you the burden of the startup process, and you may benefit from doing business with an established brand.
But unlike franchising, you might not have the same kinds of franchising fees and expenses that can dampen your profits.
That’s not to say you won’t need financial support. But you’ll have a clearer understanding of what you’ll need and can pursue cannabis business loans to purchase inventory and equipment, or you can join with your new business partner to invest in a marketing plan.
Becoming a Cannabis Multistate Operator
A cannabis multistate operator (MSO) is a cannabis business that operates in more than one state. Like franchising, becoming an MSO allows you to build brand awareness across multiple geographic areas, which also distributes risk across multiple dispensary locations.
Your business will become subject to the regulatory issues of each state you operate in, which can become confusing. You also may see intense competition in certain locales. Still, this can be a valid option for those who wish to expand without having to partner with another business or franchise.
Grow Your Existing Operation
Perhaps the best alternative to franchising is to keep investing in your existing cannabis business. You might grow your business by introducing new product lines, expanding your operation or opening new dispensary locations in your community.
To accomplish this, you’ll need the right financing. While banks and traditional lenders don’t provide funding options for cannabis businesses, nontraditional cannabis lenders can still help.
You can seek loans for things like real estate for new locations, purchasing new equipment and working capital to cover your day-to-day operating expenses.
Match Your Financing to Your Goals
A marijuana dispensary franchise can be a great idea if you dream of owning a successful business right out of the box. Operating under an established brand name gives you instant name recognition and built-in customer loyalty from Day One.
At the same time, franchisees won’t have the same level of control over their business, despite paying high franchise fees and ongoing costs.
If you pursue an alternative to franchising, it’s important to find the right cannabis lender to support your purchase of inventory, equipment, and retail space. The right financing can fuel your dreams and put your business goals within easy reach.
Frequently Asked Questions
Q: How profitable are marijuana franchise businesses?
The exact profits depend on your location, profitability and any franchising fees you pay to the parent company. Keep in mind that some states, like California, prevent you from deducting operating costs from your taxes, which can affect your overhead expenses.
Q: Can you get funding for cannabis real estate?
Banks and traditional lenders don’t typically offer real estate loans for cannabis businesses. However, cannabis lenders can offer support for real estate costs, equipment loans and working capital loans to cover a range of expenses.