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The cannabis retail sector is taking North America by storm. Here’s how franchising is playing its part.
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Words by James Fell, editor Global Franchise
Overall sales within the legalized U.S. cannabis industry reached $13.6bn in 2019, according to figures compiled by New Frontier Data – this was a 32 per cent increase on 2018’s $10.3bn. Looking beyond North America, the global legal marijuana market size is expected to reach $76.6bn by 2027, according to a report published by Grand View Research, Inc.
It’s no wonder, then, that this ever-growing sector is making a huge amount of investors see dollar signs amidst a haze of marijuana smoke. While the relatively nascent industry is most definitely seeing more and more big businesses entering the sector, in the retail space specifically, it is still mainly inhabited by mom-and-pop-style independent stores, which are ripe for converting into an operation with a well-known brand name and sophisticated retail livery. Franchising, meet cannabis.
As of March 2020, a total of 33 U.S states have legalized marijuana for medical purposes, and 14 of them have legalized the drug for recreational use. This number is expected to rise, with more and more Americans coming round to the idea of cannabis becoming legalized on a wide scale. In fact, a Pew Research survey reports that 67 per cent of Americans believe marijuana use should be legalized. That figure is over double of what it was in 2000 – 31 per cent – and, not too surprisingly, five times how much it was in 1969. This shows that the more ubiquitous the cannabis experience is becoming, the more tolerant the nation is getting.
So, why are we not seeing more franchised cannabis dispensaries and other marijuana-related concepts popping up all over the place? “There are lots of pitfalls and complexities, and that’s why there are not any franchisors yet,” says Justin Livingston, vice president of franchise development at cannabis dispensary franchise Unity Rd. “The first complexity from a franchisor standpoint is that here in the U.S., it’s federally illegal. Franchising is federally regulated and just being able to navigate the complexities of that, to even be a franchise, is number one. The number one thing that’s hurting new franchisor entrants is figuring out how to actually be a franchisor in this industry.
“The number one thing that’s hurting new franchisor entrants is figuring out how to actually be a franchisor in this industry”
“You really need deep industry expertise in cannabis, and also in franchising. It really takes having the best of both of those worlds to navigate each individual complication. So the requirements and issues on the franchise side, and the compliance issues and tax regulations on the cannabis side.”
While the growing and selling of cannabis will never necessarily be a straight-forward exercise, one place that has proven a breeding ground for marijuana-related franchise concepts is Canada. Medicinal marijuana was legalized in Canada back in 2001, and the federal Cannabis Act came into effect on October 18, 2018, making Canada the second country in the world – after Uruguay – to formally legalize the cultivation, possession, acquisition and consumption of cannabis and its by-products, thus igniting the flames of a new industry. Since then, not only have Canadian consumers embraced the product, but the franchising side of it has truly taken off, too. With Canada’s legal cannabis market projected to double from $6.5bn in 2019 to $11bn in 2025, according to the Defining the Cannabis Sector in Canada report produced by EY, it’s no wonder why there are investors and brands flocking to take a slice of the pie. From cannabis dispensaries and medicinal marijuana health centers to CBD and water pipe, vaporizer and accessory purveyors, there’s currently a strong number of franchise networks operating in the Canadian marijuana space. Franchisors have been quick to develop brands in the country, too. Inner Spirit Holdings Ltd, the parent company for the retail cannabis store Spiritleaf brand, has 100 corporate and franchise locations under development, with a growing portfolio of proprietary brands and strategic partnerships and investments in place. Other established brands that provide a premium service include the likes of HOBO and MedMen. And with this industry coming of age, we expect there to be a lot more brands entering this fruitful sector.
With Canada and sections of the U.S. providing the canvas for franchise businesses to plant their seeds and grow, it begs the question of how internationally scaleable the concept is. European countries like Portugal and Belgium have legalized recreational and medicinal cannabis to varying degrees, but what about the likes of franchising hotspots, like Germany, France or the U.K.?
“I see the U.K. legalizing cannabis, but not for three or four years,” says Professor Mike Barnes, a medical cannabis expert and co-founder of Maple Tree Consultancy. “The present government is currently against legalizing it for recreational use, and I feel that we will need to wait for a political change. However, support for recreational use is growing – around 50 per cent of the population – and politicians may see that support and speed up the process.”
Barnes believes that while the cannabis industry has weathered the COVID-19 storm fairly well, the impact of the crisis will set the industry further back in its hopes of marijuana becoming legalized in the U.K. “Cannabis businesses are no strangers to operating in a challenging and consistently changing landscape, and we’ve seen this industry resilient against socio-economic, political and policy-driven barriers,” he explains. “Demand for medical clinic prescriptions has continued to rise despite COVID, and there has been a greater focus on staying healthy and boosting immune systems, which is driving consumers to a variety of health-focused products, including CBD. The problem is supply chain issues from abroad.
“In the U.K., all cannabis medicine is imported. This has highlighted the need for a U.K. industry, and I hope the government will speed up the cumbersome licensing process to allow good quality facilities to grow high THC cannabis before long. It will help the supply chain, reduce costs, provide valuable post- COVID jobs and tax income, and importantly, serve patient needs.”
GET TO KNOW: THE CANNABIS RETAIL SECTOR
• Recreational cannabis use is legal in 14 U.S. states
• A total of 33 states have legalized marijuana for medical use
• Cannabis was legalized in Canada in 2018 when the federal Cannabis Act came into effect
• Other countries where cannabis has been legalized for recreational usage include the likes of Uruguay, Portugal, Czech Republic and Belgium
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