The Dangers of Accidental Franchising for Your Cannabis Business

Protect Your Cannabis Business from Accidental Franchising

As a cannabis business, your goal is increased brand awareness and growth. Naturally, mulling over the idea of franchising arises as a way to expand your market and brand presence. Franchising may seem like a golden ticket to success, but with all of the potential legal implications due to cannabis’ tricky relationship with the FDA and the complicated guidelines of franchising in general, it may do you more harm than good. Here are some things you should be aware of in terms of accidental franchising to keep your cannabis business safe.

What is Franchising?

It isn’t hard to see what makes franchising so appealing. It allows a business to gain exposure through additional store locations without having to spend anything out of pocket. The way it works is that a franchisor will give a franchisee a trademark license allowing them to own and operate their own cannabis business using the franchisor’s trademark and trade dress. The franchisee then gets to hire and supervise its workforce as long as it abides by the franchisor’s brand standards. On top of all of that, the franchisor is paid licensing fees off its top-line revenue. Seems like a good bargain for the franchisor, right?

The Risks

While cannabis may be legal in the state your business operates in, it is still deemed illegal under federal law1

. Because of this, banks, landlords, and insurance companies aren’t too keen to do business with cannabis companies that are more or less breaking federal law. While the potential for cannabis market growth is limitless upon its federal legalization, they must find ways around functioning without these unwilling service providers in the meantime. As if this wasn’t difficult enough to maneuver around, franchising laws themselves are complicated and extremely strict. If your cannabis business is caught selling a franchise without abiding by every fine point of franchising law, you risk having assets frozen, restitution orders sent, cease-and-desists issued, and more.

Accidental Franchising

Accidental franchising2

refers to any franchise sold that violates federal and state franchise laws. If you think you can get a free pass by saying you were unaware of the laws, think again. Franchise laws are strict liability laws that hold franchisor’s accountable regardless of whether the sale was intentional or not. Even if a business is operating under a different term, if it essentially acts as a franchise, it will be penalized as such.

The Bottom Line

As cost-efficient and rewarding as franchising may seem, the risks certainly outweigh the benefits- at least for now. Worry not, you have other options. The internet is a vast resource that can still help you gain the recognition and brand awareness you need to prepare your business for when cannabis is finally legal under federal law. And, as long as you follow FDA regulations for describing your products, you have much fewer risks to worry about.

Want to build your brand reputation? Let the experts at Herban Creative help you with everything from web design and development to social media marketing and SEO strategy, ensuring your products are placed in front of the right audience. Contact us today for more information!

  1. Hall, Aaron. “Accidental Franchise: Is Your Licensing Deal Really a Franchise?” Attorney Aaron Hall, 22 Feb. 2019, aaronhall.com/accidental-franchise-is-your-licensing-deal-really-a-franchise/.

  2. “Federal Marijuana Laws.” Findlaw, criminal.findlaw.com/criminal-charges/federal-marijuana-laws.html.

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