Don’t Go at it Alone: Cannabis Franchise Opportunities in Canada

As the cannabis market in Canada continues its growth, cannabis franchise opportunities could be the access point for companies looking to enter the industry’s retail channels.

A walk down just about any commercial street in North America paints a vivid picture of how large a role franchise businesses play in today’s commercial landscape. Signs for McDonald’s, UPS, 7-11, Travelodge and countless other continent-spanning franchises are ubiquitous sights. It’s not hard to understand why. An entrepreneur can choose to go their own way and build a business from scratch while hoping their own expertise — and luck — will be enough to keep them out of the new business graveyard, or they can tap into the established brand, pre-designed systems, and support network of an existing and time-tested franchise model.

The sheer number of golden arches dotted along a highway is a pretty good indicator that a lot of business owners prefer the latter option. In Canada, a whole new category is about to enter the retail landscape. Since the day Prime Minister Justin Trudeau was elected in 2015, a large number of would-be cannabis entrepreneurs have been looking into ways to grab a piece of this new and exciting — albeit complicated — marketplace. For a lot of these new cannabis players who have the capital but may lack first-hand cannabis industry experience, entering into franchise agreements is an opportunity to step into the business without the potentially business-sinking growing pains and risks.

The model makes sense for prospective cannabis franchisors as well. Cannabis producers have spent the past several years building production capacity and the challenge now is to develop retail networks capable of moving that product. Franchising allows for perhaps the fastest means for growing a retail brand. By bringing in franchisees to fund new locations, franchisors can open up as many locations as provincial regulations will allow with minimal financial investment of their own. The earliest days of legalization will be a race to establish a brand foothold as the market develops, and franchising provides a solid strategy for rapid expansion.

Pre-built brands, pre-built systems

From a branding standpoint, franchising will be uniquely beneficial to Canada’s cannabis industry. Strict national regulations mean that branding on individual products will be limited to a uniform packaging color without graphics or non-standard fonts outside of the producer’s logo. The federal government also regulates product prices, so setting a brand apart by price point is also a challenge. This means that storefront presentation and a quality retail experience will be all the more important when it comes to catching the consumer’s eye.

Furthermore, brand recognition is a powerful influence on consumer choice. Consumers are far more likely to walk into a retail store with a name and branding that they recognize and associate with quality and reliability. By creating a network of reliably uniform retail experiences, franchises are able to create a built-in customer base for their franchisees by building those positive brand associations that carry from one location to another.

Beyond branding, franchisors support their franchisees in a number of ways. This includes assistance in the process of securing real estate, human resources, stock management and more. In the cannabis space, aid in navigating the complex cannabis legal framework will also be an important element to that support. While acquiring the necessary licenses for cannabis retail is the responsibility of the individual franchisee, franchisors will have significant experience with the application process and will be able to provide invaluable guidance to ensure that it goes quickly and smoothly.

“Franchise companies have many advantages over independently owned stores, particularly relationships with key industry players and an established business model,” said Darren Bondar, President and CEO of Inner Spirit Holdings Ltd. “Since franchisees have the resources of a head office and area representatives at their disposal, they are able to focus on running their stores. This enables a premium customer experience at every store, including formally trained/educated staff, high quality products sourced from the industry’s top producers, and, in our case, an offering of proprietary products.”

Another important contribution by the franchisor will be the pre-built supply network. By now, most cannabis companies in the country will have established the complex supply chains necessary to get product from the grow house to the storefront and entering into a franchise agreement grants the franchisee access to the franchisor’s supply line and pre-existing partnerships, saving the franchisee the long and complicated process of creating their own network.

Where can franchises work?

The federal government made clear when it announced plans to legalize cannabis that the retail regulatory regimes would be the domain of the provinces. As a result, the provinces of Quebec, New Brunswick, Prince Edward Island, Nova Scotia and Newfoundland have all opted for government-run monopolies on cannabis sales, making any kind of privately owned franchise impossible. The provinces of British Columbia, Alberta, Manitoba and Saskatchewan, however, provide ample opportunity.

Ontario had initially announced a province-run model as well, but this unpopular decision has been reversed by the newly elected provincial government. In fact, in September 2018, it was announced that the province would not cap the amount of retail licenses issued to any one company as long as each location secures the necessary approvals from the Alcohol and Gaming Commission of Ontario. This stunning policy reversal means that a franchiser could open as many locations in Canada’s largest market as economically sustainable.

Emerging cannabis franchise opportunities

In late 2017, Calgary based company Inner Spirit Holdings (CSE:ISH) became the first cannabis company to gain membership to the Canadian Franchise Association. The company will operate numerous locations in Alberta, British Columbia and Saskatchewan under its Spiritleaf brand. To date, the company has granted franchises to more than 100 locations and plans to have up to 40 locations up and running by 2019. As one of the first companies using the franchise model in the cannabis space, Inner Spirit has the potential to quickly become a major player in Canadian cannabis retail and perhaps become one of the most recognizable brands in the industry.

Pineapple Express Inc. (OTCMKTS:PNPL) is applying the franchise model in California, the largest cannabis market in the world, while ONE Cannabis is applying the model in Colorado. Meanwhile, Golden Leaf Holdings (CSE:GLH) is also building a franchise network in Canada under their Chalice Farms brand.

Takeaway

The cannabis industry has had two years to build up their operations behind the scenes. Now, we’re seeing these companies building the brands that will be front and center in the eye of the consumer. The key to building the first nationally recognized cannabis brands will be to develop a wide foothold early in the game. By setting up cannabis franchise opportunities, these brands are able to expand quickly while providing the consumer with a reliable and consistent retail experience to help build that national brand.