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Choosing a Retail Model for Your Cannabis Business (Part 1)

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Have you ever thought about franchising vs licensing? What about owning your own brand? There are many different ways to achieve success in cannabis retail. Choosing the business model that best suits your style and matches your vision is key in determining how far you can go, and how happy you’ll be when you get there.

If it sounds insurmountable to manage the balance of keeping up with the unique and ever changing regulations while also differentiating and establishing a brand, you might just find that franchising is the best bet. Then again, if you take pride in influencing multiple aspects of the business and feel strongly about ownership and equity, the DIY model could be more fruitful. Managed Services lends support and infrastructure to an independent brand, and licensing allows for true ownership and provides the benefit of leveraging an existing trademark.

The bottom line is, the retail model you choose is completely dependent on what your business and personal goals are. In this series, we’ll go over each model in detail and compare real examples of real companies so you can best match a retail model to your cannabis store vision.

Before you get into the game, you’re going to need a license, and depending on where you are, the licensing rate is either speeding up or slowing down. Canada’s legal market seems to have hit a boost, while certain states in the US have hit pause on new applications in places. 

Ontario, for example, has shelved their controversial lottery process and opted now to increase the rate of licensing by placing no limit on the amount of applications. They are currently issuing 10 per week, and there’s another planned update in February 2021. By contrast, the WSLC in Washington State is currently not accepting any new retail applications. For more on licensing and the application process, you can click here to learn more. 

Now that we’ve covered some considerations, let’s look at the different retail models: 




The Franchise Model 

To operate a brand under the franchise model means opening multiple stores that operate uniformly. Specifically, franchising is a business relationship in which: One party is granted the right to conduct business under someone else’s trademark, trade name or logo; A fee is charged (whether ongoing or one time, directly or indirectly); and the party granting the rights to use the trademark, trade name or logo exercises significant control or offers or exercises significant assistance to the operator.

In Canada, franchising remains as a massive portion of the province’s cannabis stores. This is due to the uphill battle of generating awareness for a completely new brand, as many Canadian cannabis professionals have opted instead to utilize the benefits of established ones. 

 

The Licensing Model

Licensing is a slightly different premise, which involves paying to use companies’ existing intellectual property to benefit from a trademark, technology or other legal right. One of the main differences in a franchise vs licensing model is the amount of control that a franchisor holds over the franchisee. 

When you license a business, you sell the rights to use your company's products and trademarks in exchange for some version of royalties, which typically are an agreed upon percentage of the licensee's sales. Franchising involves retaining a lot of power and decision-making by contrast. 

 

The Managed Services Model

The Managed Services model involves contracting a professional firm to increase sales, develop employees, enhance operational efficiency and create a consistent customer experience. Of all the options, this is the most like outsourcing a company to help with your own brand, which can be enticing to entrepreneurs new to the business. 

While you remain in control of your brand and creating differential, contracting a Managed Services company will help you with the learning curve of establishing the brand operationally and saves time and money in building your store. The core services offered by such companies tend to include launch and onboarding, marketing, retail design and management, logistics and infrastructure, accounting and bookkeeping, SOPs and staff training. 

 

The DIY Model

The DIY model, then, is exactly what it sounds like. This involves starting and running the business yourself, with minimal oversight or influence from outside parties. With more control over the products, ownership of your own retail brand, and lower monthly operating costs, this option can be extremely enticing. At the same time, doing all the work yourself and figuring out who to work with and what your store needs can be a major headache. 

Before you settle on one, ask yourself a few key questions to understand which type of business arrangement fits your vision: 

  • Does the franchise you're considering have a proven track record of success?
  • Do you find the securities laws that cover franchises to be cumbersome?
  • Do you prefer a greater degree of control in managing your business? 

Every model has its potential challenges and benefits. As you consider the difference between franchising and licensing, and the advantages of getting help through Managed Services versus  the full control of a DIY model, you should already have a model in mind that suits your vision.

Want to hear from established, leading brands about how they optimized their own retail models? Click the button below to download the recorded webinar featuring four leading Cannabis entrepreneurs. 

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This is Part 1 of a 3 Part series. Stay tuned for our next instalment as we dive deeper into Licensing and Franchising, and talk to companies who are excelling with both retail models.

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