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Franchising vs Licensing: Choosing a Retail Model for Your Cannabis Business (Part 2)

Compliance

 

This is the second instalment of a series. To start at the beginning, read part one here.

In this instalment, we’ll be taking a deeper look at the individual pros and cons of the licensing and franchise models for cannabis stores. By now, you know the features and distinctions of each model, but in this piece we’ll be looking at real examples of companies benefitting and striving in each. 

Micheal Birch and David Côté are the co-founders and dynamic duo behind Cannabis Jacks, an Ontario-based Cannabis brand that waves the flag for licensing with a low-cost model (which they talk in detail about here).

After surveying the landscape with co-founder and COO David Côté, formerly of Tokyo Smoke, Michael realized the gap in the market and jumped at the opportunity to create a lower-cost model that fits a more realistic need in the marketplace for Canadian entrepreneurs. Michael was also very adamant going into this venture avoiding the franchise model. “It’s quite confrontational, whereas a license model is more of partnership. The better they do, the better we do.” 

 

Why the Licensing Model Works

Brand licensing works because it’s the act of granting the use of brand marks and standard operating procedures. It encourages operators to share feedback and think critically about scaling their business while being provided an established brand and procedures to help them along the way. 

By leveraging a licensing model, owners maximize the power and reach of an existing brand platform, enabling them to build on a proven framework rather than making their own from scratch. Not only does this limit costs, it limits risk as you have the resource and benefit of experienced support. 

Franchising, by contrast, has a little less brand control and operational control for franchisees. Brand licensing benefits those who want to make their own local fingerprint and focus on the representation of their communities while building on top of an existing brand. Think of it like a “template” of sorts - while you’re not bound and controlled by the template, you can benefit from the pre-existing SOP, visual identity, and revenue models.


With more controls comes more responsibility, which makes licensing a happy medium between franchising and the DIY models. Depending on your background and acumen, you might be more interested in letting the experts handle various functions of your business, and you might find that sticking to your strengths is more worthwhile for the sake of your brand. 

For instance, if you’re considering entering the cannabis retail space and your past business experience comes in managing and owning a liquor store where you were hands on in the visual branding, merchandising, reporting and ordering, you might find a franchising model too constrictive and rigid for your sprawling, involved approach. 

However, if you’re a silent investor of sorts or just someone who wants to be less involved in the business operation, franchising and the limited functions and responsibilities can prove to be advantageous. 

 

Why the Franchising Model Works

One of Canada’s most prominent and influential Cannabis franchises is Spiritleaf, the first brand of it’s kind to launch 58 operational stores Canada-wide. The company is known for its quality customer service, and their national support center was designated as Franchisee’s Choice Designation by the Canadian Franchise Association. 

Through franchising with an established brand like Spiritleaf, there’s an expectation and confidence of success that’s due largely to the Spiritleaf network. Spiritleaf’s team has over 25 years of retail experience, and as a corporate and publicly traded entity, Spiritleaf offers their franchisees support on every single aspect of business, whether it’s advertising, marketing, finance, and legal support. Nothing you build as a part of a franchise is built alone - you will likely have an extensive network and proven business models that come ready right out of the box. 

Beyond the network, you’ll also get the benefit of the franchise’s private label brands that provide a better margin and more exclusivity, as well as  benefits programs that sprawl across all locations. Spiritleaf’s loyalty program in particular boasts over 110,000 customers. Now, imagine building that on your own from scratch!

Darren Bondar, president and CEO of Inner Spirit Holdings, attributes the early success of Spiritleaf to their passionate franchisees and partners across the country, but also the collective insights that all stores are able to share with one another.

“One of the biggest benefits I see is the market intelligence. When you have the data of over 58 stores across the country as a precedent to optimize your inventory and pricing, you have a tremendous advantage over other brands,” Bondar said. “Our partnership with Cova and Headset/Nielsen allows us that intel on what’s selling all across the country.” 

 

In summary, Licensing is for you if

  • You want to open a store with a local feel, but don’t want to spend the resources to develop a brand.
  • You want the flexibility to shape the operations of your store, but you don’t want to develop every procedure from the ground up (and create a 300 page SOP document from scratch)
  • You want to leverage the expertise of industry veterans in operations, product selection and technology, but don’t want to give up any control or ownership.

 

Franchising is for you if: 

  • You want to benefit from a brand network and the buying power from a large, corporate entity.
  • You value a lower operating cost and support on all ends of your business. 
  • You want a safer investment and want to reduce the risks that come with added controls of being a DIY entrepreneur or a licensee. 
  • You’re not as well versed on tech stacks, SOPs, retail design, branding, and ordering/inventory procedures, and you’d love set processes handed to you out the box.

 

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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