Franchising Marijuana - Part One

Is franchising going to pot? ... or is pot coming to franchising?

So we are all aware of the buzz about the legalization of marijuana for medical and recreational use. (OK control yourself if you are buzzed, we're talking serious business here, so you may want to re-read this later) But have you considered that the marijuana industry may be ripe for franchising?

Medical marijuana is now legal in one-half of U.S. states.
18 states have decriminalized cannabis, and four states (Colorado, Washington, Oregon and now Alaska) and Washington D.C. have legalized it.

By 2020 a report predicts that 18 states will have joined the legalization wave. I predict that it will be more.

So how far behind can entrepreneurs be in franchising the various aspects of this emerging business?

Not far ... and some are already sniffing around the edges. Check out "weGrow" that states on its website "weGrow is a franchising and consulting company that helps entrepreneurs pursue medical marijuana business opportunities. And now we’re looking for partners in different states around the country so we can keep pace with the booming medical marijuana industry!." See more here.

Although they do not appear to be offering "franchises," take a look at "Your Cannabis Biz" here. They offer "Your Turnkey Promoter's Package" at various prices (sure sounds like a franchise or business opportunity plan to me) and promote their business as "A medical marijuana fulfillment and delivery service, YourCannabisBiz.com provides private, professional, knowledgeable, and compassionate access (sic) medical marijuana products to its customers."

Exciting! But here is the rub: if you think franchising is complicated, the legal issues surrounding the marijuana industry are hyper-complex and challenging for all concerned ... even for franchise attorneys.

In Part Two (coming soon) we will delve into the challenges. Stay tuned.

Jim Meaney is a lawyer with Zaino & Humphrey, LPA in Columbus, Ohio who has represented franchisors and franchisees for nearly 30 years. Jim is a co-author of “Starting a Franchise System: Practical Considerations, Planning and Development” and author of How to Buy a Franchise. 
Visit www.fddlawyer.com or www.ohiofranchiselawyer.com for more information or contact Jim directly at 614.975.9876 or jmeaney@zandhlpa.com

Let's Just Sell Licenses!

At least a dozen times a year I hear it – let’s just license our concept!

This usually comes from an eager entrepreneur responding to the inquiry of an enthusiastic buyer looking to duplicate a nifty new concept. Hand-in-hand with this exclamation is the belief that franchising is too complicated, too slow, and too expensive.

Some would-be licensors even delude themselves into thinking that a “licensed” concept will be more attractive to buyers – Not a franchise, No royalties, No ongoing payments! These call-to-action pronouncements may attract buyers. But are they really the type of prospects you want?

And, while it is true that these “let’s just license our concept!” systems may get off to a fast start, they may also have an abrupt and expensive end … for buyers and sellers.

In today’s “start your own business”-“business opportunity”-“franchise”-“license” “distribution”-world, it is very difficult to offer a program that, legally speaking, is not considered a “franchise.”

Just last week a number of my colleagues – all franchise legal experts in their own right – bandied about the “simple” topic of whether a proposed concept was an unregulated “license” or a regulated “franchise” or “business opportunity.” Many hours and words later the answer was crystal clear: it depends!

If some of the top legal experts cannot reach agreement on this “simple” issue, what do you think the chances are that the over-eager entrepreneur can get it right?

I may have said this before … but this stuff is complicated.

We will not attempt in this limited space to explore all the possible scenarios or definitions of “franchises” and “business opportunities” but suffice it to say that if (1) you charge an upfront fee, (2) offer any type of assistance (educational, marketing, accounts, equipment/inventory acquisition) in helping someone start a new business that you happen know a little something about and, (3) simply tell them that there is a market for this stuff or make any other representation that generally persuades people to follow your successful lead – you have just stepped in it! No, not that! … the legal realm of selling a regulated “franchise” or “business opportunity.”

So what you say? Well if you don’t mind having all your hard work go down the drain – translation: legal actions for rescission of the deal, payment for all losses, civil penalties and responsibility for the buyer’s legal fees (not to mention direct actions by state Attorney Generals or the Federal Trade Commission to stop you from selling) – then, by all means, just license your concept! 

Jim Meaney is a lawyer with Zaino & Humphrey, LPA in Columbus, Ohio who has represented franchisors and franchisees for nearly 30 years. Jim is a co-author of “Starting a Franchise System: Practical Considerations, Planning and Development” and author of How to Buy a Franchise. 
Visit www.fddlawyer.com or www.ohiofranchiselawyer.com for more information or contact Jim directly at 614.975.9876 or jmeaney@zandhlpa.com

NLRB Ruling Impacts Franchising - Existential Threat?

If you haven't heard a controversial stand by the National Labor Relations Board has franchise-industry advocates and the International Franchise Association (IFA) in a tizzy. Franchise Times has done an exemplary job of reporting on this - here and here - so I won't recount it all.

Suffice it to say that the NLRB is trying to hold franchisors, like McDonald's, responsible for alleged employment and labor violations as a "co-employer" or "joint employer" of their franchisEE's employees.

What caught my eye, however, is the comment by Robert Cresanti, executive vice president of government relations and public policy at the IFA, made in the Franchise Times' recent article, "IFA’s Cresanti: Joint-Employer “Existential Threat” to Franchising." Mr. Cresanti reportedly said: "What is happening with joint employer is a completely different thing [from "the minimum wage, 30-hour work weeks, Obamacare"] and it is an existential threat to this industry. If the NLRB gets its way and wins cases in the long term, franchising goes away and ceases to exist in any semblance of the form in which we know it today. It’s not hyperbole."

An existential threat? Not hyperbole? Sounds downright devastating. Except it may be just a tad bit exaggerated.

I am sure that Mr. Cresanti is an excellent advocate for all of franchising. But to say that franchising "goes away and ceases to exist in any semblance of the form in which we know it today," while attention-getting, goes too far.

There is no question that this is an important issue and I support the opposition to the NLRB's folly. In fact, there is likely no one in the franchise community - franchisees, franchisors, executives, or lawyers for franchisees or franchisors - who supports this wrongheaded notion. It simply ignores centuries of corporate and commercial law.

An "existential threat" it is not. Franchising as a business method is stronger and more accepted than ever. We still have a long way to go before the NLRB stance prevails in the court system, commercial marketplace and state and federal legislative bodies ... and my money is on the franchise industry.

And, even if the NLRB somehow prevails, my money is still on the franchise community to find a business solution to deal with the unwanted change. Franchising is a resilient economic force that will survive this challenge.

So, for everyone in a panic out there, I quote Aaron Rodgers ... "Relax."

Jim Meaney is a lawyer with Zaino & Humphrey, LPA in Columbus, Ohio who has represented franchisors and franchisees for nearly 30 years. Jim is a co-author of “Starting a Franchise System: Practical Considerations, Planning and Development” and author of How to Buy a Franchise. 

Visit www.fddlawyer.com or www.ohiofranchiselawyer.com for more information or contact Jim directly at 614.975.9876 or jmeaney@zandhlpa.com. 

Is Franchising Under Attack?

Is Franchising Under Attack?

No, not by any terrorist gang, regulator or franchisee group ... but under attack by TECHNOLOGY!

No one can argue that technology is changing the world and the world of business. In some instances it is disrupting entire markets, industries and distribution methods. Think Amazon, Netflix and The Huffington Post. Is the franchise model immune to these changes? I think not.

Let's look at two companies - Tesla Motors and Uber - whose approaches are creating business and legal shock waves.

Elon Musk, founder of Tesla Motors, recently explained why they are not using the traditional "dealer" approach -- see the WSJ interview here. Is it a pre-franchise approach or a franchise avoidance approach? Tesla is lobbying state lawmakers to change laws to allow it to sell directly to consumers.

Uber is disrupting the taxi-world by making almost anyone a driver-service without selling franchises. (I thought this was only possible in Jamaica where every car seems to be a taxi) I have not reviewed an Uber-driver agreement so I cannot pass judgment on whether it is a "franchise" or not, but they market it as an "independent contractor" program - "As an independent contractor with Uber, you’ve got freedom and flexibility to drive whenever you have time. Set your own schedule, so you can be there for all of life’s most important moments."

The backbone behind these new non-franchised businesses is TECHNOLOGY. They are coming up with new ways to deliver their "products." I have to admit that when my daughter forced me (almost physically) to download the Uber app I was resistant. But once I saw the "technology" at work I was impressed, if not hooked.

Okay, don't get me started on how disruptive 3D printing will be to franchising - we'll save that for another post ... but a Big Mac "printed" to my office - Yum!

If you are in an existing franchise-based business, is your market being disrupted and what are you doing about it?

Jim Meaney is a lawyer with Zaino & Humphrey, LPA in Columbus, Ohio who has represented franchisors and franchisees for nearly 30 years. Jim is a co-author of “Starting a Franchise System: Practical Considerations, Planning and Development” and author of How to Buy a Franchise. Visit www.fddlawyer.com or www.ohiofranchiselawyer.com for more information or contact Jim directly at 614.975.9876 or jmeaney@zandhlpa.com. 

Announcing The Franchise Contrarian

After practicing in the franchise area for over 30 years - representing both franchisors and franchisees and everyone in between - it is time to share some random thoughts, views and discussions that may be topical, thought-provoking or downright controversial. These may not reflect my personal views ...but then again they may!

This inaugural post is merely to announce the humble start of The Franchise Contrarian and to spread the word ... but it is written a few days after the Ohio State Buckeyes won the 2015 National Championship. So maybe we will include a little football along the way.

By the way, a "contrarian" is broadly defined as a person who takes up a contrary position, a person who seems to be "contrary for the sake of being contrary," especially a position that is opposed to that of the majority, regardless of how unpopular it may be. My wife tells me that I am fairly good at that!

So I hope to exchange ideas with my readers, generate some discussion and report on franchise topics of the day. Wishing you all a happy and healthy 2015...

But here is a little something for entrepreneurs looking to start a franchise system:

5 Mistakes New Franchise Systems Make!

Starting a new franchise venture is exciting – the anticipation of building a system, helping others succeed, financial success … all fueled by entrepreneurial energy and adrenaline!

But nothing can put the brakes on an otherwise enthusiastic and formidable franchise start than the following five missteps:

1. Failing to secure and register the trademark – the essence of franchise success is uniformity and brand identification. Your trademark is your identity. Do you have a trademark or service mark that is unique, protect-able and able to be registered with the United States Patent and Trademark (USPTO)? This is a federal registration that will protect you and allow you to ward off poachers – but not all names or marks are protect-able. The USPTO registers allowable trademarks that are not already registered, not descriptive for the goods/services, a geographical term or a surname. To determine if your mark will qualify for registration (i.e. protection), you need the services of an experienced trademark or franchise counsel.

2. Using a “reactive” development strategy – allowing franchise buyers to control where you will locate your units is a huge mistake. Careful and determined placement of your franchise locations is a must – be “proactive” not reactive. I see too many start-up systems that attempt to sell nationwide – the result is a far-flung, unmanageable system that lacks geographic synergy and brand identification. Concentrate, concentrate, concentrate. A statewide or regional development approach makes better sense than “going national.”

3. Failing to retain experienced franchise counsel – because franchising is a “regulated” business process (similar to selling securities), retaining inexperienced legal counsel is risky and costly. Preparation of a fully-complaint Franchise Disclosure Document, as required by the Federal Trade Commission and franchise registration states (approximately 15 states), as well as thoroughly-drafted agreements, is not for neophytes. My recommendation is to select a member of the American Bar Association’s Forum on Franchising, the preeminent national association for franchise attorneys. Forum members are exposed to constant legal updates, attend national conferences, write informative franchise articles and maintain a national informational network. Using inexperienced counsel can set a system back to the very start.

4. Improper franchise sales training – selling a franchise is tricky business. Some of the issues include: knowing registration requirements, having the correct documents, knowing when and how to deliver disclosure documents and final agreements, knowing the rules about financial performance representations – just to name a few. Flawed sales can lead to major legal problems. Make sure you and your sales personnel know what you are doing. For a great sales guide, consult my friend Warren Lee Lewis’s The Franchise Seller’s Handbook. (warren.lewis@akerman.com)

5. Selling to the “wrong” buyers – just as a “reactive” geographic development strategy can set a new system on the wrong path, so to can poor franchisee selections. The first few franchisees are the most important. Take your time and make sure you are choosing the best “partners.” You don’t want just anyone, you want the best ones. Before you meet with anyone, develop your ideal “franchisee-profile” and then see how your candidates stack-up against your standard. Develop a solid franchise application, check references, vet personalities and capabilities. Engage in proactive due diligence.

Get your system off to a strong start – match that enthusiasm with solid preparation by avoiding the five basic mistakes.

Jim Meaney is a lawyer with Zaino & Humphrey, LPA in Columbus, Ohio who has represented franchisors and franchisees for nearly 30 years. Jim is a co-author of “Starting a Franchise System: Practical Considerations, Planning and Development” and author of How to Buy a Franchise. Visit www.fddlawyer.com or www.ohiofranchiselawyer.com for more information or contact Jim directly at 614.975.9876 or jmeaney@zandhlpa.com.