Monday, November 18, 2019

Marijuana - Pot - Franchising Update

This pot post has been simmering since I attended the American Bar Association's 42nd Annual  Forum on Franchising in Denver in mid-October. At the Forum, colleagues Mike Drumm and Caroline Bundy Flichter presented "FRANCHISING UNDER THE RADAR IN THE USA AND CANADA: HOW TO ENSURE YOUR CLIENT’S FRANCHISE DREAMS DON’T GO 'UP IN SMOKE.'” This is a pithy title for an overview of the sporadic legalization of "cannabis" in the US and Canada and the prospects for franchising a cannabis business.

That paper and session was quickly followed by the American Bar Association's Forum on Franchising's Franchise Law Journal article by Danielle Hunt and Vanessa Williams-Hall: "A TALE OF TWO COUNTRIES: DOES CANADA'S LEGALIZATION OF CANNABIS GIVE IT THE FIRST MOVER ADVANTAGE IN FRANCHISING?" (Summer 2019) (I would link to these papers but the ABA copyright policies prohibit publication without permission; perhaps the authors may be able to provide a copy for anyone interested)

Both articles cover the now well-known obstacles to franchising a marijuana business, especially in the US  -- for an overview of those issues search this blog for my earlier pot posts by searching "marijuana."

The continuing primary obstacle to move a marijuana franchise business forward in the US is that marijuana remains illegal at the federal level; while a number of states have legalized recreational and medical use.

My question to the presenters at the mid-October session was: are you aware of any pot businesses that have "franchised" across state lines? No, no one is aware that this has been attempted. This is confirmed in the article by Danielle Hunt and Vanessa Williams-Hall: Denver, Colorado-based ONE Cannabis has sold at least five retail outlet franchises in Colorado. Good reason exists for this one-state franchise system; no one wants to be prosecuted under federal law via the Commerce Clause of the U.S. Constitution and the federal Controlled Substances Act.

But, as the Hunt/Williams-Hall article points out, will US companies poised for cannabis franchising flee to Canada to expand their businesses? I suppose time will tell unless the US federal government changes its tune. Likely the calculated loss of precious tax dollars will turn the tide - something that Illinois's governor JB Pritzker seems to have focused on to attack Illinois's financial woes. (Recreational pot use will be legal in the Illini state on January 1, 2020)

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