Buying a Cannabis Franchise - Is the Risk Worth It?

Buying a Cannabis Franchise - Is the Risk Worth It?

Marijuana entrepreneurs must assess the potential risks before investing in a marijuana franchise. In evaluating the risks of a franchise, it is important to remember to look at the whole picture since there could be multiple risks involved.

For instance, it will be better informed about whether to franchise for a business like online seed banks. You may also take this time to research at the WeekendGardener.Net for the best online seed banks that ship to the USA to better decide.

Given, base your decision whether to continue with the franchise or not based on the sum of all the risk factors. With that in mind, this article has listed down the five risk factors that you need to be wary. Please note that these are not the only risks out there.

CAPITAL RISKS

Capital risks pertain to the type of risks stemming from marijuana franchise owners’ lack or limited financial resources required to run the business according to the plan. As a potential franchisee, this should make or break your decision to franchise in a business. 

When you plan to enter into a franchise, read, examine, and review closely the financial statements attached to the franchise disclosure document (FDD). This kind of close inspection helps entrepreneurs like you determine just how well-capitalized the franchisor is. Franchisees who are not well-versed in finance, accounting, and even taxation, hiring an accountant would certainly help.

Experts also advise franchisees to run a Dun & Bradstreet credit report on both the franchisor and any affiliated companies or brands to get a complete financial picture of the company. Hiring a banker could do wonders for people who have no knowledge of credit reports.

FAD BUSINESSES

Avoid venturing on business opportunities that are based on fads. The age of the marijuana business can be a determinant of its longevity. While this is not the only thing that signals the capability of a business to stay open for a long time, this is certainly is a big indication of its resilience. Businesses and brands that have been around for quite some time are more likely to have an established market. As such, the likelihood of being around for many years in the future is high.

A business could be a startup but may not be based on a fad. But many fad businesses are a startup, which may end as just that without making it big. Once these fads lose their popularity, businesses based on them fizzle.

Of course, marijuana franchises based on fads are not necessarily zero. Some fads make it huge and you can get the return plus the earnings in just a few months or years. Before the fad dies down, by then, you can earn huge that you can use to diversify your business to sustain more promising and more long-term investments.  Best to jump early in these fad businesses.

REGIONALITY AND SEASONALITY

Perhaps the business is not a fad, but perhaps it is something that will grow only in a specific market at a specific time. The marijuana industry caters to a niche market. Even though the industry has been growing immensely, certain locations are favorable for marijuana businesses. As a franchisee, you need to evaluate whether the business will work well in your chosen market.

Take into consideration whether you can replicate the success of the business in your area if you plan to franchise. For instance, certain locations are a hotbed for recreational stoners. Certain locations have more medical marijuana users.

Businesses servicing or catering certain parts of the marijuana industry’s value chain, consider the seasonality of business in deciding whether to franchise or not. Seasons affect not only the cultivation of marijuana but also the businesses servicing. Examples of these are trucking businesses that may only be able to transport goods during harvest seasons. Season also heavily affects other services like warehouses and consultations.

REGULATIONS

Regulations in the sale and purchase of marijuana vary from extremely open to 20 years in prison among different states. Before you franchise, make sure that all regulations in your area had been considered. There had been many successes in making marijuana available for all. But there are still many challenges in terms of legality of different aspects of the business.

Look out for regulations involving selling, storing, and transporting marijuana in your area and nearby states. If your state is surrounded by conservative ones that still prohibit or even criminalize transport of marijuana, you may end up paying arms and legs for air transportations of goods.

SHOULD YOU RISK IT AND FRANCHISE ANYWAY?

Pundits are optimistic about the growth of the market of the marijuana industry. The fast-changing attitudes of people on marijuana offer glimpses of huge potential for success in franchising. Assess the bigger picture before franchising. Look for the risks given above and look out for other factors like your capability to handle a business or availability of resources to fuel your daily business dealings. Taking all of these into consideration, decide whether to risk it or not!