For pioneer in cannabis franchising, ‘plowing’ is the only way forward
Illustration by Jonathan Hankin
Mike Weinberger, chief operating officer of One Cannabis, doesn’t listen to naysayers. That was true when he started looking into franchising cannabis, about five years ago, “and at that point in time met with, ‘No way,’” he said.
“Anyone’s initial response to something that hasn’t been done before is no. It’s just human nature,” he said. “So, you ask my mom when I was growing up. I don’t understand the word no.”
Nonetheless, he concedes the work, legal and otherwise, his firm has done to get marijuana to the masses via franchising is heavy. “Plowing is a good description,” he said.
An attorney by training, Weinberger started digging into the issues and found “zero acceptance” at the federal level at the time, but he points out cell phone towers were illegal at one point (because they were deemed to be pollution); alcohol, too.
“About three years ago I had more legal meetings and talked with many firms, and started to see cannabis is a state’s rights” issue in the U.S. and franchising is the same.
The hurdles are falling one by one, he maintains.
On trademarks: “Trademarks are held by the USPTO, which is a federal agency, and they don’t recognize cannabis. However, you can trademark within states,” he says.
On insurance: “It’s getting better.” The big seven insurance brokers, “they take cannabis clients now. That wouldn’t have been the case 18 months ago.”
On banking: The majority of banks are FDIC-insured, and “if they’re federally insured they won’t do business with cannabis companies. However, there are quite a few banks that are in the states that are credit unions or non-FDIC banks, and we use those banks through safe harbor,” he said.
“And Congress is having hearings on the STATES Act, and that would open it up.” The bill would recognize U.S. state laws that have legalized cannabis through their legislatures or citizen initiatives.
“The industry is moving at a good pace,” he said. “It just takes a minute.”
Questioning Schedule 1
The driver of the changes: public opinion. “People stopped listening to the word no and started asking smart questions,” he said. “Why cannabis is illegal goes back almost a hundred years,” to the early 1900s, and particularly to 1970 and the Controlled Substances Act, which named marijuana a Schedule 1 drug along with the likes of heroin and LSD.
“It doesn’t tie in with other Schedule 1 drugs, it just doesn’t,” he said, “so people started to question that.”
Shelley Spandorf is a prominent franchise attorney at Davis Wright Tremaine in Los Angeles, and part of the firm’s young practice group specializing in cannabis, one of the hottest growth businesses today.
When she noted Franchise Times named One Cannabis a Dealmakers winner in April, in its annual project highlighting excellence in franchise M&A, she was inspired to write an article about how far the nascent industry has come in just a few years.
In a Franchise Law Journal article in 2016, she said, “it looked like there would be no practical way for franchising to get off the ground, because if you couldn’t register the trademark, that alone” was a non-starter. But now: “This is being liberalized, this is being accommodated,” she said.
“I think it’s no secret that franchising would apply to this industry. Whether it’s going to be sustainable is a different issue.”
The retail marijuana dispensary is the “most natural place” to see franchising, she said, but there are problems.
“You’re already subject to extraordinarily high rent, and you’ve got very big pot taxes and you’ve got extra cost for insurance,” she said.
“I think it’s going to be a pretty difficult financial model for franchisees unless the franchisors can figure out how to drive economies of scale down to the franchise level.”
Will One Cannabis prevail? “I think companies are poised on the sideline, waiting for One Cannabis to go out and knock them down,” she said, referring to barriers. “They’re probably thrilled that One Cannabis is leading the charge,” but maybe another firm, with an easier road, will ultimately thrive. “Capitalism rewards copycats.”
‘They see this is going to happen’
Weinberger remains firm in his stance that One Cannabis will be the one to bring pot to the masses, in part because he believes the franchise is ahead of most of the rest.
“There’s a copious amount of time and energy and legal framework—and money—that went into our system,” before taking it on the road. One Cannabis has five franchises sold, he said, and many multi-unit operators “in the pipeline.”
Colorado, where One Cannabis is based, is the “grandfather” of the industry, he said, legalizing marijuana for recreational use in 2012 (along with Washington.) When California voted to legalize recreational marijuana, in 2016, “the inevitability was on the wall. And since then I’ve seen a lot more open-mindedness, but also people looking to make money: Banks, private equity, lawyers … even big alcohol is invested quite heavily,” he said, “because they see this is going to happen.”
Then he returns to his least favorite word.
“If any entrepreneur took a first-blush no, the world would look a lot different,” he says. “What did people tell Elon Musk the first time he said he was going to Mars? Guess who is going to Mars some day.”
Beth Ewen is senior editor of Franchise Times, and writes the Continental Franchise Review® column in each issue. Send interesting legal and public policy cases to email@example.com.