Turn-key dispensary franchises may still be a ways off, but some ancillary cannabis businesses aren’t waiting for federal legalization to dip their toes into all that franchising can offer.
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The legal cannabis industry is becoming big business, after all, projected to hit $20.6 billion in revenue nationwide by 2020 pending voter approval next month of adult-use legalization in five states and medical marijuana in two.
“Whether it’s frozen yogurt or senior care, the more opportunity that presents itself in any given industry the more franchising becomes involved,” said Tom Portesy, CEO of MFV Expositions, producer of Franchise Expo West, which continues through Saturday in Denver. “They seize a void and they come up with a great business model in an industry that’s growing. That’s where you find most of your success in franchised concepts.”
“Cannabis may very well take that to a whole other realm, depending on how many states, from medical as well as recreational,” he said. “The need of products and services to support the cannabis industry will become tremendous.”
Husband-and-wife owners Andrea and Dustin Klein opened their first clinic in Phoenix in 2013 after they moved to Arizona from Colorado and Dustin had a “terrible” experience getting his new medical marijuana card.
“I got ripped off. It was seedy, five minutes, weird. I had an appointment for 10 a.m. I didn’t get out of there til 1 p.m.,” said Klein, a medical card holder since 2005 who has psoriatic arthritis. “I came home and we literally didn’t stop talking about it until we built our Sun Valley.”
Modeled after the high-end plastic surgery centers that Andrea Klein managed for years, Sun Valley now has three company-owned locations in Arizona and just opened its first out-of-state clinic in Las Vegas.
“Besides it being green, our office looks very much like an upscale plastic surgery office,” Andrea Klein said. “It’s about making patients feel comfortable and not that they’re in some type of seedy, back alley office.”
At Sun Valley’s clinics, particular focus is put toward creating a professional environment where appointment times are adhered to, physicians “don’t get paid more to do more,” and the necessary paperwork is completed in a timely manner, Dustin Klein said. The owners also have no connection to dispensaries.
“Now that states are going rec, people are done with the little doctor in a box, that it is a joke,” Dustin Klein said. “The people who are going to continue to get a card want to take it seriously.”
Their first targets for franchising include Colorado and New Mexico, as well as additional locations in Nevada and Arizona.
“I really see Sun Valley being everywhere, in every state and every country,” Dustin Klein said. “When people think of medical marijuana, I want them to think of Sun Valley.”
Given the complexity and variation of state regulations for direct cannabis businesses such as dispensaries and grow operations, ancillary businesses like clinics may be the more natural outlet for franchises in the near term, said Taylor West, deputy director of the National Cannabis Industry Association.
“That kind of operation is much more feasible in what we would call the ancillary part of the industry, the people who aren’t directly handling the plant,” West said. “Those folks don’t have the same regulatory hurdles.They don’t have to have all the same licenses or approvals from the state.”
When it comes to expansion, the industry has seen growth in brands with multiple company-owned locations in the same state, she said. Infused product makers have also licensed their formulations and brands to manufacturers in other states.
“You’re almost certain to see at some point companies standardizing the way they have outlets in multiple states,” West said. “Whether that means a full-on franchise is still a little of an open question.”
Hops & Haze, a vape shop-brewpub hybrid based in Georgia, specifically chose the Denver expo to advertise its franchise opportunities because of the state’s cannabis connection, CEO Jeremy Kwaterskisaid.
“We feel there’s a huge potential, especially come November,” he said.
Born out of a desire to expand their vape shop’s business, Hops & Haze still offers vapor products — vaping on-site is allowed and welcomed — but also craft beer, fast-casual favorites like pizza and cheeseburgers, arcade games, pool tables and weekly entertainment.
Right now, their locations only allow vaping of the e-cigarette variety, but Kwaterski said they are positioned for future law changes allowing social cannabis consumption in regular businesses or private clubs.
“There’s nothing that can stop it,” Kwaterski said. “The momentum is too strong.”