One Cannabis Ready to Roll Out Franchises amidst Challenges with Feds

Janet Sparks
February 8th, 2018
Photo: One of many pot shops on Colorado streets

As more states across the country are looking to legalize recreational marijuana, Green Man Cannabis dispensaries hopes to expand its brand through its franchising entity, One Cannabis.

The company said that industry annual revenues are currently at $6 billion. It wants to share its expertise with others who will compliantly operate their companies to its rules, without them having to learn the expensive lessons of growing a marijuana business.

Christian Hageseth, the seasoned entrepreneur behind Green Man Cannabis, touts his dispensaries to be the best in the nation. He says Green Man is well known for its connoisseur grade craft cannabis and many Cannabis Cup wins. The business owner says he is now focused on building the world's most powerful cannabis business franchise system under his new brand, One Cannabis. He touts that he has more than 20 years of experience in the business world and nine years in the cannabis industry.

"Those looking to open their own dispensary can be on the forefront of the nascent industry with complete confidence by tapping into the expertise of our award-winning team and the proven systems we've perfected over the years," said Hageseth. He says that One Cannabis is interested in expanding nationally through strategic franchise partnerships. The brand seeks prospective entrepreneurs interested in breaking into the industry, as well as people who have already obtained a dispensary license and independent cannabis dispensary owners who seek guidance and ongoing support from a trusted industry source.

One Cannabis, based in the founder's home state of Colorado, expects to have 50 locations within the next 36 months. While the franchise currently has opportunities for new locations with retail sites already identified in Denver and Frisco, a majority of its Colorado franchises will be with independent dispensary owners. The owner states, "Many independent dispensaries are generating revenues far below the industry average. That's why we're offering to convert them into One Cannabis. Joining our franchise [system] allows these entrepreneurs to learn from our best practices and benefit from our relationships so they can truly see their business's potential."

High Times magazine named CEO Hageseth as its "Industry Trailblazer." It said the founder authored Big Weed: An Entrepreneur's High-Stakes Adventures in the Budding Legal Marijuana Business, a chronicle of his journey in the cannabis industry. One article reported that when CEO Hageseth was starting his cannabis operation in Colorado, he was robbed five times before hiring a security company to collect his money and take it to a safe location.

One Cannabis touts that its company has hundreds of reliable partners. Vice president John Darwin, said, "Many suppliers steer clear of working with businesses in the cannabis industry, since it is not federally legal, which makes it challenging for those new to the industry. As a One Cannabis franchisee, you don't need to figure out how to talk to a landlord or secure a bank account because we know the best partners to work with. We have hundreds of vetted business relationships, so you only need one, us."

Blue MauMau unsuccessfully requested an interview with CEO Christian Hageseth through the company's public relations firm Pink Tree Creative, hoping to ask the chief executive what he envisions to be his biggest challenges in constructing a franchise system in the marijuana industry. As of today, Hageseth has not responded to the interview request.

Federal government is the biggest challenge for businesses in the pot industry

In reviewing the current marijuana industry, most cannabis businesses understand what their biggest challenges will be in the near future. Topping the list, is that federal banks are not allowed to conduct business with marijuana-related companies. That begs the question, what do marijuana businesses do with all the cash they collect on sales? How do they pay required taxes, social security, Medicare and employee tax withholding?

A Wall Street Journal article this week explained the banking situation saying, "A significant chunk of the financial system—including most credit-card companies and all banks that have access to the Fed's payments highway—is regulated by the U.S. government, which considers distribution and use of marijuana a crime. As a result, marijuana dispensaries have had to rely mainly on cash, raising security and logistical concerns."

The Wall Street Journal reported that under the Obama administration, the Justice Department issued legal guidance indicating that its priorities in combating illegal drug trafficking didn't include the sale and purchase of state-legalized marijuana. "It said it would crack down on the marijuana industry only in cases tied to other criminal activities, such as distribution to minors, firearm violence or trafficking of other drugs," the report said.

Now, the Trump administration is considering removing the Obama-era protocol that permitted banks to open accounts for cannabis-related businesses without being considered in violation of law. Attorney General Jeff Sessions has now put fear into the marijuana industry, in his move to overturn the Cole Memo, which "had previously laid a hands-off federal policy towards state marijuana policy," according to a Truth In Media report. It explains that federal prosecutors "will now be allowed to decide how to prioritize enforcing federal cannabis prohibition in relation to possession, cultivation or distribution in states that have legalized the drug."

Yesterday, following years of litigation, the Federal Reserve Bank of Kansas City gave conditional approval to Colorado-based Fourth Corner Credit Union to service cannabis-related businesses. There is one catch. In order to secure that approval, the credit union had to agree that it would not serve any business that directly handles funds from cannabis sales or any state-licensed dispensaries.

Truth In Media explained that "originally, in 2014, the credit union was awarded a charter by the State of Colorado to serve state-legal canna-businesses, but the Federal Reserve Bank of Kansas City refused to honor Fourth Corner's request for a master account on the grounds that federal law prohibits banks from serving businesses that handle funds related to an illegal substance. Without a master account, which allows access to the banking system, the credit union would not be able to operate."

A judge dismissed a lawsuit filed by The Fourth Corner Credit Union, seeking federal approval for the first credit union for marijuana in Colorado. District Judge R. Brooke Jackson said that allowing it "would facilitate criminal activity."

Cannabis franchises also face legal uncertainties

Recreational marijuana has now been legalized in Colorado, California, Alaska, Oregon, Washington, Nevada, Maine and Massachusetts. Washington, D.C. also allows the recreational use of marijuana. Franchises are regulated by both the U.S. Federal Trade Commission and by various state agencies. Forbes addressed some of the drawbacks of marijuana franchises in 2015. Below is a brief summary.

  • Cannabis may be decriminalized in some states, but it is still illegal under federal law. A franchise selling cannabis could be shut down at any time by federal authorities.
  • Franchising is based on the premise that franchise opportunities are tested and proven successful over a period of time. That doesn't apply for marijuana franchises.
  • Marijuana franchises do not offer the value of name recognition, economies of scale, as traditional franchises do.
  • Profit levels are also uncertain. While all businesses have an element of uncertainty, cannabis prices are volatile and taxes on cannabis are very high.

The American Bar Association has also address some of the problems related to marijuana franchises, as reported by Americas Best Franchises. The ABA states that these franchisors cannot be expected to guide new franchisees through the legal complexities. Other cannabis franchisors are putting language in their franchising agreements that put the burden of legal issues squarely on the franchisees, specifying that the franchisees have the responsibility to follow all laws in their area and that the franchisor is not responsible for legal issues.

Related Articles:

Janet Sparks

Janet Sparks

Comments

February 11, 2018 - 09:56am

Business format franchising is the wrong channel for pot

Look, whether the businesses will run afoul of the federal government is one issue. But even if the government allows pot retailing to flourish, there is a more fundamental business problem. Business format franchising is the wrong channel for pot.

Which franchising consultant sold this poor soul on this?

What the product is begging for above anything else is a manufacturing process that is uniform like Coke or Ford. A brand is not a Marijuana strain like Maui Wowie. Rather, think BAT with its KENT brand or Philip Morris with its Marlboro brand. After that, the producer will possibly need regional packagers through a product-distribution franchise that eventually helps develop and deliver the goods to additional channels as they open up-- e.g. convenience stores, supermarkets, etc.

Getting into the business of controlling how a shop owner paints and cleans the store, how the bins are organized and how staff interact with the consumer is the least of this budding industry's issues.

One of America's, Britain's and Australia's earliest franchises were bars. In America, that was before Prohibition. Bars were often licensed by large distillers as product distribution franchises in communities to distribute their "sin" goods to consumers. They also developed regional bottlers as product distribution franchises. There's a reason why beer and liquor producers developed and then later developed product distribution franchising as a channel to use and not business format franchising. Bars never really became business format franchises.

Business format franchising is the wrong distribution channel at the wrong stage for this budding industry with high cash flows. Unfortunately, this pie-in-the-sky would-be franchisor has been duped.