Why Franchising Could Be the Answer to Retailing Cannabis in Ontario

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By Frank Robinson

People across Canada this week will walk into stores and legally purchase marijuana. But not in Ontario. A recent and radical restructuring of the cannabis retail regime from public to private, though welcome by many, has left the largest market for cannabis consumption in Canada the least prepared.

Ontarians will instead make their marijuana purchases online through the government-run Ontario Cannabis Store, unable to make any in-store purchases until next April and after the province consults with municipalities, law enforcement, and stakeholders to determine how a privatized bricks-and-mortar model should roll out.

Without question, a slow out-of-the-gate provincial pot monopoly as proposed by the prior government would have been an anachronism destined to miss the mark, to leave consumers underserviced and disinterested, and to shutout a dynamic force for growth in the private sector.

Regardless, what’s in store for Ontario’s pot shops remains hazy.

To spur and keep a vibrant and competitive industry that is capable of satisfying demand while stamping out the black market and protecting vulnerable communities requires a retail pot plan that allows for bricks-and-mortar development to be rapid and geographically dispersed. Harnessing the resources and spirit of independent operators can play an essential role in satisfying those goals. 

An established web of independently-owned businesses that can be successfully managed and responsibly governed within a centralized system lets many small business owners participate while ensuring regulatory control and experiential consistency. This is how the franchise retail model works.

By definition, franchising is a business method used for distributing products or services across a network of independently owned outlets that are linked by one operational control and unified by one brand or trademark. The brand owner, or franchisor, is responsible to develop and sustain a business system, including demand for its product, which it licenses to its franchisees. In turn, franchisees are tasked to establish and operate a branded and local outpost, which sells the product in accordance with the system. Franchising is built and flourishes on the very concept of centralized controls governing independent operations.

For decades, franchising has distributed our favourite hamburgers, pizza, and coffee and the model’s legitimization has been quietly but steadily pushing into the businesses of hotels, vehicle dealerships, fuelling stations, and our public services for healthcare, childcare, and education. Using franchising instead of a more ownership-concentrated approach can allow aspiring small business owners to get into the game as franchise operators, skip the growing pains, and reduce the risk of failure. Retail growth through cannabis franchise development would bring particular benefits to cannabis franchisors, who may not necessarily be adept at retail operation but have developed a demand for products and seek to capture market share by creating branded distribution networks to sell those products.

This type of royalty-generating network has created immense value and wealth in recent years for the private and public owners, building highly profitable branded networks, in part by acquiring smaller or accretive brands along the way.

Franchising will allow more aspiring small business owners in Ontario to own a stake in cannabis sale and distribution, granting access to this emerging and lucrative opportunity that would have otherwise been reserved for government or conglomerates. Wanting to maximize that opportunity and protect their investments, franchise operators should be more inclined to operate good businesses, engage their community, and respect the rules.

Canada’s burgeoning cannabis industry has mostly spent the last few years developing production capacity and is now looking to get its wares quickly into a nascent and competitive marketplace. Franchising could be the answer.

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Frank Robinson is a partner in the business law and franchise law groups at Cassels Brock where he practises business law with a focus on franchising, licensing, distribution and intellectual property and provides counsel on mergers and acquisitions, and general corporate, commercial and contractual matters. He can be reached at frobinson@casselsbrock.com.

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