The Winter Edition of the Franchise Law Journal published an interesting article on franchising a marijuana business. We have posted in the past about various legal issues related to concepts that attempt to franchise businesses selling marijuana or related products marketed to the marijuana industry. This legal article, however, expands in detail upon a number of issues which make franchising a tricky endeavor. It offers a finer point on many likely roadblocks including:
- Obtaining a Federally Registered Trademark. The United States Patent and Trademark Office’s (USPTO) continued refusal to grant trademark registration for cannabis related goods and services because marijuana is still illegal under federal law. As the article explains, certain rights are created by the use of the mark in commerce but federal registration confers many benefits on the trademark owner such as (i) nationwide protection, (ii) the presumption of exclusive rights to use the mark and (iii) increased remedies against counterfeiters. If you cannot obtain a federally registered trademark for your brand’s name, then the ability to grow and protect the franchise system’s goodwill is severally diminished.
- Opening a Bank Account. The burden on banks to comply with the Bank Secrecy Act and other federal obligations regarding banking make it nearly impossible for a franchisee to have access to standard banking accounts and may make it difficult for a franchisor to collect royalties from marijuana related franchisees. The Department of Treasury makes it clear that any bank choosing to service a marijuana business does so at its own risk. While some credit unions will provide services to cannabis businesses, the hazards associated with doing so far exceed ost lending institutions appetite for risk.
- Sourcing Through Approved Vendors and Suppliers. Most franchisors require that franchisees source products and supplies through its own approved vendors. However, transporting cannabis plants, oils, extracts and related materials or products across state lines through interstate commerce is currently prohibited under the federal Controlled Substance Act. This hamstrings a franchise systems ability to provide consistent, uniform and quality product.
These are just a few of the obstacles facing would be marijuana franchise systems. I encourage anyone interested in this fascinating topic to read the entire article here.