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Small Businesses Could Feel the Burn from Federal Legalization of Cannabis

The current niche market is great for small businesses and franchises, but federal legalization could change all of that.

In some parts of the country, it may seem that federal legalization of cannabis is nothing more than a pipe dream, but two-thirds of U.S. states already allow medical marijuana, and a growing number have legalized recreational use, according to Forbes.

Conflict between state and federal law is not uncommon, but the cannabis industry has seen a lot of momentum as of late including the rise (and subsequent controversy) of Cannabidiol (CBD), a non-psychoactive component of cannabis.  

Controversy aside, where marijuana is is legal, cannabis vendors have entered the $451 billion dollar franchising industry. As of May, Denver-based cannabis retail concept ONE Cannabis sold the franchise rights to five Colorado locations at a steep $130,000 franchise fee with startup costs estimated between $325,000 to $1.3 million according to Forbes. Needless to say, these are high times for cannabis vendors—especially those who have the opportunity to franchise. 

The state of the industry ultimately hinges on cannabis’ current federal classification as a Schedule 1 substance, which, per the DEA, defines those as “drugs with no currently accepted medical use and a high potential for abuse.” Other members of this category include heroin, LSD and ecstasy. While this classification strongly limits franchise expansion across state lines, federal declassification could open up the industry in a way such that “only the largest, lowest-cost and most well-capitalized producers will succeed,” said Garrett Nelson, senior equity analyst at CFRA Research in Rockville, Maryland to Forbes.

There is a lot of green to be had in cannabis, with Forbes forecasting that recreational cannabis spending will quadruple by 2024, but who will get a piece of the pie? Would you buy artisanal bud from a mom-n’-pop pot shop, or is it just another thing you’ll toss in the cart at the grocery store?