As cannabis legalization spreads across the U.S., companies in the industry are finding creative ways to grow their presence. Licensing, revenue-sharing, and franchising are emerging as key strategies for brands seeking to operate in multiple states while avoiding restrictions on interstate commerce.
The Licensing Landscape: A Complex Puzzle
Cannabis licensing deals allow brands to lend their name, products, or intellectual property to other companies for a fee. These arrangements typically include upfront payments and royalties, with the licensee assuming most of the financial risk. While this model provides a straightforward path to market expansion, it comes with challenges.
Avis Bulbulyan, CEO of California-based Siva, a cannabis consulting firm, emphasized the adaptability of licensing agreements.
“There are 50 different ways to split the fees,” Bulbulyan said, underscoring the variability in how deals are structured. However, some companies are moving beyond the rigid confines of traditional licensing.
Revenue-Sharing: A Collaborative Approach
California-based brand Stone Road has shifted from licensing to a revenue-sharing model, which distributes both revenue and losses equally among partners. This approach ensures that financial risks are shared, fostering a more cooperative relationship.
“It puts everybody in a more collaborative position,” said Sabrina Wheeler, Stone Road’s COO. By aligning the incentives of both parties, this model motivates everyone involved to maximize success.
To thrive in specific markets, Stone Road tailors its product offerings. For instance:
- California, Massachusetts, and New Mexico: A new pre-rolls multipack tin was introduced.
- New Mexico: Recognizing a gap, Stone Road launched 1-gram and 2-gram concentrates.
This adaptability has allowed the brand to meet market needs while fostering stronger partnerships.
Picking the Right Partners
Finding reliable partners is crucial for cannabis brands venturing into new markets. Stone Road vets up to 20 potential collaborators before making a decision, a process that prioritizes alignment on values and goals.
“Some think there’s more value to creating an in-house brand,” Wheeler said, explaining why not all prospects are a match.
Profit-sharing, another alternative, focuses on dividing profits rather than revenue. This model requires a high degree of transparency, as partners must share detailed financial information. While profit-sharing can deepen partnerships, Bulbulyan noted that it introduces complexities in accounting and logistics.
The Simplicity of Traditional Licensing
For some companies, traditional licensing remains the preferred option. Old Pal, a California-based flower and edibles brand, relies on licensing to scale its operations while maintaining a lean structure.
“Functionally, we like to keep things simple,” said Old Pal CEO Rusty Wilenkin.
Although profit-sharing offers potential benefits, Wilenkin expressed concerns about its scalability. “It might work in two or three markets, but to scale that nationally would be an overwhelming task to manage,” he said. Instead, Old Pal partners receive a set percentage of sales, making the model predictable and easy to manage with a small team.
Balancing Strategy with Market Demands
Each licensing model offers unique advantages, and choosing the right one often depends on a company’s goals and resources.
Here’s a quick comparison of the key models:
| Model | Pros | Cons |
|---|---|---|
| Licensing | Simple, scalable, minimal involvement | High financial risk for the licensee |
| Revenue-Sharing | Shared risks and rewards, collaborative | Requires strong trust and cooperation |
| Profit-Sharing | Aligns closely with profitability goals | Complex accounting, high transparency needed |
Justin Brandt, founding partner of Arizona law firm Bianchi & Brandt, advocates for licensing as a straightforward route to entering new markets. He emphasized the importance of finding dependable partners to ensure success.
As cannabis operators explore these strategies, the industry continues to evolve with a mix of innovation and pragmatism, opening doors to new opportunities across the nation.