American Shaman
Initial Investment Range
$88,100 to $184,400
Franchise Fee
$35,000 to $40,000
We offer CBD American Shaman franchises for the development and operation of retail establishments that sell curated or proprietary hemp-derived cannabidiol (“CBD”) products.
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American Shaman May 22, 2024 FDD Risk Analysis
Free FDD Library AI Analysis Date: July 16, 2025
DISCLAIMER: Not Legal Advice - For Informational Purposes Only. Consult With Qualified Franchise Professionals.
Franchisor Stability Risks
Start HereDisclosure of Franchisor's Financial Instability
High Risk
Explanation
The franchisor’s audited financial statements in Exhibit E include a “Qualified Opinion” from the auditor. This is a significant red flag, issued because the financials improperly exclude the results of a parent entity (SVS Enterprises), which is a major departure from U.S. Generally Accepted Accounting Principles (GAAP). The provided balance sheet also shows a significant accumulated deficit and negative equity, indicating the franchisor entity by itself is not financially stable and is dependent on its parent.
Potential Mitigations
- Your accountant must carefully review the qualified audit opinion and all financial statement footnotes to understand the full implications.
- It is crucial to have your accountant analyze the franchisor's dependency on its parent company and assess the overall financial health of the entire enterprise.
- Ask your attorney about the legal ramifications of investing in a franchise with a qualified audit opinion and negative equity.
High Franchisee Turnover
High Risk
Explanation
The franchisor explicitly warns of a high turnover rate as a “Special Risk.” The data in Item 20 confirms this, showing a very high number of franchisee exits over the last three years. For example, in 2023, 44 outlets, representing over 21% of the franchises that started the year, ceased operations or were reacquired. This extremely high rate of turnover is a strong indicator of potential systemic problems, franchisee dissatisfaction, or lack of profitability within the system.
Potential Mitigations
- With your business advisor, you should contact a significant number of former franchisees listed in Item 20 to understand why they left the system.
- Your accountant should analyze the multi-year turnover rates from Item 20 to assess the system's stability and trends.
- Discuss the high turnover rate directly with the franchisor and evaluate the credibility of their explanations with your attorney.
Rapid System Growth
Low Risk
Explanation
This risk was not identified. The data in Item 20 shows that the franchise system has been shrinking significantly over the past three years, not growing rapidly. A shrinking system presents its own risks, such as declining brand recognition and potential issues with system viability, which are reflected in the high turnover rate.
Potential Mitigations
- Your business advisor should help you analyze the system's contraction and understand its potential impact on brand value and support levels.
- Engaging an attorney to discuss the implications of joining a shrinking system on your long-term investment is a prudent step.
- You should ask the franchisor for their strategy to stabilize the system and reverse the trend of outlet closures.
New/Unproven Franchise System
Medium Risk
Explanation
The franchisor, American Shaman Franchise System, LLC (ASFS), began offering franchises in 2018. While it has several years of operating history, the FDD discloses significant, ongoing challenges. These include extremely high franchisee turnover, persistent regulatory actions, and financial instability. These factors suggest that despite its age, the franchise system has not yet achieved a stable, proven, and sustainable operational model, posing a higher risk to your investment.
Potential Mitigations
- A business advisor can help you conduct extensive due diligence on the system's troubled history and assess its future viability.
- It is important to have your accountant scrutinize the financials to understand the reasons for the system's lack of stability after several years.
- Discussing the system's challenges with a significant number of current and former franchisees is critical for a realistic assessment.
Possible Fad Business
Medium Risk
Explanation
The franchise operates in the cannabidiol (CBD) and hemp-derived products industry. As disclosed throughout the FDD, this market is subject to a complex, inconsistent, and rapidly evolving regulatory landscape at the federal, state, and local levels. The risk exists that changes in laws or consumer perceptions could negatively impact the long-term viability of the business model. The FDA Warning Letter disclosed in Item 3 exemplifies this tangible risk.
Potential Mitigations
- Your business advisor should help you research the long-term market trends and regulatory outlook for CBD-specific retail.
- It is essential to consult with a local attorney to fully understand the specific regulations and risks in your particular jurisdiction.
- Developing a business plan with your accountant that accounts for potential market shifts and regulatory changes is a vital measure.
Inexperienced Management
Medium Risk
Explanation
This risk was not identified, as the franchisor's founder has been in the business since 2015. However, the system's operational results, including multiple government enforcement actions for registration and disclosure violations, a pattern of litigation, and extremely high franchisee turnover, suggest that the management team may lack the specific experience required to successfully operate a national franchise system in compliance with franchise laws. These outcomes are often indicators of inexperienced franchise management.
Potential Mitigations
- A thorough review of the litigation and turnover history with your attorney is critical to assess management's capabilities.
- Speaking with current and former franchisees can provide insight into the quality and effectiveness of the management team's support.
- Engaging a business advisor to evaluate the operational track record of the franchise system is recommended.
Private Equity Ownership
Low Risk
Explanation
This risk was not identified in the FDD. Item 1 indicates the franchisor is owned by its founder through a holding company, SVS Enterprises, LLC, not by a private equity firm. The risks associated with private equity ownership, such as a focus on short-term returns over long-term brand health, do not appear to be present here.
Potential Mitigations
- It is still wise to have your attorney review the ownership structure in Item 1 to confirm the absence of outside financial partners.
- A business advisor can help you research the background of the stated owners to understand their business philosophy and track record.
- You should verify with your accountant that the financial statements align with the disclosed ownership structure.
Non-Disclosure of Parent Company
High Risk
Explanation
This risk is present and severe. The auditor's report in Item 21 is “qualified” specifically because ASFS management elected not to consolidate the financial statements of its parent company, SVS Enterprises, LLC. The auditor states this is a departure from GAAP and that the parent is a Variable Interest Entity whose financials should be included. This prevents you from seeing the complete and accurate financial picture of the overall enterprise you are investing in.
Potential Mitigations
- Your accountant and attorney must review this qualified opinion, as it represents a major red flag regarding financial transparency.
- You should request the financial statements of the parent company, SVS Enterprises, LLC, to perform a complete financial analysis.
- Understanding the legal and financial implications of this non-disclosure with your attorney is essential before proceeding.
Predecessor History Issues
Low Risk
Explanation
This risk was not identified. Item 1 of the FDD states, “We have no predecessors.” Therefore, there is no history of prior entities from which the current franchisor acquired the business that would need to be reviewed for potential inherited issues.
Potential Mitigations
- Your attorney can help you verify the franchisor's corporate history to confirm the absence of any undisclosed predecessors.
- When evaluating a franchise, it is good practice for your business advisor to research the full history of the brand and its founders.
- An accountant can review the franchisor's formation documents and financial history for any signs of recent asset acquisitions.
Pattern of Litigation
High Risk
Explanation
This risk is present and significant. Item 3 discloses a pending arbitration initiated by a former franchisee alleging fraud and numerous other claims. Furthermore, ASFS has been subject to government enforcement actions in three states (Wisconsin, Washington, and California) for violations of franchise law, including selling unregistered franchises and disclosure failures. An affiliate also received an FDA Warning Letter. This pattern indicates significant legal and regulatory problems.
Potential Mitigations
- A thorough review of the specific allegations in all disclosed litigation and government actions with your franchise attorney is critical.
- Your attorney may be able to conduct further research into the public records of these cases to gather more details.
- This pattern of litigation should be discussed with current and former franchisees to understand the context from their perspective.
Disclosure & Representation Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Financial & Fee Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Legal & Contract Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
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Territory & Competition Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Regulatory & Compliance Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Franchisor Support Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Operational Control Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Term & Exit Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Miscellaneous Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
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