Does the Cinnaholic franchisor have to demonstrate adequate capitalization to California franchisees before collecting initial fees?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
The Department has determined that we, the franchisor, have not demonstrated we are adequately capitalized and/or that we must rely on franchise fees to fund our operations. The Commissioner has imposed a fee deferral condition, which requires that we defer the collection of all initial fees from California franchisees until we have completed all of our pre-opening obligations and you are open for business. The payment of the development and initial fees attributable to a specific unit in your development schedule is deferred until that unit is open.
Source: Item 22 — CONTRACTS (FDD pages 61–62)
What This Means (2025 FDD)
According to Cinnaholic's 2025 Franchise Disclosure Document, Cinnaholic Franchising, LLC is required to defer the collection of initial fees from California franchisees. This requirement is due to the determination by the Department that Cinnaholic has not demonstrated adequate capitalization and/or must rely on franchise fees to fund its operations.
Specifically, the Commissioner has imposed a fee deferral condition. This condition mandates that Cinnaholic cannot collect any initial fees from franchisees in California until Cinnaholic has fulfilled all of its pre-opening obligations and the franchisee's location is open for business. This deferral also applies to development and initial fees associated with specific units within a franchisee's development schedule; payment is deferred until that particular unit is open.
This arrangement protects California franchisees by ensuring that Cinnaholic fulfills its obligations before receiving initial fees. It mitigates the risk that a franchisee will pay fees upfront and Cinnaholic will fail to provide the necessary support to get the business operational. This type of financial assurance is not uncommon in franchising, particularly when a franchisor is newer or has a limited financial track record.
Prospective Cinnaholic franchisees in California should carefully review this addendum to fully understand the implications of the fee deferral. They should also confirm with Cinnaholic what constitutes the completion of pre-opening obligations to ensure clarity on when the initial fees become due.