Author Merril Gilbert
On-site consumption lounges, clubs, and cafe’s are the next frontier in the legal cannabis industry. California, Nevada, Michigan, New York, and others have on-site consumption lounges with more states drafting legislation. Cannabis lounges offer an alternative to socialize without breaking public consumption laws and lets tourists who may be unfamiliar with cannabis experiment in a safe and controlled setting.
Depending on the state, there are differences in what a license allows operators to do. Much is still being figured out, like how to determine intoxication and where liability falls. The laws will evolve over time, but now consumption lounges resemble the early days of legalization. There’s a lot of unknowns and uncertainties. However, it’s also an opportunity to get in front.
More is known about cannabis than in the early days of legalization and there are more experienced professionals to offer guidance. With the right planning, consumption lounges can set their business up right in the beginning and avoid expensive repercussions that would come from piecemeal decisions. Having a thorough understanding of all the considerations that go into opening and operating a cannabis consumption lounge will increase chances of success by avoiding legal ramifications.
Know the end goal
Before beginning the process of setting up a new cannabis consumption lounge, owners should have a well thought-out idea of what type of experience they aim to create for their customers. It’s easier to understand risks once the business knows what it will provide. What products will be offered, depending on what is allowed? Will it be open to the public, or only for private events? Is there a separate activity for people to focus on, such as music or arcade games, or is it more like a restaurant or cafe?
Deciding what type of experience will be offered happens in tandem with understanding the full range of limitations. Regulations and types of licenses offered differ in different states, and in some, different locales. How can the business make the atmosphere hospitable and inviting if it must adhere to strict or restrictive rules? Some jurisdictions in California, for example, don’t allow the sale of uninfused food or beverages.
Understanding what insurance protection is available will also influence the final result of the business. Insurance for cannabis businesses is not what it is like for others, more established industries. There are still many gray areas surrounding liability. Cannabis intoxication is difficult to gauge. While the cannabis industry looks to alcohol for guidance for insurance, it doesn’t have the same protection. Consumption lounges especially have a lack of availability of coverage. In Michigan, for example, consumption lounges follow the “gram-shop” liability model. Businesses can be sued by a person who was injured by someone who over consumed at the lounge and became intoxicated. The repercussions can cost hundreds of thousands of dollars.
The liability landscape is crucial to understanding risk profile. Once there is a clear idea of the limitations and desired result, it’s easier to know where and how to begin.
Do due diligence
Opening a cannabis consumption lounge is expensive and has many barriers to entry. Owners must be thorough in their business plan numbers to compete with barriers. Otherwise, you could encounter expensive issues down the road. In California and New York license applicants must have real estate lined up before applying. Some applicants have to pay rent for over a year before being granted the license to open.
Part of conducting financial due diligence is knowing the real costs of what regulations require the business to have. Compliance costs are often higher than expected. To set up a strong foundation, adhering to compliance means going beyond what is explicitly required in print. How much will the risk management strategy cost – but more importantly, how much will risk management save? Preventative risk management procedures should always be considered an investment into the business. Additional costs to consider are air filtration and the costs of ancillary services, such as insurance, security, training, affirmative standard operating procedures (SOP), software systems, inventory and supply chain validation.
Quality management considerations and tips
Looking to similar industries like hospitality, tourism, and food and beverage will clear the veil surrounding uncertainties in operating consumption lounges. By drawing comparisons to complementary industries, businesses can implement already established standards.
Customers should be made aware of rules and the products so they understand their setting and feel comfortable in it. Perhaps there are FDA warnings posted in the building, or an agreement to complete a sale is that if they are deemed intoxicated they won’t drive.
There are many other additional considerations for compliance and quality control, like ensuring ID checks, safely disposing of green and non-green waste, and managing inventory storage and audits. What about if a customer leaves the premises with products intended for on-site use? In some jurisdictions, this can create consequences for the establishment.
Properly trained staff is the best way to avoid overconsumption, security issues, and compliance failures. Employees should be knowledgeable about cannabis. Similar to bartenders, they should understand what they are serving, its effects, and be able to recognize when a customer has had too much. Consider ways to prevent overconsumption independent of employees, such as single-sized servings or daily sell limits.
If the license does allow for the sale of non-infused food and drink, as in the case of Michigan, businesses must follow food safety guidelines, such as good manufacturing practices (GMP) and hazard controls. Michigan states that if a lounge is found inaccurate or noncompliant with food safety laws, it must update its SOPs within one day. It also requires one employee on staff to be a certified Food Protection Manager, a good practice for any cannabis establishment that serves food.
Final thoughts
Consumption lounges will further cannabis normalization. Having a well-thought out plan is critical to make a positive impression, protect public safety, and save money.
Working with professionals in the cannabis and adjacent industries can make this possible with less headache on the owner’s behalf. At TraceTrust, we are due diligence experts and operational consultants. Our understanding of how daily operations forecast success allows us to guide owners in crafting a business plan and training programs set up for compliance and quality-control from the very beginning.
