Cannabis consumption lounges are about to become big business in the U.S. The boom of business created by consumption lounges is going to have a myriad of positive economic impacts. It’s also going to present new tax scenarios for cannabis business owners who may be new to the hospitality industry.
What is a Cannabis Consumption Lounge?
Consumption lounges are where the industries of hospitality and cannabis meet. They bring together the social aspects of nightlife and entertainment with property/venue management and food and beverage services. Lounges serve as a safe space for consumers to consume cannabis, connect with other like-minded people, and have a good time.
Having a good time usually includes different forms of entertainment as well as food and drinks depending on state-specific regulations. The complexities of juggling so many different aspects make running a lounge for cannabis consumers a highly regulated business model. For this reason, cannabis business owners should be prepared to navigate waters that are still somewhat uncharted.
Social Cannabis Consumption Laws
Although lounges are making a lot of headlines recently, they aren’t a new concept. There are businesses like Cannect Hospitality, that have “been working with and writing applications for state and local governments in Colorado, California, Illinois, Michigan, and Nevada to introduce sensible regulations, compliant SOPs and responsible safe-serving practices regarding the social consumption of cannabis since 2014”. The company has played a pivotal role in the progression of social cannabis consumption laws all over the country.
Having a strong regulatory framework is the first step for every state to allow social cannabis consumption in a responsible way. The importance of consumer safety and care should be recognized as a top priority for cannabis business owners wanting to know how to open a cannabis consumption lounge. The same goes for the safety and care of lounge employees.
Michigan’s First Cannabis Consumption Lounge
Michigan’s first cannabis consumption lounge recently opened at the end of March 2022. The name of the lounge is Hot Box Social. It is located at 23610 John R Road, in downtown Hazel Park. It is the first business of its kind to be approved as a licensed lounge for consuming cannabis in Michigan. This makes Michigan the 7th state in the U.S. to allow consumption lounges.
Opening a consumption lounge in Michigan requires a state-approved license. Licenses can be issued under the Regulation of Taxation of Marihuana Act. Consumption establishments in Michigan are not permitted to sell cannabis or cannabis products. Retail and micro-businesses are allowed to apply for a license. However, having a separate address, a designated smoke-free area, and a separate ventilation system are just a few of the unique requirements for consumption establishments in Michigan. Other states have similar restrictions.
Economic Impacts of Consumption Lounges
WM Policy recently published a set of policy recommendations for government officials to consider when evaluating social cannabis consumption laws. WM Policy is the government relations, research, education, and public engagement arm of Weedmaps. As a technology leader in the cannabis industry, researchers collected a wide scope of data regarding the economic impacts of social consumption laws.
As a somewhat newly-minted type of business, there is a great deal of room for entrepreneurship and innovative business models. The term consumption lounge can be used to describe a multitude of business types. This creates countless opportunities for new businesses to begin, as well as for established businesses to merge with the booming cannabis industry.
The cannabis industry already employs over 400,000 people across the country. Industry job reports show that in “2021, someone was hired for a cannabis supported job about every 2 minutes of the workday”. Over 1.6 million jobs are projected to be created by 2025. Lounges create another opportunity for new cannabis job openings.
The tourism industry is already feeling the positive economic benefits of cannabis sales. States with adult-use cannabis have seen an increase in tourists. Statistically, tourists spend more than locals which contributes to a state’s tax base and supports other local businesses. States that allow social consumption have the advantage of promoting cannabis tourism.
Increased Tax Revenue
States that have legalized and regulated cannabis retail sales are seeing an influx of tax revenue. “As of April 2021, Colorado has generated $404.5 million for public schools through cannabis taxes”. State governments and other local municipalities that permit social consumption will see a similar increase in revenues from taxes and fees for licenses.
Consumption Lounge Tax Scenarios
Taxes are already complicated enough when you’re operating in the cannabis industry. The tax scenarios that arise from opening a consumption lounge will largely depend on the business model you’re operating.
Cannabis Consumption Lounge Business Models
A few examples of potential cannabis consumption business models include;
Cannabis Hotels – Hotels that are cannabis-friendly will provide an alternative to hotel bars.
Cannabis Restaurants – Restaurants that serve cannabis foods or cannabis products like infused edibles and beverages can bring a new flair to dining out.
Cannabis Comedy Clubs – Comedy clubs that also allow consumers to light up can combine traditional nighttime entertainment with social cannabis consumption.
Cannabis Tasting Rooms – Just like wine tasting rooms, cannabis connoisseurs and aficionados will surely appreciate a sophisticated environment in which they can enjoy an elegant consumption experience.
Cannabis Fitness Studios – The health and wellness segment of consumers is another area where established businesses can merge with the cannabis industry.
These only represent a fraction of possible cannabis consumption lounge business models. Each one will present itself with unique tax advantages and disadvantages. Having an experienced and qualified accountant to help you navigate the ins and outs of the model you choose is one of the best ways to ensure your business’s success.
We offer a variety of small business and corporate CPA services for the cannabis industry. Our cannabis tax experts can make sure you get every tax benefit available to your business’s unique tax scenario. For everything from general accounting to tax advice, contact us today for a free consultation.