California cannabis consumption lounges poised for takeoff

The long-awaited debut of sit-down cannabis consumption lounges throughout California appears to have arrived, and industry experts predict these venues will expand exponentially in the next few years.

That would mark a big change. To date, the uptick in marijuana lounges has been modest in California and across the nation, slowed by the coronavirus pandemic.

The lounges currently open in California are clustered primarily in San Francisco and Oakland. Most are marijuana smoking rooms.

But several lounges are finally getting the green light from other municipalities in Southern California and the Central Valley.

As a result, the number of cannabis consumption lounges is expected to double – or even triple – over the next year or two from the dozen or so currently operating.

New lounges are slated to open in:

• National City, in San Diego County.
• Coalinga, Central Valley.
• Port Hueneme, Ventura County.
• Desert Hot Springs and Palm Springs, Riverside County

Desert Hot Springs, in fact, went one step further – giving the thumbs-up to cannabis entertainment facilities and retail sales at hotels.

Slow launch

Until now, the slow growth in consumption lounges in California and across the country has thrown into question a business model that many had hoped would generate additional revenue.

“Consumption lounges are a very crucial part of pushing the industry forward and normalizing cannabis use,” said Lauren Fontein, co-founder of The Artist Tree, a West Hollywood cannabis retailer that recently opened The Studio Lounge.

West Hollywood has been among the leaders in California’s consumption lounge industry outside the Bay Area.

City officials authorized 16 licenses in 2018 – eight for edibles only; eight for smoking, vaping or ingestion.

So far, only one of those venues – The Studio Lounge – is open for business.

The Artist Tree, located on Santa Monica Boulevard, opened The Studio Lounge on April 20, upstairs from the store.

The venue is located in the heart of a bustling commercial district of bars, restaurants and marijuana shops, just south of the famed Sunset Strip.

It’s the city’s second consumption lounge to open. The first, The Original Cannabis Cafe, closed at the onset of the pandemic and hasn’t reopened.

On a recent comedy night at The Studio Lounge, patrons packed the room.

Some rented glass bongs on the patio terrace; others sat inside puffing pre-rolls.

Customers used tablets to order bongs, pre-rolls and other cannabis products.

Events are held throughout the week: live music, sound baths, painting classes, yoga instruction, drag queen brunches.

“There’s no place in the world other than West Hollywood where you can have this crazy drag show, people smoking, drag queens smoking huge blunts. The energy in the space is really great,” Fontein said.

“We want to give people a brand-new perspective on cannabis, and what it can be, and really change people’s minds about it or who might be reluctant or scared or hesitant to have this in their neighborhood,” she added.

Finding a way

A few miles east of The Artist Tree, on La Brea Avenue in West Hollywood, Everett Smith has his own lounge, dubbed the Presidential Suite.

The lounge operates under a very different business model than the 16 currently permitted in West Hollywood.

It’s a mixed-use property that includes a New York-style pizzeria, a space designed as a subway train, and a private, outdoor cannabis-friendly consumption area that features double-deck patio seating, a DJ booth and a VIP area.

It’s essentially a marijuana-friendly events space.

The venue is not licensed for cannabis retail, so the Presidential Suite can’t sell marijuana products.

But that legal designation also provides some operational benefits, including on-site food and beverage sales and the potential to serve alcohol at some point.

“We’re still waiting on our beer and wine license,” said Smith, the co-founder and CEO of Presidential Cannabis.

“Once we get that, I think we can start really marketing out.”

The lounge is the latest venture of Smith’s Los Angeles-based marijuana brand, Presidential Cannabis Co., which is one of the top-selling blunt and pre-roll brands in California.

“We’ve had a lot of interest in watch parties for shows and movies, album release parties, things like that,” Smith said. “We’re still finding our way.”

The venue, which opened in February with a Super Bowl party, has hosted events for professional athletes, birthday celebrations, President’s Day, Juneteenth and, of course, 4/20.

Other rules

California consumption lounges are bound to a litany of restrictions – and far fewer allowances than other marijuana businesses such as manufacturers or cultivators.

For starters, applicants at the local level must secure a property within approved zoning.

At the state level, applicants must apply for retail permits since specific consumption lounge licenses don’t exist.

That retail distinction carries significant ramifications, including a requirement that consumers must be in control of their own cannabis use and/or dosage.

That means cannabis-infused entrees and drinks prepared the same way as in traditional restaurants are prohibited under state law.

“Nothing can be sold in a retail store except merchandise related to your brand, ancillary products for use and cannabis,” Los Angeles attorney Courtney Caron said.

That presents challenges for lounge operators, particularly those not integrated with a large marijuana retailer, Fontein said.

“Because we opened our retail store first, we have that customer base and income, so it’s OK if the lounge isn’t a huge additional moneymaker at this point,” she said.

The Studio Lounge, like other consumption venues, must source food and beverages from third-party providers and essentially deliver them to patrons in the lounge. That means lost potential revenue in every sale.

On-site cannabis is priced the same as in The Artist Tree downstairs. So a $60 eighth of marijuana flower – on the high-end of the menu – can easily entertain a party of four or more.

Some pre-rolls cost less than $8, taxes included.

“The challenge … is, how do you make money off the lounge model if we’re not selling food or other beverages?” Fontein said.

“We’ve been experimenting with a lot of different ways to make money.”

Caron questioned the logic behind consumption-lounge restrictions.

“Why would you want to prohibit people from being able to purchase a beverage or food when they’re consuming a controlled substance?” she asks.

Caron, the founder of Adamant Law Group in Santa Monica, guided The Artist Tree through its lounge application and approval process in West Hollywood.

And she recently earned a lounge permit for a spot she co-owns in the Central Valley town of Lindsay with retailer Elevate.

“Within a month we’ll be breaking ground there, which would put us around a January opening,” Caron said.

Cannatourism and new jobs

When the San Diego suburb National City approved its cannabis ordinance last year, it set aside one of six licenses for a consumption lounge.

Councilman Jose Rodriguez was swayed by the promise of new local jobs, added tourism, community reinvestment and enhanced safety.

He would rather see consumers “in a safe place where folks feel comfortable just hanging out” rather than smoking in public spaces or cars.

“Let’s just try to have a product be safe that is legalized in a safe place,” said Rodriguez, who’s running for mayor.

Cannabis taxes and related application and licensing fees are expected to generate $2 million to $3 million in annual revenue for the coastal city. Lounges have been zoned in the commercial tourist district.

“Licenses should be granted by August or September,” Rodriguez said. “The idea is to have them up and running hopefully within six months to a year after that.”

Chris Casacchia can be reached at ccasacchia@hotmail.com.