Individuals who have applied for social cannabis consumption business licenses around the United States feel that consumers of the cannabis will be more interested in patronizing a location that allows them to consume the substance in a social setting. According to executives in the industry, start-up business owners interested in pursuing this relatively new idea appear to be willing to spend hundreds of thousands of dollars to launch these tasting lounge/social cannabis consumption businesses.
Vape & Play, a Denver, CO based dispensary, invested half a million dollars in the start-up business, which opened in November 2018. Vape & play is the second licensed social consumption location in the city of Denver. Those who pass the stringent regulation requirements for recreational cannabis consumption licenses in Las Vegas have the potential to spend half a million dollars or more just be obtain the license and become fully operational. Some locations are worth more than others. A social consumption business in West Hollywood, California has the potential to be a multimillion-dollar investment when property acquisition, design/construction and product development/promotion are taken into account.
These figures are fairly high for an industry that has not yet proved that it will make a profit. At this point, investors have not shown a lot of enthusiasm in the nascent cannabis social consumption industry. However, social consumption business owners and license applicants believe that this industry is not as risky as it may appear. According to Taylor Rosean, co-owner and operation director of Vape & Play, there are plenty of people who would like to enjoy cannabis socially. “I think this market is largely ignored,” said Rosean in a statement. “If you consider the fact that we have a mature cannabis production industry… it is absolutely insane [not to have a place where] that cannabis can be consumed legally [in a social setting.]”
Those who are considering the start-up of an adult-use location for the consumption of cannabis in a social capacity would do well to consider the following.
The Idea of a Social Consumption Location is Brand-new
In most cases, private residences are the only place where consumers of cannabis can legally use the product. According to Scot Rutledge, that “doesn’t work in recreational marijuana atourist destinations such as Las Vegas. The law in Las Vegas allows people to purchase marijuana, but severely limits where you can actually consume it.” Rutledge is affiliated with Argentum Partners, a government affairs and marketing firm based in Las Vegas, Nevada. According to Rutledge, the social consumption business idea is “uncharted waters.”
Rutledge also stated that this business plan is “very non-traditional.” He believes that boundaries of public opinion on the cannabis industry are being extended in many ways. The success of a social consumption venture will largely depend on city/state regulations on what can be sold and approved methods of consumption. The success of such a venture will also depend on the owner’s ability to create a space where people naturally want to spend time. Geoff Sugarman, Groundworks Industries chief compliance officer, believes that, as with any cannabis-related business venture, there will be those who do extremely well and those who just get by. Groundworks Industries is a vertically integrated, Oregon-based cannabis company that is currently waiting on a license for social consumption in West Hollywood, California.
- Working with Specific Municipality Rules and Regulations can be Difficult
Denver is notorious for its stringent regulations for social-use cannabis location licenses. As a result, it can be difficult for business owner to get a good start in the industry. Amanda Ostrowitz is the cofounder and CEO of CannaRegs, an online cannabis legislation tracker located in Denver, Colorado. “The ability to monetize [these businesses] is going to be extremely challenging in [the Denver area],” she said. As of September 2018, there were only two licensed social consumption areas in the entire city.Denver’s zoning laws make it very hard for business owners to locate suitable properties for a social consumption location. As an example, a proposition for a cannabis location was rejected because it would have been 19 feet too close to a child-care center. Another law states that applicants for a social cannabis location must provide proof of occupancy to qualify for a license. The applicants must pay to occupy the space where they intend to have the business while waiting for the permit to be approved. The applicants must also have the support of any associations in the neighborhood where they intend to operate.
According to Colorado’s “Clean Indoor Air Act,” it is illegal to smoke the flower indoors. Consumers will be limited to oils, concentrates and edible products. A social consumption business will also be barred from selling marijuana or alcohol, making it even more difficult to generate revenue with cannabis alone. Also, in June of 2018, then-Colorado governor John Hickenlooper vetoed a bill that would have granted already-established dispensaries the ability to provide tasting rooms on-location.
Certain Locations May Have More Potential than Others
Some states and locales have the potential to be leaders for the social-use platform. According to industry watchers, regulations and rules for socially-designated consumption licenses in Alaska, Las Vegas and West Hollywood are easier to work with. As of September 2018, the draft ordinances were considered some of the most business-friendly in the entire United States.
These three locales have potential for the following reasons:
- The initial $1,000 application fee and the $2,000 annual renewal fee for creating an on-location tasting lounge in Alaska is considered to be among the lowest.
- Draft regulations in Las Vegas would permit social-use business to sell beer and wine with an alcohol contend of less than 11 percent.
- Draft regulations in West Hollywood would permit start-up social cannabis consumption businesses to operate on-site with a current dispensary. Regulations would also permit these businesses to sell cannabis and marijuana-infused foods and beverages.
Additional Forms of Income
In order to ensure success, start-up business should consider one or more additional revenue streams. Denver’s Vape & Play is doing just that with a patented multi-station vape bar that they plan to sell to other social consumption businesses. Vape & Play also intends to offer consultation services to prospective licensees. Social consumption ventures that are not permitted to sell marijuana could offer beer/wine sales, live entertainment and foods as a way to earn additional revenue. Combining a consumption lounge with a retail store is another way to potentially be successful as a social-use cannabis venture.