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What About Consumption Lounges?

Since legalization of cannabis, one issue faced by several states has been a slight uptick in cannabis related arrests. While this may seem confusing at first, the reason is fairly simple: despite laws that ended cannabis prohibition, it is still illegal to consume cannabis products almost everywhere except private property. Fortunately for us, Michigan’s recreational marijuana law includes provisions for Designated Consumption Lounges, where adults 21 and up can bring their own cannabis products and consume them on site.

But, there are still major questions like how can Consumption Lounges be successful when they are not permitted to directly sell cannabis products to their customers on-site like a bar or restaurant can with alcohol. What can potential business owners do to ensure that a potential consumption lounge is profitable?

One option is to pair the Consumption Lounge license with a license that permits direct sales, either a Provisioning Center or Microbusiness license. The law currently permits both of these licenses to co-locate with a Consumption Lounge at the same address, and they could hire delivery employees to walk the product over to customers similar to a waiter at a restaurant. A business model like this would allow for a customer experience like a vineyard tasting room or microbrew pub with customer consuming cannabis products in an immersive farm-to-smoke experience. Both of these situations could end up as a loss-leader proposal, and may have to be subsidised by product purchases or delivery fees.

One interesting pairing that could enable direct sales at a Consumption Lounge would be to partner with a Temporary Events Organizer license holder. This would allow for a retailer or retailers to sell products to consumers on site, but how often local officials will allow a cannabis event to take place at a single location is unknown at this stage.

But what about food? The ability to serve food products opens a world of possibilities from coffee lounges to full-service restaurants. Having a kitchen on site will be great for those munchies, and so far it seems like lounges will be permitted to make and sell food on site, provided they are able to keep the kitchen sealed off from the smoking rooms. In fact, Consumption Lounges will have to provide nonsmoking areas for their consumers as well as for all employees. In order to comply with current regulations, Consumption Lounges have an obligation to protect their employees from second-hand exposure to smoke, so there will be lots of cameras, one-way mirrors, and windowed observation areas for the lounge's employees to work while customers consume their cannabis products.

Another interesting option would be for a performance art space or music venue. The Consumption Lounge could charge door fees, charge for refreshments, and perhaps provide BYOB ‘bottle service’. One downside to this model is that it remains to be seen if city officials will approve liquor licenses, even temporarily, for businesses that allow cannabis consumption on site.

Michigan’s first Consumption Lounge, the Rec Center in Genesee County just north of Flint, opened in 2019 and operates on a membership and game rental model. Charging a monthly membership fee and operating as a private social club is how Michiganders have avoided previous bans on public cannabis consumption in the past. So the private club provides a model that is familiar to consumers.

Detroit recently became the first large city in Michigan to pass a MRTMA opt-in law that includes provisions for Consumption Lounges. These new rules were just passed this last December, so no one has opened a Lounge in Detroit just yet, and it will be interesting to see what direction Michigan’s largest city takes this new sector of the cannabis market. However it works out, Detroit will certainly provide a case study for many of Michigan’s smaller municipalities as they begin to amend their local cannabis ordinances.

There is one other way that Consumption Lounges could become more profitable, but that would require the state legislature to amend the Michigan Regulation and Taxation of Marijuana Act to allow Consumption Lounges to directly sell cannabis products to their customers. Which just makes sense to us, since you’re not expected to bring your own beer to the bar.

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