New York’s Cannabis Consumption Lounges: A New Category of Experience-Driven Hospitality

New York’s legalization of adult-use cannabis portended not only a retail marketplace but also a regulated social environment for cannabis consumption. The Marijuana Regulation and Taxation Act (“MRTA”), which legalized adult-use cannabis in 2021, affords a modern approach to cannabis hospitality, where adults (21+) can safely gather in a venue to socially enjoy cannabis in a controlled environment. In spite of the challenges that the New York cannabis market has encountered since that time and the substantial delay in implementing finalized regulations for consumption lounges, these emerging venues are expected to become a lucrative segment within New York’s hospitality sector. Recent data from the Office of Cannabis Management (OCM) suggests consumer spending in New York on cannabis could possibly reach $6.5-$7.5 billion annually by 2030.

As cannabis consumption becomes more socially acceptable, consumption lounges will likely attract both existing cannabis consumers and newcomers interested in a social night out, similar to a hookah bar or cigar lounge, but in a more regulated social setting.

Regulations in Flux

But while a regulated framework for consumption lounges has been incorporated into the Cannabis Law, establishing ownership, operational, and proximity requirements, the OCM still needs to finalize regulations to implement this framework before consumption lounges can legally operate. These regulations would cover: (1) vitalization and air standards; (2) staff training and safety protocols; (3) food service and infusion rules; (4) security and consumption limits; and (5) license duration and reporting obligations. Once these regulations are finalized, the OCM will begin accepting applications sometime thereafter, which will be announced on the official OCM website. It is also unclear whether the OCM will have “rounds” of licensing, which will create intense competition, as they did in 2023, when they issued a batch of adult-use retail and microbusiness licenses. 

Site Control

What we do know from the existing framework under Cannabis Law § 77, is that consumption lounge applicants must demonstrate site control in the form of a lease or deed that extends for the full license period. However, since final regulations still need to be implemented, the exact definition and duration of the license period, including when renewal would be required, remain undefined. What we do know is that the license period for most adult-use businesses in the State is currently two (2) years, with renewal required at the end of each term, and there’s a possibility consumption lounge licenses might follow this same timeline. However, consumption lounge applicants must still submit proof of site control in their license application, including the terms of occupancy, to demonstrate that they can maintain control of the space for the duration of the to-be-determined license period. 

Consumption lounges are also subject to proximity restrictions, similar to retail dispensaries. This means that consumption lounges cannot operate within 500 feet of school grounds or 200 feet of a house of worship. Once an application is submitted with proof of site control, the OCM will verify whether the property meets these necessary compliance requirements. The Cannabis Control Board will then evaluate whether the proposed lounge would promote public convenience and community interest, assessing whether there is a demonstrated need for a consumption lounge in that neighborhood. 

Sales and Investments

Another important aspect of a consumption lounge is that they are not retail dispensaries and cannot sell cannabis other than for onsite consumption, like a bar.  They are permitted to store and make cannabis available for on-site use, as long as the cannabis products are purchased from licensed distributors, registered organizations, cooperatives, or microbusinesses authorized to sell adult-use cannabis. These cannabis products must remain in OCM-approved containers with required labels, and consumption lounges cannot alter the contents. Additionally, operators must keep a detailed purchase and inventory ledger showing where each product came from and the “sales” of cannabis products.  However, the current draft of the Cannabis Law is ambiguous and internally contradictory. The combination of allowing consumption lounges to possess cannabis products on-site while simultaneously prohibiting sales highlight the need for more detailed regulations to address these gaps so consumption lounges can legally operate. 

In addition, operators will face strict ownership restrictions if they receive a consumption lounge license. Under current law, if an operator holds a consumption lounge license, they cannot also hold a direct or indirect financial interest in more than three (3) three consumption lounge licenses statewide. Furthermore, the State also prohibits vertical integration: anyone who has ownership or invests in a consumption lounge cannot simultaneously hold an interest in any other cannabis-related license type, including but not limited to, a retail dispensary, cultivation, processing, distribution, or microbusiness license. This prohibition against vertical integration was intended to prevent monopolization and promote fairness, so smaller businesses and social equity individuals can operate. 

A Safe, Multi-Sensory Experience

New York’s Cannabis Law also mandates that sanitation, air quality, and safety inside a consumption lounge is a top priority. The OCM must develop detailed regulations where consumption lounges are required to install OCM approved ventilation systems, keep all doors and windows sealed, and submit on going air quality reports. Smoking paraphernalia must be thoroughly cleaned and sanitized before each use. Additionally, a patron must be 21 or older to enter and present a valid government issued identification. Anyone who appears intoxicated will be denied entry and the right to consume cannabis products on-site. 

Consumption lounges will be permitted to prepare and serve food and non-alcoholic beverages as well, under certain conditions, and subject to local health codes. However, they will be prohibited from selling cannabis-infused food.  Any infused cannabis products must come from a licensed entity and cannot be prepared on-site. Failure to abide by the Cannabis Law and the to-be-developed regulations will be subject to fines, suspension, or loss of licensure. 

As the market continues to mature and consumption lounge regulations are implemented, they have the potential to transform the State’s social and hospitality landscape, where adults can safely gather, socialize, and experience cannabis culture.