How Much Does it Cost to Open a Cannabis Consumption Lounge?

The answer on the question ‘How Much Does it Cost to Open a Cannabis Consumption Lounge?’ depends on many factors, including the business model of consumption lounge permitted, location, premises size, your goals and objectives. The type of business model a lounge can use is based on regulations in the location: a lounge attached to a cannabis sales facility; a standalone facility; the ability to sell single use cannabis in the facility; a BYOC (bring your own cannabis) consumption lounge; mobile hospitality unit; the ability to sell non-cannabis-infused food and nonalcoholic beverages and sell tickets for on-site entertainment events.

Cannabis Consumption Lounges. Which States Allow Cannabis Lounges?

When planning a cannabis consumption lounge, recommendations from experts in the hospitality industry can be applied:

Back-of-the-house usually takes up 30 – 40% of the total building area.
60 – 70% is designated as front-of-the-house, which is the area intended for customers.

So, in round numbers, a consumption lounge with an area of 3,000 sq. ft will be divided into 900 sq. ft for back-of-the-house and 2,100 sq. ft for front-of-the-house of which 1/3 will be a dining seating area and 2/3 a bar area.

Cannabis Consumption Lounge Startup Costs

The cost of opening a cannabis consumption lounge can range from $250,000 to $1 million. This includes basic costs for licensing, personnel, rent and up-front renovation, security and other professional services, and initial inventory. Initial investments should be enough to cover all start-up and operational costs to maintain positive cash flow. In the following example, operating costs were calculated only up to the break-even point.

$600,000 scenario for 3,000 sq. ft facilities

$50,000 licensing & legal fees & insurances
$100,000 rent & deposit
$150,000 space improvements ($50/sq. ft)
$65,000 security & surveillance system
$50,000 furniture and business equipment
$25,000 marketing/advertising (3-5% of sales revenue)
$7,000 computer software
plus personnel
plus deals with distributors / producers

The Economics of Cannabis Consumption Lounge

Average sales per square foot for a cannabis retail with on-site consumption lounge is about $1,000-$1,750. More established operations boast 20-40% profit margins, while newer businesses may only see 10-15% due to their lack of strategic partnerships and vendor relations.

Sample of a revenue model for a cannabis retail store with on-site consumption lounge:
Revenue = $4,250,000 (100%)
-Direct Costs = $2,030,403 (48%)
Gross Profit = $2,219,597 (52%)
– Operating Expenses = $831,308 (19%)
Operating Income = $1,388,289 (33%)
Net Income = $905,414 (21%)

Net income after depreciation, interest, and taxes depend largely on local conditions, especially the availability of the IRC 280E exemption at the state level.

Cannabis Retail Taxes and Net Income

In 2024, cannabis companies are expected to pay $2.3 billion in federal taxes, under Section 280E of the Federal Tax Code, which states that cannabis businesses cannot deduct most business expenses, other than cost of goods sold, from their federal taxes or receive tax credits as traditional businesses do because the plant is listed as a Schedule 1 drug under the federal Controlled Substances Act. Many states simply mirror federal tax policy in their own tax codes, but some states have already approved state-level tax deductions. Check which states have approved 280E deductions, which allow cannabis companies to deduct business expenses from their state income taxes:

280E Deductions

Additionally, many states impose a special retail sales excise tax, which is typically applied to your gross profit and can further reduce your net income, depending on the rate. Thus cannabis retailers have a net profit margin ranging from 12% to 21% after taxes.

Cannabis Lounge + Retail Financial Model Sample (New Jersey)

Calculate the costs and profits of your cannabis business with our pre-populated Cannabis Retail and/or Consumption Lounge financial models. All you have to do to get started is enter your monthly sales target and dispensary size. The model will help you estimate how much it costs to open and operate your own cannabis store and/or lounge, plot all income and expense items monthly over a flexible seven-year period, and then summarize the monthly results by quarter and year for easy viewing.