Once viewed as a tourism boon, cannabis lounges' future in Nevada is hazy

Associated Press

21-04-2025

Cannabis lounges were once seen as a promising new frontier in Nevada's legal marijuana industry — the bedrock of a new Amsterdam-like weed tourism district in a Sin City on the cutting edge of hospitality innovation.
But four years after lawmakers opened the door for the businesses that offer the only place outside of a private home where people can legally consume cannabis — and one year after the business experiment began — the vision for dozens of barlike destinations has been a decided bust.
Just a single state-licensed consumption lounge remains open.
Experts point to a variety of reasons why the concept hasn't succeeded or given the predicted boost to the legal cannabis industry, which has seen taxable sales decline 17 percent since 2021. There are stringent regulations, a high financial barrier to entry, and a good old-fashioned dearth of consumer interest in the model.
Christopher LaPorte, a partner of RESET Hospitality, a Las Vegas-based cannabis consulting firm, is advising clients to create a business concept where consuming cannabis is not the primary focus.
'What we learned over the past year is that venues open today appeal to a traditional cannabis consumer, and that is not enough for these to be viable businesses,' LaPorte said. 'What we're trying to figure out is how do you make a venue that's approachable to a larger tourist market and a larger local market.'
That view has also been expressed nationally.
'I haven't seen consumption lounges succeed in any widespread way anywhere in the country,' said Robin Goldstein, an economist at the University of California, Davis, who studies consumer behavior in the cannabis, food, wine and beer industries and who has visited the two Las Vegas lounges located in industrial areas just west of the Strip. '(The businesses) have to be more than just a place to sit around and smoke weed, or else you face the same challenges as anyone who wants to open a bar. You have to have a great concept or you lose your audience.'
His assessment was confirmed last week.
Smoke and Mirrors, which opened in February 2024 inside the Thrive Cannabis Dispensary, closed April 4. Thrive operators said they plan to turn the space into a special event venue.
The lounge 'maintains an operational license,' the Cannabis Compliance Board (CCB) said in a statement, and recently notified the agency 'regarding a change in hours of operations.' But the board doesn't publicly break out how much lounges do in sales — with only two of them last year, that would raise taxpayer privacy concerns.
The CCB did report $829 million in taxable sales from 106 retail locations during the 2024 fiscal year that ended in June. The overall figure was down 17 percent from 2021.
Scot Rutledge, a partner in RESET, which consulted with Smoke and Mirrors ahead of its opening, said his firm offered suggestions for the venue that he believed would have made the lounge successful.
'For whatever reason, that business model did not succeed,' Rutledge said. 'These cannot be (just) cannabis venues. They need to be hospitality businesses where cannabis is something that you can choose to participate in.'
The closure leaves Dazed!, which is inside the Planet 13 Dispensary complex, as the only open state-licensed consumption lounge.
The Las Vegas Paiute Tribe operates Sky High consumption lounge as part of its NuWu Cannabis Marketplace near downtown, but because the location is on tribal land, the Paiutes have their own board that oversees the facility through a compact with Nevada and is not under the CCB's jurisdiction.
Meanwhile, 21 additional consumption lounge operations have been conditionally approved to open in Nevada but have not launched for several reasons, including financing and location issues. Another 10 consumption lounge licenses have been set aside for social equity applicants, or prospective lounge owners from 'communities disproportionately impacted by poverty and high arrest rates,' according to the CCB. No social equity applicants have opened a lounge yet.
Cat Packer, a cannabis law and policy expert at Ohio State University's Moritz College of Law and a former cannabis regulator in California, said most states launching consumption lounges have experienced similar growing pains that are being felt in Nevada's cannabis marketplace.
'The cannabis industry still does not have equitable access to banking and is discriminated against in its ability to engage in what would otherwise be normal business practices,' Packer said.
She added that the casino industry, which dominates Nevada's business community, adds a legal hurdle. Gaming cannot have any connection with cannabis because the federal government still considers marijuana an illegal substance.
The UNLV Cannabis Policy Institute, which examines the landscape for states' legal marijuana industry, suggested in its 2024 year-end report that profitability in the cannabis industry overall may take many years to achieve.
'Lounges stand to benefit significantly from Nevada's tourism economy, but this might take a decade to realize,' Institute Director Riana Durrett wrote in the report.
Cannabis consumption lounges were legalized through AB341 in 2021, five years after voters authorized the recreational use of marijuana in 2016.
CCB Executive Director James Humm told state lawmakers at a March 14 hearing in Carson City that prospective lounge operators still need to provide operating plans and a location that passes health and safety inspections.
Financing is the other challenge, given that state law requires the lounge operators to have $200,000 in 'operational liquidity' before they can welcome customers.
'The CCB does not see a dime of that money,' Humm told lawmakers, saying the funds are needed to help the business launch. 'We've spoken to many of these folks. They're working diligently to pursue this.'
In an interview with The Nevada Independent, Humm said the general economic headwinds in the U.S. factor into why the state has not seen any new consumption lounges following Smoke and Mirrors' February 2024 opening and Dazed!, which celebrated its first anniversary April 5.
'What we're hearing from the prospective licensees is that it's very challenging to find suitable locations that would fit their needs and fit under the zoning regulations currently in place,' Humm said. 'Our ultimate goal is to get as many of these (consumption lounges) open as possible.'
Humm said CCB is willing to work with state lawmakers if a statutory fix is required.
Time to change the model
Under state law, the lounges offer two ways to consume cannabis: smoking — either through prerolled paper cannabis cigarettes or 'joints,' or utilizing bongs, pipes and vaping devices for different strains of cannabis flowers — and in nonalcoholic mocktails that can be infused with anywhere from 2.5 milligrams to 5 milligrams of cannabis oil. Cannabis-infused food is not offered.
Some in the cannabis industry believe Nevada should step back and reconsider the business model.
'The intention behind the original law was to create a venue that is more than just a room to smoke weed,' said LaPorte, whose firm helped Thrive develop Smoke and Mirrors. 'I just don't think we've seen those pop up yet.'
He also wants Nevada to have a consumption lounge model that excites the market, such as by adding food and beverages.
LaPorte said venues in Southern California, such as PleasureMed in West Hollywood and Sessions By the Bay in San Diego, have multiple restaurants and bars, along with a dispensary and consumption lounge.
'They're positioned as restaurants and entertainment venues, first, with cannabis as an additional supplemental revenue stream,' he said. 'They have found a lot of success where you include other amenities outside of weed to make it an attraction.'
Rob Hill, editor of Hii Magazine, which focuses on the Los Angeles-area cannabis market, suggested Las Vegas could rival some of the consumption lounges in West Hollywood, which bills itself as the 'most cannabis friendly city in America.'
He said actor Woody Harrelson, who owns The Woods, was able to include a cocktail lounge with an address separate from the dispensary and consumption lounge.
'They are like 20 feet apart,' Hill said. 'West Hollywood is allowing people to do stuff that is different from other cities.'
Hill noted that other communities are starting to catch on and allowing a little more leeway to help their cannabis businesses.
Last lounge standing
The lone business of its type in the state, Planet 13 — which also includes a dispensary and tattoo parlor — is trying to innovate with its lounge.
Planet 13 Vice President of Operations Lowell Brown said the business is looking for a restaurant operator who could help bring food into the lounge.
Planet 13 has also used Dazed! for unique events and celebrity appearances.
Former heavyweight champion Mike Tyson and rapper Wiz Khalifa, both of whom have their names tied to licensed cannabis products sold in the dispensary, had appearances inside Dazed! Tyson autographed a table in the consumption lounge. This weekend, Planet 13 had several events geared toward fans of the two-day WrestleMania 41 at Allegiant Stadium.
'We're running a campaign where, if you share a video on TikTok that you make while you are in the lounge, we'll give you a free THC-infused cocktail or 10 percent off your order,' Brown said.
The businesses, however, are bedeviled by the law on leftovers. Purchases in the consumption lounge must be consumed on-site; any leftover product cannot be taken home.
Humm said the law was written so that patrons would consume single-use products on the property and the lounges wouldn't be turned into de facto dispensaries.
Goldstein said Nevada and other states are limiting their cannabis revenue and their audience with such rules.
'I would say that's a safety hazard to require people to consume it all before leaving,' he said. 'It encourages people to overconsume.'
Hill said a few dispensaries in West Hollywood have lockers for customers to store their unused cannabis, similar to a cigar bar.
Diversifying the industry
Amid concerns that the original dispensary licenses went disproportionately to wealthy, white and male businesspeople, policymakers looked to a round of consumption lounge licensing as a second chance for the state to bring people who had been adversely affected by the war on drugs into the industry.
Two legislative sessions ago, an effort by Assm. Speaker Steve Yeager (D-Las Vegas) created a pathway for more of these 'social equity applicants' to break in. Unlike with other licensing types, social equity applicants have the CCB's administrative processing fee of $10,000 reduced by 75 percent, down to $2,500.
But now, about four years after that bill passed, the number of approved applicants has remained minimal.
Regulations that came out of Yeager's 2021 bill made it so that to be eligible for a social equity license, an applicant or one of their immediate family members must have been convicted of a marijuana-related crime before it was legalized in Nevada. Applicants must also reside in an area that is deemed by the Cannabis Compliance Board to have high poverty and arrest rates.
But Rutledge says some of those provisions, while well-intentioned, were flawed.
In 2022, six out of the 10 applicants who were selected to receive a prospective social equity license for cannabis consumption lounges were disqualified with little explanation except that they 'weren't eligible under the guidelines.' In 2024, another six applicants were found ineligible for a license because of the residency requirement, but a month later six additional applicants got a prospective license.
'I think for the social equity component, perhaps there wasn't a good model for how to write that language and how to define it,' Rutledge said.
Rutledge contends that more than any of these licensing hurdles, social equity applicants are facing many of the same challenges that 'non-social equity' applicants face — from financing to lack of demand from consumers — just in a more pronounced form.
'Social equity licensees who don't have a lot of business connections or access to financial capital, not only are dealing with a new type of license that investors don't understand but … with the fact that (they) didn't have a lot of prior business experience,' Rutledge said.
But Assm. Max Carter (D-Las Vegas) is bringing a bill this session, AB203, that could ease the process for social equity applicants.
His bill would exempt social equity applicants from providing evidence of liquid asset control while applying for a license to establish a cannabis consumption lounge.
A section of that bill that would have created a social equity liaison position in the CCB, responsible for conducting community outreach and providing information about social equity to the board, was amended out.
'We need to find ways that the people that were already in the industry — there should have been an opportunity for them to continue to be,' Carter said in an interview with The Nevada Independent.
Paiute Tribe seizes an opportunity
Las Vegas Paiute Tribe general counsel David Colvin compared the tribe's cannabis operation to Indian gaming, 'which is now widely accepted everywhere.'
Colvin spoke at a UNLV Cannabis Policy Institute seminar last week and said the 48-member tribe was initially apprehensive about getting into the legal cannabis business when the state loosened legalization laws governing the once-illegal drug.
'In cannabis, there is still a lot to be learned,' Colvin said. 'There is a big learning curve, and there is a lot more competition. Even in Las Vegas, not all marijuana businesses are succeeding. Some are struggling.'
The NuWu Cannabis Marketplace and Sky High Consumption Lounge are a mile north of the Fremont Street Experience and a block off Main Street.
The 16,000-square-foot consumption lounge initially opened as a tasting room but evolved into an indoor-outdoor facility in 2023. The location is governed by the tribe's Cannabis Authority, which created laws and regulations. One difference — unlike Dazed! — SkyHigh notes on its website that 'all cannabis not consumed on-site is yours to take with you.'
Colvin said the tribe's dispensary and consumption lounge charge sales taxes on the products 'that are equal to or greater than Nevada sales taxes.' The funds are used by the tribe for government services.
'That evens the playing field for people,' Colvin said. 'We could seriously undersell it and monopolize the whole thing. We've always been about being good neighbors. That's been pretty important to (the tribe).'
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This story was originally published by The Nevada Independent and distributed through a partnership with The Associated Press.