Las Vegas is Legalizing Cannabis Consumption Lounges. What Future Takeaways Might There be for the Canadian Cannabis Industry?

Many say that “anything goes” in Las Vegas, but that has not been true with cannabis.  In fact, under existing law a cannabis establishment is prohibited from allowing a person to consume cannabis on the property or premises of the establishment. Existing law also makes it illegal for someone to consume cannabis in a public place, an adult-use cannabis retail store, or in a vehicle. As such, while tourists to Sin City can legally purchase cannabis, consuming it in a legal fashion is difficult without a private residence at hand. 

However, all of that is about to change.

In early June 2021, the Nevada State Assembly passed Assembly Bill 341 (the “Bill”), which was subsequently signed by Governor Steve Sisolak and which gives the state Cannabis Compliance Board the authority to license and regulate cannabis consumption lounges. Many in the tourism industry (and tourists themselves) immediately rejoiced at the news, but the shift is also a boon for the local and state cannabis industries which may now see exponential growth in consumption and a corresponding “trickle up” effect to the top off the supply chain.

Back in Canada, rules pertaining to cannabis consumption are governed by the provinces and territories with most having fairly liberal rules around consumption. For example in Ontario, cannabis can more or less be consumed anywhere where tobacco can also be consumed. That said, many in the industry still feel there is a place for consumption lounges in Canada and it is worth having a look at what the Las Vegas regime looks like and what lessons it may hold for the Canadian cannabis industry in the future.

Two Classes of Lounges

The Bill creates two classes of consumption lounges. The first class are those that will be attached or directly adjacent to an existing adult-use cannabis store. The second class encompasses independent standalone consumption lounges.

Granting consumers the ability to consume essentially at the retail store in Las Vegas gives tourists and non-residents a venue to consume products that did not previously exist for them. In Ontario, such a venue is not necessary given that by and large customers could consume their purchases in public shortly after leaving the store. However, allowing customers to consume in-store allows for interesting in-store product sampling possibilities and could dramatically change the dynamic of the farm-gate retail experience for producers.

The products that may be sold at consumption lounges that are attached or directly adjacent to an existing cannabis store are restricted to what are classified as single-use or ready-to-consume cannabis products. If similar rules were enacted in Canada in the future, we could likely expect to see some new product innovation and offerings from producers for consumption lounge purposes.

Independent standalone consumption lounges are similarly restricted in the products that they can sell. The Bill requires these lounges to enter into a contract with one or more adult-use cannabis retail stores to sell the lounge single-use cannabis products and cannabis and products for the purposes of preparing ready-to-consume cannabis products at the independent lounge.

Quality Control on Products

With the mandate to sell only single-use cannabis products and ready-to-consume cannabis products comes additional regulatory oversight. The Bill explicitly provides for the adaptation of regulations governing the sale and consumption of such products, including the establishment of:

• a list of products that the regulator has determined to be appropriate for consumption at a cannabis consumption lounge;
• standards for the content, quality and potency of such products (including the setting of a maximum THC concentration);
• procedures and protocols for the preparation and safe handling of products; and
• requirements relating to the sale of such products, including, without limitation, requirements relating to notifications that must be provided to a purchaser of such a product at the time of sale.

The establishment of such rules and protocols is not surprising in the circumstances. However, what remains to be seen is if such rules will necessarily entail new packaging and labelling requirements and what the adverse effects effects will be, if any, of those requirements as they relate to producers at the top of the supply chain.

Quality Control on Premises

In addition to the creation of rules pertaining to products themselves and service thereof, the Bill not surprisingly contains rules pertaining to the physical consumption lounges themselves and how patrons interact with the lounges and staff. Consumption lounges must, among other things:

• install a ventilation and exhaust system that meets certain specifications;
• train each employee in a variety of areas that relates to the products themselves and the recognition of impairment;
• submit a security plan to the regulator which addresses and meets certain specifications; and
• submit a plan to the regulator pertaining to protocols and procedures to prevent impaired driving.

Liability concerns have often been cited as being at the heart of the reason that legal consumption lounges are not permitted in Canada. America is a far more litigious society than Canada by nature, and it will be interesting to see how frequent liability issues arise, how serious they are when they do and whether they end up being aimed at the producer, the lounge, or both.

Good Vibes Permitted

Despite the heavy regulation that accompanies the introduction of consumption lounges, the Bill explicitly provides that these lounges can sell any other item which does not contain cannabis or cannabis products and is not intended for use with cannabis or cannabis products, including food and beverages. The Bill also expressly permits consumption lounges to offer live entertainment at the lounge.

These permissive rules open up a wealth of possibilities for lounges that take them far beyond a place where people can just pop in to consume and leave. Concerts, comedy clubs, yoga studios and spa services are just some of the many potential items that could find their way into the consumption lounges.

These types of permitted uses are exactly why cannabis consumption lounges could become a viable business model in Canada, despite the fact that consumption rules are, comparatively speaking, quite liberal when compared to Las Vegas.

Respect For Roots and Diversity

We’d be remiss if we failed to mention that the Bill requires the regulator to establish scoring criteria to be used in evaluating applications for consumption lounge licenses (which will be capped initially). Importantly, the scoring criteria must include consideration of diversity on the basis of race, ethnicity or gender and whether the applicant qualifies as a “social equity applicant”, which is defined in the Bill as someone who has been adversely affected by provisions of previous laws which criminalized activity relating to cannabis. 

Good on you Vegas.

With appreciation, the author acknowledges the contribution of Torkin Manes LLP Summer Student, Charlotte Butler, who assisted in preparing this article.