To open a cannabis consumption lounge in California, you need two things: a state retail or microbusiness license from the Department of Cannabis Control (DCC), and separate authorization from the city or county where you plan to operate. There is no standalone California cannabis consumption lounge license. Onsite consumption is added on top of a standard retail or microbusiness license under Business and Professions Code Section 26200, and only if your local jurisdiction allows it.1California Legislative Information. California Code, Business and Professions Code BPC 26200 As of early 2026, cities including West Hollywood, San Francisco, Oakland, Palm Springs, Cathedral City, and Eureka permit lounges. Most California jurisdictions still do not.
What a Lounge Can Actually Do
Before AB 1775 took effect on January 1, 2025, a consumption space could only sell cannabis products. Now, a locally authorized lounge can also prepare and sell non-cannabis food and nonalcoholic beverages, and it can host live music or other performances and sell tickets for them.2California Legislative Information. AB 1775 Bill Text The “cannabis café” model is now on the table, though what your specific lounge can offer still depends on local rules.
The State License
Every consumption lounge starts with a retail or microbusiness license issued by the DCC. Applications are reviewed in the order received, and the department verifies both state requirements and that you have local approval before it issues an annual license.3Department of Cannabis Control. How to Apply for a License You will disclose all business owners and financial interest holders as part of the application.
Criminal Background Review
The DCC reviews every owner’s criminal history. Not all convictions block a license, but certain felonies are treated as substantially related to cannabis business and will likely stop your application: violent felonies, serious felonies, felony fraud or embezzlement, felonies involving minors in drug activity, and drug trafficking felonies carrying sentencing enhancements.4California Legislative Information. California Code, Business and Professions Code BPC 26057
One point worth knowing: a prior cannabis possession or sale conviction, where the sentence including probation has been completed, cannot be the sole reason for denying your license. That said, a controlled-substance felony after you are licensed is grounds for revocation.4California Legislative Information. California Code, Business and Professions Code BPC 26057
Surety Bond
Every annual application must include proof of a surety bond of at least $5,000, payable to the State of California, for each licensed premises. The bond must come from a corporate surety licensed in California. Businesses holding multiple licenses can use an aggregated bond.5Department of Cannabis Control. Form 8113: Commercial Cannabis Licensee Bond
CEQA Compliance
The DCC cannot issue an annual license until the project satisfies the California Environmental Quality Act. Local governments set their own CEQA documentation requirements, which can range from a notice of exemption to a full environmental impact report depending on the project’s scope.6Department of Cannabis Control. CEQA Review for Cannabis Businesses CEQA review is often the slowest step in the whole process, so build it into your timeline early.
Local Authorization Is the Real Gatekeeper
The state license by itself does not let you open. Cities and counties can prohibit cannabis businesses entirely, and most still do.7Department of Cannabis Control. Where Cannabis Businesses Are Allowed Before you sign a lease or invest in buildout, confirm that your target jurisdiction actually permits consumption lounges and has a documented pathway to approval.
Getting local authorization typically involves zoning approval, a local cannabis business permit, and sometimes a conditional use permit. Each city runs its own application process, sets its own fees, and often caps the number of lounges it will approve. Some jurisdictions move through it in a few months; others take well over a year.
Operating Rules That Shape the Buildout
Once you have both approvals, state law dictates how the space runs. Some of these rules directly affect the design and cost of the lounge, so factor them into planning before you start building.
Age Restrictions and Signage
Access to the consumption area is limited to people 21 and older, and every entrance must prominently display a warning that cannabis consumption, including smoking, is allowed inside. Consumption cannot be visible from any public place or non-age-restricted area.1California Legislative Information. California Code, Business and Professions Code BPC 26200
No Alcohol, No Tobacco
Alcohol and tobacco are off-limits. No cannabis licensee may sell alcoholic beverages or tobacco products on any licensed premises. Your lounge also cannot be located in a space where customers must walk through a business selling alcohol or tobacco to reach you, and vice versa.8California Department of Alcoholic Beverage Control. Cannabis and Alcoholic Beverages
Food Service
Food and nonalcoholic drinks served under AB 1775 must comply with the California Retail Food Code. They cannot be contaminated by or mixed with cannabis products, and no smoking or vaporizing is allowed in food preparation, food storage, or dishwashing areas.1California Legislative Information. California Code, Business and Professions Code BPC 26200 If you plan to serve meals, expect the same health department requirements as a restaurant on top of your cannabis obligations.
Ventilation
State law directs local jurisdictions to consider whether to require adequate ventilation and filtration. Where a local government does impose the requirement, “adequate” means the system must prevent smoke and odors from migrating to any other part of the building or any neighboring building or grounds.2California Legislative Information. AB 1775 Bill Text Local jurisdictions can also allow some forms of consumption while prohibiting others, permitting edibles or vaporizing but not smoking, for example. Most cities that authorize lounges require commercial-grade ventilation, and installing HVAC that can meet the standard is one of the larger buildout costs.
Product Sourcing
All cannabis products consumed on the premises must come from state-licensed distributors. Licensed businesses use the state’s track-and-trace system (METRC) to record every product they receive, sell, or dispose of. Accurate METRC records are one of the first things regulators check during an inspection.
Employee Protections
AB 1775 added worker protections for lounge staff. Employees who work in areas where cannabis is smoked must be allowed, at their own discretion and without penalty, to wear respiratory masks including N95 masks, and the employer must pay for them. When hired, employees who will work in smoking areas must receive written guidance from the Department of Public Health on secondhand cannabis smoke, and the lounge must include secondhand smoke exposure in its Injury and Illness Prevention Program.2California Legislative Information. AB 1775 Bill Text
Cannabis employers with two or more workers must also ensure at least one supervisor and one employee have completed a Cal/OSHA 30-hour general industry outreach training course.9Department of Industrial Relations. Cannabis Industry Health and Safety Some cities go further. Sacramento’s cannabis code requires lounge operators to train staff on the types, potency, absorption time, and effects of cannabis products, and on recognizing signs of impairment in customers.
Federal Issues to Know Before You Apply
Marijuana remains a Schedule I controlled substance under federal law, and two consequences reach every California licensee regardless of local compliance.
Internal Revenue Code Section 280E prohibits any deduction or credit for a trade or business trafficking in Schedule I or II substances.10Office of the Law Revision Counsel. 26 USC 280E Your lounge cannot deduct rent, payroll, marketing, or professional fees from federal taxable income the way an ordinary business would. Only cost of goods sold is available, which for a retailer generally means inventory purchase price, inbound freight, and handling. The effective federal tax rate is materially higher than for a comparable hospitality business, and working with an accountant who knows 280E is not optional.
Banking is the second issue. Financial institutions that serve cannabis businesses must file Suspicious Activity Reports under FinCEN’s 2014 guidance, and the ongoing reporting makes cannabis accounts expensive to maintain.11Financial Crimes Enforcement Network. Marijuana Banking Update Many banks decline the business entirely. Expect higher fees where you find a willing institution, and plan for the possibility of holding more cash than you would prefer.
Penalties for Getting It Wrong
Operating any commercial cannabis business without the required state license exposes you to civil penalties of up to three times the license fee for each violation, with each day of unlicensed operation counting separately. Anyone who aids unlicensed cannabis activity faces penalties up to $30,000 per day. Property owners who knowingly rent space for unlicensed cannabis activity can be penalized up to $10,000 per day.12California Legislative Information. California Code, Business and Professions Code BPC 26038 A landlord who looks the other way for a month faces potential exposure of $300,000.
For licensed businesses that violate operational rules, the DCC calculates disciplinary fines from gross revenue: it takes annual gross revenue, divides by the number of days open in the prior twelve months to get an average daily figure, then multiplies half of that daily figure by the number of suspension days. The minimum fine for any disciplinary action is $1,000. For retailers, fines scale with revenue, running from $1,250 to $5,000 per action at the smallest tier and reaching $48,000 to $192,000 for operations grossing over $7.5 million.13Department of Cannabis Control. DCC Disciplinary Guidelines Repeated or serious violations can escalate to suspension or permanent revocation, both of which you can appeal through an administrative hearing and, if needed, to the Cannabis Control Appeals Panel.14Department of Cannabis Control. Appealing a Compliance or Licensing Action: FAQs Appeals are slow and expensive. Staying compliant is cheaper than fighting enforcement.