Hookah bars or shisha bars first originated in India, but they’ve become popular in the United States. At these establishments, tobacco or shisha is mixed with fruit or molasses and smoked through a tube with a device known as a hookah. The average hookah lounge yearly income is about $150,000 in profits, but the more hookahs you have, the more profit you can make.

This niche business has a lot of rules and regulations, so you must be mindful when you’re formulating your business plan.

Know the Regulations Before Opening Up a Hookah Lounge

One of the biggest hurdles in opening up a hookah lounge is the smoking itself. Each state, city and county has its own indoor smoking laws, and in some places, like New Jersey and New York, smoking indoors or within 25 feet of a building is banned altogether. Some places, like San Francisco and Los Angeles County, have banned flavored nicotine products. Other places, like Illinois, allow a Department of Health certificate of exemption if a certain percentage of revenue is brought in by smoking.

To get around tricky indoor smoking laws, many hookah lounges use tobacco-free shisha instead of tobacco. Others simply pay the fines, but that does put a business at risk of being shut down. In a NorthJersey.com profile on the state’s increasing hookah bar industry, several bar owners told the publication that it was financially beneficial to allow their customers to smoke and simply pay the fines that come along with it. It’s risky, but it’s a choice.

In short, do your research on which permits are required in your state and city and the exact regulations. You simply may not legally be able to open a hookah bar in certain places (and in some places, you won't be able to sell food with your hookah). For example, New York City requires that hookah bar owners get a non-tobacco hookah establishment permit; however, they are no longer issuing new permits. Those who wish to renew their existing permits must prove they make more than 50% of their hookah lounge yearly income from smoking products.

Get a Tobacco License

If you’re opening up a hookah lounge and plan to sell tobacco rather than tobacco-free shisha, you need to get a tobacco license. You can get this from your state’s department of taxation and finance, but it varies. For example, in New York state, you have to register to pay sales tax before you can get a license. After that, you can get a tobacco products retail dealers' license, which costs $300 for each retail location and $100 per vending machine.

In some cities and states, you’ll also need to get a tobacco sales permit from the department of public health. This can be denied due to a number of stipulations. For example, in San Francisco, you’ll be denied a permit if your hookah lounge is within 500 feet of a school or someone else who has a tobacco sales permit.

At this phase, you’ll also want to make your business a legal entity (like an LLC or S corp), register with the IRS, pick up some solid business insurance (like general liability and workers' compensation) and get a business license from your local government. If your establishment is selling food, you will need separate permits for that.

Find a Location With Proper Ventilation

You’ll need a powerful ventilation system to legally open a hookah bar, but you probably also want it for your health. The air inside hookah bars is loaded with carbon monoxide, and secondhand smoke causes health problems. Of course, the requirements vary from state to state, so you’ll have to do some research.

Part of your hookah lounge setup should include a commercial air-filtration system designed to eliminate smoke (known in the business as a smoke eater) along with a comprehensive HVAC system. The filtration alone could run $1,000 to $3,000 per unit.

Get Your Supplies

Your hookah lounge yearly income is reliant on the quality of the shisha or tobacco you’re providing and the actual hookah equipment, so find a great distributor. Your hookah lounge setup should include:

  • Hookahs (lounges typically carry between 10 and 30)

  • Hookah cleaning kits (consider a soapless cleaning solution, as soap can damage the hookah)

  • Coals

  • Foils

  • Mouth tips

  • Premium shisha or tobacco

Your setup should also include typical lounge furniture like tables and chairs. If you’re serving food, you’ll need a whole set of commercial kitchen supplies too.

Hire Your Staff and Launch

The final part of your hookah lounge setup should include hiring dedicated employees who are knowledgeable about the culture of hookah. Also enact a solid marketing plan to get the word out about your brand-new business. Remember: There are regulations about how you can market tobacco products, but you should be able to market a non-tobacco establishment pretty freely.