Cannabis consumption lounges, also known as social consumption lounges, are popping up in states that legally allow the recreational use of cannabis. These bar-like settings permit on-site cannabis consumption and currently are legal in Alaska, California, Colorado, Illinois, Nevada, New Jersey and New York. Their numbers are expected to continue gaining momentum along with the growing legalization of recreational and medicinal cannabis across the nation.
While consumption lounges present an attractive business opportunity in the maturing industry, they also add new complexities and risk exposures that must be addressed and mitigated to ensure business continuity.
Along with the industry, the risk profile of consumption lounges is changing continually. They face many of the same liabilities and risks as dispensaries and cultivation facilities, including on-premise slip and falls, product recalls, crime exposure, loss mitigation and health-related risks. But in addition, cannabis consumption lounges face unique liability risks related to over-consumption and serving underage individuals. For example, new “gram shop” laws are expected to be modeled after dram shop laws, which are civil liability statutes that hold businesses liable when serving or selling alcohol to minors or intoxicated individuals who later cause injury to another person.
Owners and operators should understand that most existing property and general liability insurance policies exclude coverage for on-site consumption. Additionally, health hazard exclusions, which exclude coverage for bodily injuries resulting from the use of cannabis, are commonly found in cannabis insurance policies.
As exposures continue to evolve, lounge operators will need to develop risk management strategies that include understanding state and local regulations, providing employee training and working with an experienced insurance broker who can review operations on a regular basis to assess adequate coverage.
The laws governing these lounges in the states where they are allowed are also evolving. To mitigate risk, operators must stay on top of changing regulations, which vary from state to state, and make sure they remain compliant.
Another effective risk mitigation strategy is employee training. For example, before customers enter a lounge, employees should be instructed to verify their identification to ensure they are of legal age and check that identification again prior to serving cannabis products. Employees also should be trained on responsible cannabis service, including how to recognize the signs of over-consumption and how to refuse service when patrons appear impaired.
To lower risk exposure, cannabis lounge owners and operators can set and enforce a reasonable per-customer consumption limit. Setting the proper expectations for the customer and providing the right training for a consistent employee response will serve to lessen the number of potential insurance claims.
While consumption lounges have some of the same risks many other businesses face, they also require thoughtful mitigation strategies to address their unique risks. Working with an insurance broker who understands the cannabis industry is an essential part of successful risk management for consumption lounges. A broker specializing in the cannabis industry can help lounge owners and operators secure the best coverage available, ensuring the business is not over- or under-insured.
Cannabis consumption lounges are gaining traction in states that already have legalized the recreational use of marijuana, and as more states legalize its use, that number is only projected to grow. Lounge owners and operators must be prepared to mitigate the common and unique business risks associated with these establishments. Understanding state and local regulations, providing employee training and working with an experienced insurance broker best positions these businesses to remain viable and successful in the ever-evolving cannabis industry.