Cannabis use continues to change and adapt to new rulings and regulations nationwide. A few states, such as Colorado and Michigan, are leading the charge in developing publicly-accessible cannabis lounges. These locations are the parallel to bars that serve alcohol; they offer a public place where people can consume legal marijuana.
However, cannabis lounges who want to get ahead of the trend and capitalize on this surge in interest are facing uncertain legal challenges. This is uncharted water for cannabis businesses, and partnering with an insurer that focuses on marijuana industry-related risks is critical for any company considering operating in this new sector.
Here are four of the most prominent legal risks of cannabis lounges and how cannabis insurance can help.
Liability in Overserving
Laws differ by state, but many locations can hold a bar liable if they serve an individual who then goes on to harm someone else after they leave. This includes the dram shop statute, which indicates that a business can be liable if they serve alcohol to someone who is underage or who is already visibly intoxicated. This same line of thinking is one of the greatest risks that cannabis lounges will face.
Cannabis can have a wider range of effects on an individual than alcohol. It can cause relaxation, confusion, talkativeness and more. How does a cannabis lounge identify when an individual should be “cut off”? If an individual who has consumed cannabis leaves the establishment and causes an accident (such as striking a pedestrian with their car), who is responsible?
These questions are at the forefront of legal developments surrounding cannabis lounges. However, insurance companies that focus on cannabis businesses may provide liability coverage for these types of events.
Product Recall and Liability
Like any business that sells a physical product, issues can arise that compromise the integrity or quality of the product, necessitating a recall. Because marijuana plants are living organisms that may change depending on factors ranging from soil quality to the purity of the water used to hydrate them, cannabis lounges are poised to face significant product liability hurdles. Sourcing reputable marijuana buds is only the first step.
If a customer has a negative reaction to a product, do they have a right to sue the lounge? What issues are considered serious enough to necessitate a recall? Because cannabis is such a new industry, these questions have not yet developed robust answers. Most insurance policies will not offer any product protection for businesses operating within the cannabis niche, so it is important to work with an insurer who does.
Incidental Medical Advice
Budtenders, the people who work at cannabis-centric businesses like dispensaries, must already walk a fine legal line between offering recommendations that suit a customer and providing outright medical advice.
Given the more relaxed nature of a cannabis lounge, where new hobbyists might arrive and expect some assistance choosing the right products, businesses must be extra cautious not to overstep their bounds of expertise. Providing guidance that could be construed as medical advice places the cannabis lounge in legal hot water and primes them for a lawsuit.
This threat operates within the same realm as professional liability, and this is the type of policy that insurers can target. An insurance agency that works with cannabis companies will be able to craft protections that directly address the most common oversights a lounge may face when engaging with customers about product recommendations.
Licensing Breaches
Cannabis lounges will need to obtain the proper licenses in order to do business. However, discovering exactly which licenses are required can be a complex and overwhelming venture, as requirements vary by state or even city.
Some places, like California, do not allow places like cannabis lounges to serve food and drinks at the same time as their marijuana products. Other locations require that customers bring their own products (so as to avoid liability issues), and still other places can only serve single-serving products that are ready to use as-is.
All of these rules will be included in the consumption license that a business must abide by. Breaching the terms of the consumption license leaves the lounge liable for legal repercussions.
Get Cannabis Insurance from Industry Experts
The cannabis industry is notoriously difficult to insure; most insurance agencies will not offer coverage to businesses operating within this niche. This is why it is critical for any cannabis lounge to carefully read the fine print and work with a trustworthy agency that specializes in insuring cannabis-focused businesses.
At MFE Insurance, we are proud to offer support to cannabis dispensaries and budding lounge projects. Contact us to learn more or to schedule an appointment to discuss the coverage you need.