The big buzz for 2022 is cannabis lounges. And like dispensaries, retail stores, and other cannabis businesses, a cannabis consumption lounge should be insured for a unique set of risks. This article covers the details of those uncertainties.

What Is a Cannabis Lounge?

With lawmakers pushing to decriminalize weed at the federal level, it was inevitable that this business model would eventually catch on. But what exactly is a cannabis lounge?

The concept is simple. A cannabis consumption lounge is like a bar or pub that serves booze to people over 21. But instead of drinks, patrons can enjoy their favorite cannabis flower, vape, edible, etc. And they can do so safely and legally. Notably, alcoholic beverages are generally prohibited in these establishments.

Also called CCAs (cannabis consumption areas), these lounges’ regulations differ from state to state.
In some states—such as Illinois—only licensed medical dispensaries or cannabis retailers can open a CCA. But in other states, stand-alone CCAs are permitted. For example, Nevada recently passed legislation allowing independent consumption lounges where patrons can purchase (and use) single-use cannabis products on the premises.

Of course, like everything related to cannabis, the rules and regulations surrounding CCAs are murky. In some cases, customers need to bring their own marijuana to consume. In other cases, customers can only consume products purchased from the dispensary.

In Nevada, medical dispensaries can open only one CCA no matter how many retail locations they have. And naturally, since cannabis is a smokable product similar to tobacco, there is plenty of bureaucracy when getting approved for a business with indoor consumption.

Are Cannabis Lounges Legal Everywhere?

Although cannabis lounges are not legal in all states, the trend is growing fast. The first state to allow CCAs was Alaska in 2019. Now, seven other states either allow CCAs or are announcing plans for them shortly. They include:

• California
• Nevada
• New Jersey
• New York
• Pennsylvania
• Illinois
• Michigan

Do Cannabis Lounges Need to Be Insured?

There’s no doubt this is a fantastic business model. Customers will enjoy your products and the special atmosphere you’ve created for them—all while engaging in one of their favorite pastimes. The entire vibe is dope (pun intended). But there are many “behind the scenes” tasks you’ll need to address to make your venture successful. Insurance is one of them.

You’ll need to mitigate your risks with a comprehensive policy that fully insures you and your business. You will have many patrons in your building, employees interacting with those patrons, and of course, the products you carry. All companies need a certain level of insurance to cover their state’s essential requirements for health and safety. But with a cannabis operation, you’ll likely need more specialized coverage.
Not only do you need to meet your state’s requirements for safety and health, but you also need to cover yourself adequately. And getting from point A to point B is pretty involved. There are mountains of paperwork to complete and hoops you need to jump through to pull it off. So, after all that hard work, you’ll want to ensure both you and your new cannabis lounge are protected.
Insurance Risks Unique to Cannabis Lounges

As we’ve already discussed, the legislation in each of these states can differ. Some are allowed to sell weed on the premises, while others are not. You must already be operating a legal dispensary to open a consumption area in many places. But other regions allow stand-alone shops.
In some establishments, you can’t sell food or drinks, while in others, you can. Some states limit sales to single-serve products. But in other locales, customers need to bring their own products to consume. Because of all these differences, your risks will be unique. However, here are some of the most common ones:

Your Liability May Be Similar to a Bar

In many states, bars and restaurants serving alcohol can be held liable for intoxication resulting in injury or death. Although it’s not always the case, the regulations for CCAs seem to be trending this way as well.
For example, in Michigan, people who suffer damaged or are injured by someone intoxicated by cannabis can take action against the business that sold or provided the weed. So obviously, this is a vital consideration when looking at the risk profile of your cannabis lounge.
Similarly, if someone’s judgment is impaired because they get too high and cause a car crash, you could find yourself involved in a lawsuit.

Unauthorized Product Advice From Budtenders or Employees

A cannabis lounge could also face liability related to the marijuana products they sell. Especially if an employee offers medical advice to the purchaser. While it’s common knowledge that providing medical advice is a big taboo in the cannabis industry, it still happens in casual conversation.
Cashiers, budtenders, servers, and other employees must be careful to give only general product information rather than advice on the benefits or effects of different products. But it’s a fine line. For example, you could be held liable if a lawsuit were filed based on a server’s recommendation over which strain would help the customer with a medical issue.

Theft Is a Common Concern

Because of banking issues tied to the federal legality of marijuana, Many grow operations and dispensaries operate on a cash basis only. But this has resulted in a surge in robberies. With vast amounts of cash and daily bank runs, many cannabis businesses have increased exposure to theft. Some of these incidents have even turned deadly. A cannabis lounge obviously faces these same dangers.

Even if you have security measures in place, vandalism is also a concern. Broken locks, smashed windows, and crushed barriers are common, even if attempts at a full-blown robbery are unsuccessful.

What Type of Insurance Do You Need?

The type of insurance you’ll need for your cannabis consumption lounge will vary and be unique to your situation and where you are located. But in general, you’ll need to look at getting:

• General Liability Insurance
• Workers Compensation
• Excess Liability
• Property Insurance
• Directors & Officer’s Liability
• Employment Practice Liability

Of course, this is just a partial list. Certainly, you need to mitigate your risk against the above mentioned issues. Still, you may also want coverage like equipment breakdown insurance, which you might need if you own expensive refrigerators or high-value machines.

Similarly, suppose you have drivers that regularly pick up or deliver products. In that case, you may need cannabis delivery & transport insurance in addition to commercial vehicle insurance. So again, there is a lot to consider.

Considering Opening a Cannabis Lounge? Take Steps to Protect Your New Venture

It can be challenging to understand what coverage you need to protect your business between murky state regulations, cash-only operations, and unforeseen risks. You’ll need to take every detail of your operation into account, and that’s no easy task. That’s where we come in.
Our specialists at Reliant have extensive experience insuring cannabis businesses. We understand the ever-changing rules and regulations. And we know what you are going to need to be covered if anything should happen in or around your CCA.

Licensing requirements vary significantly from place to place. As a result, your risks can also differ. This means you need an insurance policy that covers your cannabis operation from all angles. Our agents can help you sort through the red tape and present you with coverage options to benefit your individual business.