Consumption Lounges: A “Budding” Opportunity

With public opinion warming and state legislation loosening around cannabis, a new type of venue is hitting the social scene. Cannabis consumption lounges—sometimes called cannabis bars—are popping up across states that have legalized recreational marijuana. Consumption lounges provide a new opportunity in a very promising market, yet they come with their own unique set of challenges—particularly when it comes to liability and risk. 

What Are Consumption Lounges?

Cannabis consumption lounges offer a relaxed, social space to consume cannabis products. Imagine a trendy, upscale bar, but instead of ordering from a menu stacked with fancy cocktails and spirits, guests enjoy cannabis-infused drinks, edibles, and various other cannabis products. 

Recreational cannabis use is currently legal in 19 states, as well as Washington, D.C. However, each of these states has different regulations regarding how marijuana is sold and taxed, how much marijuana a single person can possess, whether or not individuals can grow their own plants, and where marijuana can be consumed. 

In some states that permit recreational cannabis—like Alaska and Oregon—it’s illegal to consume it in public spaces. But in response to shifting public opinion and more flexible marijuana regulation, states like Colorado, New Jersey, and Nevada are leading the way in creating appealing bar-like spaces where people can legally enjoy cannabis products in public. 

Each state handles regulations around lounges a little differently. Some states require lounge patrons to BYOC (bring your own cannabis). Others, like Colorado, allow lounges to sell an array of cannabis strains, smoking devices, and products that patrons can consume on site.  

Cannabis Demand Is Rising

2022 has been dubbed “The Year of Cannabis,” and with good reason. Total legal sales for both medical and recreational marijuana is expected to hit $33 billion—up from $27 billion last year. MJBizDaily, a long-standing B2B cannabis industry news source, optimistically projects total cannabis sales will reach $52.6 by 2026, an astounding increase of almost 95 percent since 2021. 

This uptick in sales no doubt has something to do with the fact that many Americans are relaxing their views toward cannabis. It wasn’t that long ago the average U.S. citizen opposed the idea of marijuana, whether for legal, moral, or health reasons. However, we’re now seeing a marked shift in public perception around cannabis use, with a growing number of people being open to it. A consumer insights survey by cannabis-focused market research firm, BDSA, revealed that in adult-use states, 51 percent of adult respondents consumed cannabis within the previous six months—up from 36 percent during the same period just two years ago.

There’s No Reward without Risk

Cannabis lounges present compelling new business opportunities for entrepreneurs wishing to capitalize on the developing cannabis demand. But reward never comes without risk—and the burgeoning cannabis lounge movement has its fair share. 

Traditional restaurant and bar operators are familiar with dram shop laws and the importance of adequate liquor liability insurance. Though specifics may vary by state, in general dram shop laws hold a restaurant or bar responsible if they serve alcohol to someone who is already intoxicated and that person goes on to hurt someone else. In such scenarios, liquor liability insurance protects against costs for damages, health expenses, and legal fees.

Similarly, cannabis lounge owners need to consider the risks around selling, serving, and allowing patrons to consume cannabis products on their premises. Are they covered, for instance, if a patron over-consumes cannabis in the lounge and causes harm to someone else while high? 

Dram shop laws aren’t the only liability concern for consumption lounge owners. Because cannabis is such a highly regulated substance, there’s potential for costly missteps at every turn. For some insurance carriers—particularly those without strong experience in the cannabis industry—the risk is just too great, leading them to put exclusions in their policies that prohibit on-premise cannabis use.

Given that cannabis lounges are a fairly new concept in a rapidly developing industry, it’s critical for lounge owners (and hopefuls) to seek out insurance partners who are knowledgeable of the cannabis industry, stay current in local laws and regulations, and have access to carriers with an appetite for cannabis risks.  

Jencap has long been a pioneering insurance resource in the cannabis marketplace. Our in-house team of cannabis experts provides customized coverage solutions for over 50 cannabis markets. Contact us to learn more today.

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