Friday August 26, 2022
By Shirley Ju
For cannabis lovers all around the world, it seems like one question remains: why aren't there more cannabis lounges, cafes, or restaurants in the United States? The slow start to this much-needed segment of the cannabis market has baffled consumers, but, there’s actually a LOT that lies beneath the business of the cannabis consumption lounge industry. From the very start, regulators have been afraid of public cannabis consumption. Any excessive display of intoxicated citizens becomes an easy target for anti-cannabis groups, and would undermine the progressive efforts of legalization. In order to get cannabis legislation passed, lawmakers compromised, and decreed that cannabis could only be consumed in private residences.
As a result, almost all early cannabis legalization initiatives banned any form of public marijuana consumption, mostly due to fears of potential backlash regarding safety concerns. However, people still need places to safely consume cannabis in a legal market, and so the demand for lounges remains. As the industry continues to try to assess and understand the risk profile of consumption lounges, regulators and local officials have been proceeding with extreme caution… and it seems the liability at hand might be far too risky.
Slow Starts for Cannabis Lounges
As we enter 2022, progress in regulation of cannabis consumption spaces has been steadily making headway. In 2019, Alaska and several other states issued licenses for some form of cannabis consumption on-site. Recently, states such as Illinois, Michigan, New Jersey, New Mexico, New York, Nevada, Pennsylvania, California and Colorado have made provisions for consumption lounges — but that doesn’t take away from the unique challenges in regards to liability and insurance coverage.
Though cannabis consumption lounges are considered safe spaces that allow cannabis to be consumed alongside knowledgeable staff, very few insurers are open to covering these establishments, with a wide range of concerns from robbery to intoxication of clientele. Additionally, it gets even trickier when state regulatory bodies are developing and enforcing rules for these cannabis consumption lounges
PotGuide had the chance to speak with Charles Pyfrom, CMO of CannGen Insurance Services, the first-ever Managing General Underwriter to focus on the legal cannabis industry. Read below as we explain the difficulties facing the budding cannabis consumption lounge industry, and how businesses can mitigate their risks and ensure they remain protected.
PotGuide Interviews Charles Pyfrom from CannGen Insurance Services
[Shirley Ju]: Are cannabis consumption spaces generally safe?
[Charles Pyfrom]: Yes, they are highly regulated places of business that must meet local and state guidelines in order to operate legally.
[SJ]: What are the biggest risk factors that these businesses face? And how are they addressing them?
[CP]: CannGen requires customers to keep all of their cash in a safe or vault as they are highly susceptible to theft. Many banks don't want to work with cannabis businesses as they are seen as too high of a risk. In addition, we suggest that businesses have strong security protocols, whether that be personnel or security systems to monitor their facilities.
[SJ]: What are some aspects of risk in cannabis lounges that the general public might not think of?
[CP]: In addition to the cash, and the property of the lounge, both liabilities that most businesses have to think about, cannabis lounges must also deal with the risk of the actual product. Though they can't be held liable for the effects that people feel when consuming the products, they are responsible for making sure that the products they are offering are safe and high-quality.
[SJ]: How do the liabilities for a consumption lounge differ from something like a bar or music venue?
[CP]: A large group of people consuming cannabis, especially smoking it, can cause a decrease in air quality in a cannabis lounge. They must invest in high-quality air-filtration systems so that people cannot claim that the lounges are unsafe environments.
[SJ]: What sort of consequences might a lounge face if issues were to arise?
[CP]: If there are issues, there is always a risk of a lawsuit — but that's why it is important for these lounges to have the appropriate coverages to protect themselves. Since they are highly regulated and monitored by state and local governments, the smallest of issues could cause them to close temporarily or even permanently.
[SJ]: Where do you see the future of cannabis?
[CP]: The cannabis industry is rapidly growing and it is not expected to slow down any time soon. We are optimistic that we will see more federal government support in the coming years, but until then, we foresee more states developing their own cannabis laws to allow for medical and recreational purposes.
With more cannabis-based insurance companies emerging within the United States, cannabis lounge investors and owners might feel more at ease opening a consumption lounge. The struggles to work with cash because big banks won’t work with cannabis businesses will remain until the SAFE Banking Act or another similar bill gets passed.
Brave business owners who have already opened smoking lounges like Tetra Lounge, in Denver, stick to strict regulations implemented by the city and Marijuana Enforcement Division as well as making it a membership only club. It will be interesting to see the progress within the coming years and the development of cannabis consumption lounges.
Have you been to one of the few cannabis consumption lounges around? Let us know below!
Photo Credit: Shutterstock