As the number of cannabis businesses throughout North America increases, states, lawmakers, insurers, agents and insureds are faced with new risks and liabilities.

Innovation in cultivation, production, dispensing and the sale of cannabis and cannabis-derived products are expanding the product's reach. One of the latest trends is retail consumption lounges, where customers are allowed to purchase and consume cannabis products on site.

“Consumption lounges are a very new exposure, and coverage is still difficult to find in some instances," says Joe Dahlvig, cannabis product expert and senior casualty underwriter, Admiral Insurance Group, a Berkley Company. “However, this will most likely change as lounges become more prevalent, the legal landscape becomes established and the full exposure is understood."

While consumption lounges are open for business in California and Nevada, many other states have yet to consider and develop laws pertaining to these facilities.

“Currently there are only 10 states that allow social consumption, but some of those haven't even issued licenses yet," Dahlvig says. “Within those states, very few have actually opened, and all states have different variations of what type of lounge can be opened—from what and how much you can consume to if you have to bring your own or purchase onsite."

Legal and regulatory hurdles mean that cannabis consumption lounges are few and far between when compared to dispensaries, manufacturers and other ancillary cannabis businesses.

Nevertheless, “consumption lounges are open, and we do have markets to offer capacity for those operations," says Jason Scheurle, national product leader, cannabis, Burns & Wilcox. “However, as states begin to take a different approach, the risk profile becomes more difficult to rate."

Like liquor laws, states may have to establish “Gram Shop" laws “to address if consumption lounges can be considered liable for offsite injuries due to overserving, though it appears that Michigan and Nevada have laws that are aligned with the way overserving liquor is treated," Dahlvig says. “Until legislation is determined in the other states or case law is established, it is hard to determine a lounge's legal liability."

In fact, “some MGAs and carriers will exclude this type of operation due to the nature of a consumption lounge and impairment of consumers and employees," says Tony McIntosh, president of Aura Risk Management & Insurance Services and executive vice president and partner at The Liberty Company Insurance Brokers. “Servers could be held liable depending on their employment status—W-2 or 1099—and the situation or instance."

When it comes to selling coverage, agents in this space “should review all policy terms carefully so they may advise their clients properly," Scheurle says. “Servers may very well be held liable for overserving, which is not a complicated concept on its own, but will we know how many beers versus THC beverages were consumed? Do we have one policy covering the liquor liability and cannabis? Or do we have separate policies to address each exposure? The claims landscape may become complicated, which can lead to expensive litigation."

Education is key when it comes to this ever-changing niche market. “An agent would need to keep on top of new laws, products and exposures that are changing at a rapid pace," Dahlvig says. “Innovation in the cannabis industry is really starting to take off with new products, services and even 'canna-tourism.' Staying on top of all of these new emerging risks is imperative for the insurance industry."

Many states are committed to seeing cannabis consumption lounges flourish, providing a safe space for consumers, and agents should keep up to date with any changes in their state regarding these facilities.

“Join the local cannabis association and commit to spending time on a committee to fully understand what the needs of the cannabis industry are," says Patrick McManamon, founder and cannabis program practice leader, Cannasure Insurance Services LLC. “Study coverage forms from top markets to identify key coverages and differences between markets to couple with the local territory." 

Agents should continually educate themselves “on the current cannabis market, as understanding your markets and their appetite is critical to achieve success," Scheurle says. “I also suggest staying current on the business side of cannabis as well, and the legal proceedings both at the state and federal level."

Further, offering risk management and risk mitigation solutions can ensure agents are effective in this nascent industry. “Be aware of the reporting requirements that policies have within them, so your clients also understand what to do in the event of a claim," McIntosh says.

“Demonstrate your understanding of the exposures that are being insured to your carrier partners to secure better terms and coverage for your clients," McIntosh says. “Lean into newer programs that are more willing to listen and create a better client experience for you and your client."

Olivia Overman is IA content editor.