Cannabis Bars and Dram Shop Liability

The City of Denver recently approved final language for an initiative to allow cannabis consumption in certain public places. The Limited Social Marijuana Consumption Initiative would carve a narrow exemption from Colorado’s ban on public consumption. Colorado law currently does not “permit consumption that is conducted openly and publicly,” but this proposed city ordinance would allow (but not require) certain businesses to provide spaces for patrons to consume cannabis. Notably, it would not allow patrons to consume cannabis inside businesses that hold liquor licenses. It also provides that these businesses can be held liable in licensing and nuisance actions if they don’t follow the rules. While the concept of “pot bars” may be new to Denver, it turns out the concept of people consuming intoxicants in public places is not.

To understand the legal context of the proposed initiative, it helps to know about dram shop laws, which are present in many states. A “dram” is a small measure of alcohol and a “dram shop” used to refer to establishments that served alcohol by the dram. Broadly speaking, dram shop laws are statutes that impute vicarious liability to businesses for injuries caused by any person whom the business over-served. To illustrate: a bar owner or bartender could be held liable if a patron, after being served five martinis in an hour, drives home and hurts someone in a car accident. Colorado’s dram shop law, CRS 12-47-801, dates back to 1879. Currently, it relates only to alcohol but not cannabis.

Dram shop signOne key distinction between bars that serve alcohol and the businesses implicated by Denver’s Limited Social Marijuana Consumption Initiative is that these businesses would not actually sell their patrons cannabis; they would only accommodate for its use. However, the same logic behind dram shop laws applies, as both cannabis and alcohol affect mental processes and cognition. If a customer consumes five grams of hash oil and then gets behind the wheel of his car and injures a third party, it is conceivable the business that allowed the on-site hash oil consumption could be at held at least partially liable for those damages—even if the establishment didn’t actually sell or serve the patron cannabis.

Dram shop laws are statutory causes of action, which detail each of the elements plaintiffs must establish to hold businesses liable. Without any dram shop law for cannabis in Colorado (at least not yet), courts will have to establish their own standard of liability, which could get messy. At minimum, a plaintiff would likely have the tall task of proving that the establishment contributed to its customer’s impairment, and consequently, any resulting injury. Many states, including Colorado, are grappling with their impairment standards. Colorado’s present limit (5 nanograms per milliliter of whole blood) is so low that people can be legally but not subjectively impaired—frequent users can remain legally impaired for days after consuming cannabis. So, for instance, it may be difficult to establish exactly how a business contributed to the impairment if patrons are already legally impaired before stepping foot on its premises.

As cannabis business lawyers, our gut reaction to the Denver initiative is to wonder how this might increase our clients’ exposure to legal liability. Right now, it’s hard to say because the initiative does not detail the standards for tort liability. Businesses could try to account for and mitigate this risk through insurance coverage, specifically with premises and third-party liability policies. But, the ambiguous liability standard, coupled with insurance companies’ reluctance to underwrite anything that has to do with cannabis, could complicate things for parties on both sides of the policy.

Ultimately, the risk with cannabis is far less than other legal substances. For instance, data from the National Highway Traffic Safety Administration shows that stoned drivers are a lot safer than drunk drivers. Still, without clear standards to establish permissible business practices, the new Denver initiative may require local businesses to make decisions without benefit of clear parameters. In our experience, it’s far better to have these set in statute or regulation than in case law. Let’s hope judges don’t beat regulators to the punch.