As the legal marijuana industry in the US continues to mature, it’s becoming painfully obvious that cannabusiness’ access to adequate, tailored insurance coverage is sorely lacking.

The industry’s impressive growth and the prospect of new states imminently entering the market, alongside the patchwork of state and federal marijuana regulations makes for a complex, challenging situation. On top of this, the marijuana industry faces the same difficulties increasingly faced by traditional enterprises, such as labor shortages, extreme weather events and cyber attacks.

Unlike these traditional companies though, cannabusinesses are more limited in their insurance options and often have to spend more, so they are more exposed to risk and uncertainty.

“The short end of it is that policies for the cannabis industry have always been priced very high,” said Jay Virdl, chief sales officer for Hub International.

This fact coupled with onerous and expensive licensing requirements for marijuana businesses means many new entrepreneurs starting out in the industry only purchase the bare minimum when it comes to insurance policies. Or, as Virdl puts it, whatever is required to simply “get the license, get the keys from the landlord and maintain compliance.”

However, this changes after two or three years of running a cannabusiness, as it accumulates capital and the owner has more time to think about the company’s insurance needs.

“The first few years for a business are about getting the licenses and securing funding. Once the business matures, clients realize that risk management and loss control are imperative,” Virdl said.

What type of policies are they opting for though?

Virdl notes an uptick in directors and officers (D&O) coverage, as well as employment practice liability insurance (EPLI).

D&O coverage protects current executives and board members from, for example, claims of mismanagement of funds or action that wasn’t in the best interest of shareholders. Having this in place makes it easier to attract new talent and investment into the company.

For now, very few insurance carriers offer D&O to cannabusinesses but you can expect this to change in the not-too-distant future.

Another current trend is the growing need for cannabis cyber insurance, which is anticipated to increase by 30 percent or more in the next year.

The cannabis industry comprises various sectors, from cultivation to retail, that can be pinpointed for an attack and it’s not always clear where liability will fall without explicit insurance provisions protecting against cyber threats.

Cannabis also has medical value and, given its legally sensitive nature, any personal data that’s collected and lost to a cyber attack can prove fatal to the business.

“We saw it in the Ashley Madison breach four or five years ago,” said Michael Peters, professional liability broker at PL Risk Advisors. “Just the fact that someone’s name was associated with a company caused lawsuits and liability exposure to skyrocket… Limits get eaten up quickly by defense costs. Basically, you can spend all your limits defending a case and have nothing left for settlement or judgment at the end.”

Another notable trend in the cannabis insurance market is the overblown concerns about product liability claims, which simply have not materialized. Virdl reckons this means cannabusiness should consider stepping back from product liability coverage and embracing general liability instead.

“Product liability should eventually be rolled into general liability like for most industries,” Virdl said. “That’s a problem on its own, because it gives the client an option to have it or not. What frustrates me with product liability is, because it is carved out as a monoline policy, every year there is a retroactive date and the client has to keep paying more and more to keep that date.”

For more detailed insights into cannabis insurance market trends, consider consulting with an insurance broker that has marijuana-specific industry expertise.