Oh, cannabis. The unique challenges and risks associated with the industry is confusing for most, overwhelming for some. From staying in compliance to maintain licensing and by association, operations, to customer claims, the industry’s issues are unique — this doesn’t even include various conflicting state and federal laws. What matters is mitigating risk, and even that has an additional layer of complexity — all of the inconsistencies mean that many major insurance carriers are loath to even get involved with the cannabis industry.
The bad news is that if you’re not properly insured, your business and everything invested in it is vulnerable. Skimping on insurance is a no-no, especially if there’s significant property or assets involved.
But that’s not the end of the story. There’s good news.
There are insurance carriers that are willing to work with those in the industry, but that isn’t without its own set of risks. Many purchase substandard policies that have coverage gaps. Avoid that added stressor. A good broker will not only negotiate good terms, they will understand your business and your needs based on where the company is now, in a year, in five years. Before you seek out a broker with cannabis industry experience, you should first work through these factors:
- Broker experience: How well does the broker understand the industry and your specific business needs?
- Premiums: What does coverage cost now on a monthly or annual basis? Build those insurance costs into your business plans and budget.
- Limits: What coverage do you need if there is a claim? What is the expected monetary risk (based on your company size and operation)? Do you have a risk program for key markers?
- Coverage terms and conditions: What details really mean something to your business? If you could add endorsements or remove exclusions, what would they be?
What insurance policies do cannabis businesses need?
Many cannabis insurance policies are available to you, and the most essential for you will depending on your specific business circumstances. Here are some of the most important types of cannabis business insurance to consider.
Commercial General Liability
This type of policy covers risks that just about every cannabis business owner faces. General liability insurance is broad in scope; it protects business assets from all sorts of claims, from property damage to bodily injury. General liability insurance protects against that, but it also covers property damage to third parties that happens on the owner’s property/facilities. That means that those injuries related to slips and falls are covered. General liability insurance is widespread and likely required for those leasing properties, attending conferences, or dealing in contracts with partners.
Product Liability
The cannabis and hemp industry — including vertically integrated companies — should consider this essential coverage. This type of cannabis insurance works as an extension of general liability insurance. This equates to insurance coverage if found liable in a situation where a defective product results in bodily injury or damage to a third party. Specifically, product liability makes sure that a business owner is covered if a product causes either illness or an unwanted side effects. All businesses that are involved in the supply chain should have a good product liability policy.
Commercial Property Insurance
If you own business property — think buildings, equipment — and you want to protect it against fire, theft, and natural disasters, make sure you have a commercial property insurance policy. An added bonus is that many of these policies cover losses of income due to the event. This is crucial for any cannabis or hemp company with a lot of capital invested in expensive equipment or holds finished inventory (products) on site. In other words, make sure your business’ bread-and-butter is insured. Learn more about Commercial Property Insurance here.
Crop Insurance
Want to protect your crop during the entire growth cycle? Want to insure against your indoor grow lights (and other indoor or outdoor perils)? Then consider crop insurance. While this type of insurance won’t cover events like crop failure related to disease, fertilization problems, mold or rot, you might be able to combine a property policy with a crop policy to minimize the bulk of the risk.
Director’s & Officer’s (D&O) Policies
Most folks might not even be aware that these policies exist, but they do. This type of insurance will cover defense costs, settlements and any damages awarded to someone in court. The coverage is a type of insurance created to protect a company’s past and present directors from lawsuits and other litigation. Savvy cannabis industry investors like companies with these policies in place, mainly because the industry tends to be in a constant state of flux. These policies protect investors’ assets and indicate that the business is stable and ready for the big time.
Employee Protection Liability Insurance (EPLI)
This type of insurance is essential, especially for any business that provides services face-to-face. The need for it will increase as the company grows. EPLI serves to protect a business from employee-related claims involving troublesome issues like discrimination and harassment. It also serves as a buffer against failure-to-promote and wrongful termination claims. EPLI can be combined with D&O policies to create a layer of effective protection.
Workers’ Compensation Insurance
Every business needs this type of insurance. Period. Just being open for business on a typical day means that employees are exposed to some sort of risk. You can’t go back retroactively to fix it. For example, suppose an employee is injured in the workplace. In that case, worker’s compensation (worker’s comp) will pay for their medical care and any lost wages. Fun fact: all 29 states (and Washington D.C.) with cannabis laws require cannabis companies have workers comp policies to operate.
Cargo Insurance
You don’t hear about this type of insurance very much, but it’s just as important as the rest, especially if you have cannabis products that are lost, damaged, or stolen while in the transport stages — basically during all the time it is being loaded, transported or unloaded. Some cargo policies include coverage for products transported by folks in-house or those moved by hired transit companies.
Cyber Insurance
In this current tech-heavy day and age, technology is involved in just about every area of the cannabis industry. Cannabis companies must keep extensive and detailed records on inventory, lab results, seed-to-sale tracking, and more. For medical (even medical marijuana) companies, maintaining HIPPA regulations is essential. If your business falls in any of those categories, it’s legally liable to protect this information. Purchasing a cyber insurance policy is critical in the case of a data breach or hack — not many folks want to be accountable for that.
Insurance needs by cannabis business type
Industry niche: Cannabis Dispensaries
Finding the right mix of product liability coverage is so crucial for dispensaries, especially if you find it hard to navigate the ever-changing regulations and legal flux as a dispensary owner/operator. Here are some suggested insurance policy considerations, specially selected for cannabis dispensaries:
- General Liability
- Product Liability
- Property Insurance
- Workers’ Compensation
- Business Income Coverage
- Cyber Liability
- Technology Errors & Omissions
Industry niche: Cannabis Cultivators
Let’s face it, cannabis cultivation is farming, plain and simple. Farmers face a variety of crop threats, from fire to equipment issues to theft. And farming ain’t cheap; cannabis and hemp cultivation takes massive investment in infrastructure. But there’s hope; the right insurance program can effectively protect your precious investment. For those cultivators dealing with moving inventory to wholesalers and dispensaries, consider an inland marine or cargo policy. Some other recommendations are:
- General Liability
- Product Liability
- Property Insurance
- Workers Comp
- Business Income Coverage
- Crop Coverage
- Commercial Auto
- Cargo
Learn more about cannabis cultivation insurance here.
Industry niche: Cannabis Manufacturers
The regulatory hoops that cannabis and hemp manufacturers deal with are extreme. Licensing and regulatory requirements intermingle and are dependent on the specific risks associated with a particular license type. The simple act of processing cannabis flower (or hemp biomass) can increase (but sometimes decrease) the product’s initial value. The equipment needed to process these materials is expensive. All of this can be protected by a robust commercial property policy, or combination of policies, such as:
- General Liability
- Product Liability
- Commercial Property
- Workers Comp
- Business Income Coverage
- Cargo / Inland Marine
Industry niche: Software
If you run a cannabis business, you deal with software. All states with legal cannabis require some sort of seed-to-sale technology. Consider the following insurance policies — and if your company has more than 10 employees, consider including the Employment Practices Liability insurance to the mix.
- Cyber Liability
- Errors & Omissions
- Directors & Officers
- Business Income Coverage
- Employment Practices Liability
Industry niche: Venture Capital
The cannabis industry is a machine driven by hungry investors. They want to get in early, make a bunch of money, and mitigate their risk. If you’re in that boat, consider the following policies:
- Workers Comp
- General Liability
- Directors & Officers
- Professional Liability
- Employment Practices Liability
- Business Income Coverage
Industry niche: Landlords
Landlords fall into a grey area, at least when involved in the cannabis industry. Did you know that many insurance carriers may refuse to cover a claim if you rent to cannabis businesses? If you’re considering becoming a landlord in this industry, discuss it with your insurance agent at your annual insurance renewal. This will minimize and unpleasant future surprises. In the meantime, here are some suggested insurance policy options:
- General Liability
- Property Coverage
- Loss of Income
- Business Income Coverage
Industry niche: Testing Laboratories
Testing labs are an essential component of the cannabis industry. Still, they are at the whim of evolving state and federal regulations. The right insurance policy can help navigate the regulatory minefield. Here are several suggestions, with property coverage included in the mix.
- General Liability
- Property Insurance
- Product Insurance
- Errors & Omissions Insurance
- Business Income Coverage
Learn more about laboratory insurance policies here.
Industry niche: Delivery
The COVID-19 pandemic has highlighted just how critical delivery services are, even more so for those with legal cannabis. Many companies that quickly adapted to the delivery model saw sales unlike any seen before. The following policies include different areas of coverage related to the risks of the service, including accidents, robbery and transit. Note: commercial auto coverage is required if the license holder has a fleet of cars.
- Commercial Auto
- Hired Owned & Non-Owned Auto
- General Liability
- Business Income Coverage
- Product Liability
- Commercial Property
- Cargo Insurance
- Worker’s Compensation
Industry niche: Medical Cannabis Physicians
While most insurance providers refuse to provide coverage for physicians that offer non-FDA medications, there’s a way around it. Some cannabis insurers offer customized coverage to protect medical cannabis physicians from malpractice lawsuits. Look to include the following in your insurance portfolio:
- General Liability
- Errors and Omissions / Professional Liability
Learn more about marijuana doctors insurance here.
Industry niche: Hydroponic Shops
Any hydroponic store that associates with cannabis businesses should consider a variety of coverage, primarily to protect against claims or damages. Having commercial property coverage can protect the shop against fire, theft, and vandalism. Here are some other insurance types to consider:
- General Liability
- Product Liability
- Property Insurance
- Business Income Coverage
- Cargo
Cannabis insurance costs
This isn’t a simple one and done pricing structure. As a cannabis business actively looking for standardized insurance costs, it’s more complicated than that. There are plenty of factors that a carrier will look at during the underwriting process. Fees are dependent on the type of policy, the limits required, and the stage or area of business you are in. On the plus side, cannabis businesses are unique because their growth generally outperforms what’s expected with more “traditional” startup companies. This means you have some bargaining power.
The most important part? Find the right insurance partnership. Working with a partner aligned with your needs ensures they are working for you — to find and negotiate the right coverage at the best prices.
Why having insurance coverage for cannabis companies is essential
As more and more states legalize cannabis, the industry continues to grow at an exponential rate, with estimates hitting $146.4 billion by 2025. That’s only a few short years away. There are a plethora of risks specific to the industry that businesses face. The smallest problem can balloon into a lawsuit, which can affect licensing. Most of the risk can be minimized, however, with the right mix of insurance coverage. As the cannabis industry matures, regulations will most likely increase. The result? Businesses will find it more and more difficult to avoid exposure to risk.
That is why insurance coverage is essential. Any more questions?