From cannabis farm to processor to packager to distributor to dispensary to consumer, there are many points along the supply chain. But no matter where your business is in that chain, you face significant risk from product liability.
A whole host of issues could arise at any point in the supply chain–a processor contaminates a batch, a distributor doesn’t store products properly, or even a delivery driver gets arrested for a DUI–and they are all a potential liability for a cannabis-related business. All these potential sources of risk and the newness of the cannabis industry are reasons why the insurance industry is managing its risk and largely staying out of cannabis for now.
You might think that you don’t have to worry because you already have an insurance policy. But if you went for the cheapest policy you could find, you’re likely more exposed than you think.
What you need to look out for are the exclusions. An insurance policy is typically structured in such a way that you have a policy with broad range of coverage that is then limited by exclusions. Contact your insurance broker and have them go over every exclusion in understandable terms. You may find that your product type isn’t covered under the policy you’re paying for every month. Even specific ingredients may not be covered in your current policy.
If your broker can’t explain every exclusion to you or doesn’t seem to understand the policy, it may be time to get a new insurance broker. The cannabis industry has its own unique needs and exposures, and an experienced broker that is knowledgeable in cannabis specifically will be able to do that with you.
Those that do get proper coverage have seen success after disaster has struck. Early cannabis insurance claims have proved promising, meaning good coverage is worth finding.
Another problematic exclusion is one that prohibits “illegal acts.” If this exclusion is written carefully, it may not be problematic. But if becomes too broad, it may exclude your company for running a federally-illegal business.
And getting that coverage is important. If a consumer is injured from a product, it won’t just be the manufacturer who gets sued, most likely. Every point in the supply chain could potentially be named in a lawsuit. If something is discovered wrong with a product, knowing whether you have recall coverage will be key. It takes time and money to run a recall and this kind of coverage can help soften the blow.
There is a bill in Congress right now called the Clarifying Law Around Insurance of Marijuana (CLAIM) Act, aka H.R. 4074 and S. 2201, that would make it possible for insurance companies to provide coverage to cannabis-related businesses in a federally legal way. Currently, there are very few insurers that work with cannabis-related clients due to the risk.
Until then, be sure you understand the exclusions in your policy, your broker understands the exposures of your business, and don’t just go for the lowest price.
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