Sometimes, it seems like the cannabis industry is just one gigantic liability. There’s property, income, worker’s comp, and more. The most significant is product liability. These cases can be incredibly damaging to a business – both from a financial and reputational angle. In essence, the situation often includes a defective product that results in injury or death.

Let’s face it; you don’t want to own the company known for injuring or killing its customers. Shield against cannabis product liability claims by managing the supply chain.

Cannabis businesses need to address this liability, too. Weed businesses are typically overwhelmed with infrastructure development, meeting regulatory hurdles, and, in the case of newly legal states like Arizona, working out supply issues. While mitigating product liability is standard for more developed industries, it is critical for fledgling industries (like marijuana) too.

Injury law 101

So, just what is product liability, and how does it affect you? Specifically, product-liability law is a subset of injury law. It concerns who should be responsible for defective or dangerous products. Interestingly enough, there is no federal product-liability law. Instead, product-liability claims are typically dependent on state laws. In a nutshell, according to FindLaw.com, an online site with legal information, product liability is “brought under the theories of negligence, strict liability or breach of warranty.”

So let’s cut through the clutter and get to the fundamentals. Legally speaking, there are generally three types of product defects that a business can consider: product design, product manufacturing, and product marketing. Defective or dangerous products may potentially be linked to any company included in the supply chain. Specific to the weed industry, that supply chain can expand to include ancillary businesses (think irrigation, lighting, and nutrient companies). It can also affect testing labs and includes manufacturers of infused or concentrated cannabis products or those that sell devices or ingredients used in the products mentioned above. Whew.

Watch what you say

The FDA comes down hard on supplement manufacturers that make false labeling claims or health statements on labels, ads, and websites. Cannabis-related claims and marketing statements are no different, and ignoring that component can expose a business to product-liability lawsuits galore.

The secret? Disclaimers.

Here’s how it works. You reduce your risk by placing disclaimers where your products are sold or viewed. This simple act can save your skin. It acknowledges some of the risks and, just like it says, ‘disclaims’ it. You’ve communicated it to the customer. They now have the choice to use your product or not.

So, for e-commerce or pop-up ads, you include your disclaimer in a strategic spot — you’re not required to cover the landing page with it, but make sure it’s there. And if there is a required spot to place it, then do it. These can be generic, such as providing information to potential consumers along the lines of, ‘This product is not intended to diagnose or cure . . . etc.’ or other standard disclaimers like, ‘Keep out of reach of children, ‘This product contains THC,’ or, ‘There may be health risks associated with the consumption of this product.’

Some states have particular mandates on disclaimers; others may not. Know the disclaimers required by your state and industry. Follow them. This piece is the easiest one to get right. You’re in the driver’s seat with the content your company distributes. Spend a little time here, make sure the wording is just so, and move onto the next project.

Exceed standards

The quickest, most straightforward, and easiest way to not find yourself tangled in a product liability case? Exceed standards. What that means is companies should design and produce products that go above and beyond state cannabis compliance standards. So do due diligence on all suppliers and partners. Their reputation can affect your reputation.

Exceeding the customarily accepted standards in the following weed-related areas will help keep you out of the hot seat:

  • Growing: the grower has the responsibility to make sure that the products (from soil to nutes to pest-control) they use on their ganja are safe for their plants, their end product, and by extension, their customers. The cannabis that ends up in a retail aisle must be free from contaminants at every stage in the propagation and cultivation process.
  • Manufacturing: those that make consumable products (like edibles and infused items) should make it a habit to vet each supplier they use to ensure they are safe. And since we’re talking about exceeding standards to mitigate against product liability, manufacturers should be routinely testing their products to verify their dosage is correct, the product doesn’t contain contaminants, and the overall quality and effect meet standards, mandated or internal.
  • Store merch: Retailers should do the same due diligence on things that farmers and manufacturers do, which is to vet their suppliers. Stores should verify product suppliers are legit and have documentation to prove it, like requiring testing certificates for the product. Additionally, operators should dig deeper; research a supplier’s reputation in the industry before considering their product.

The companies that will fare the best will not cut supply chain corners. Instead, they will continue with due diligence on a consistent schedule. Check-in on your supply chain. Know how your suppliers do business. Know where the raw materials come from — who grew it, how it was grown, their curing and storage processes — and you can spot and fix potential problems before they become huge ones.

Ensure to insure

Insurance is relatively new to the cannabis industry. Still, it’s a necessary precaution that businesses can take to mitigate product liability lawsuits. Admittedly, the initial track record hasn’t been great. There have been claims of subpar service from insurers or insurers not paying out claims that should be covered under a specific policy — but over time, the quality of insurance providers has improved significantly.

So, if you have a product liability insurance policy with $1 million coverage, and you’re sued for $3 million, you’re still on the hook for $2 million. The policy cap is a $1 million payout. You’re responsible for figuring out how to pay the rest. Unfortunately, we can’t predict the future. So, despite best-laid plans, it’s impossible to guarantee that you won’t be a defendant in a product liability case at some point. Mitigate that. Do not skimp on coverage. Get the most coverage you can afford. Compare plans; work the cost into your budget, and continue to up the coverage as your business grows.