The billion-dollar cannabis industry is fueling big business for insurance providers, and with more options opening up, it’s important to know which kind of policies your business needs and what is available.
An insurance policy is basically a business contract (similar to a lease), where an agreement is made to share the risk of a business venture. Paying a monthly or quarterly premium is how you pay your insurer to assume that risk for you. Cannabis is a rather new industry, and not all insurance providers will make the same risk analysis for businesses in the industry, so prices can vary widely. And you need to be sure you understand what is (and what is not) covered.
There are higher risks associated with insuring cannabis businesses than other types of industries, and not just the risks you might think of, including:
- Having assets seized and real estate forfeited
- Having business accounts shut down unexpectedly
- Being found in violation of a law or regulation at the federal, state, or local level
- Having mold, fungi, or other biological substances detected in the cannabis product
- Transmitting communicable diseases
- Needing to replace outdated or inefficient lighting to meet energy standards
Some of these risks will change if legislation is passed at the federal level to clarify regulations regarding cannabis and banking and insurance services. But for now, these risks remain relevant.
Before you meet with an insurance broker, it helps to know the basics. There are 3 types of insurance, broadly speaking:
- Employee-related liabilities: Worker’s compensation coverage, employment practices insurance, and so on
- Injury to people and tangible business assets: Often covered by general liability policies
- Damage to physical buildings and fixtures: Real property casualty insurance is what provides coverage here.
Some of the important policies that fall into these categories that most cannabis businesses would benefit from include:
- Key person insurance, which can be useful between business partners
- Directors and officers (D&O) insurance to protect the non-employee directors of the board
- Business interruption insurance to help fill the gap when a pandemic, theft, or natural disaster has made keeping business going impossible.
Unless you’re already an insurance broker (and even if you are), reading through and understanding the details of policy coverage is difficult. Expect a large stack of pages to go through detailing the scope of your coverage and any riders/amendments that have been made. Most unfortunately aren’t aware of the limits of their policies until they attempt to make a claim.
A common cannabis risk rider will often require initial steps already be completed before considering a claim, including:
- Keep cannabis and cannabis products stored in a locked vault or safe (there may be minimum safe requirements).
- Have a licensed electrician sign off on all your facility’s electrical work and confirm that it is sufficient to meet your business’s needs.
- Connect a burglar alarm to the facility and have it linked to a central response center.
- Install motion detectors at the facility.
While there may be several caveats and other details that need to be completed to get a policy, any insurance is better than no insurance. It’s important to understand your policy so you know where you’re covered and the proactive steps you may need to take.
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Have you found it difficult to understand your policy coverage? What other kinds of affirmative steps have cannabis risk riders asked of your business? Let us know in the comments below.