The marijuana industry is a risky one to enter thanks, in no small part, to federal cannabis prohibition.

The plant’s federally controlled status presents challenges that most traditional businesses needn’t worry about, especially with regards to banking and claiming tax deductions. On top of this though, the disjoint between federal, state and local marijuana laws means the industry comprises a patchwork of constantly-evolving rules and regulations.

A perfectly legal practice in one jurisdiction may not be permitted in another closeby, and this inconsistency is a risk that cannabusinesses often need to face head-on.

Unfortunately, and perhaps ironically, marijuana’s federally illegal status also makes it harder for marijuana businesses to acquire standard risk management tools. From basic services like credit cards to more complex legal protections in the form of patents and trademarks, managing risks that appear small to traditional businesses take on greater significance as a cannabusiness.

But while these types of risk management tools may be out of reach for many marijuana businesses, it is nonetheless possible – and indeed strongly recommended – to arm yourself with a risk management team of insurers, accountants and attorneys.

What exactly do we mean by risk management though? Well, it is a process whereby potential losses are anticipated and a plan is developed to overcome them, should it come to pass. This broadly comprises five steps:

  1. Identify all potential loss exposures (such as litigation for a defective product or for an injury sustained on your business premises)
  2. Evaluate each loss exposure’s severity and frequency
  3. Assess each exposure-managing technique
  4. Deploy exposure-management techniques
  5. Review, evaluate and improve your risk-management plan

For cannabusinesses, sources of potential losses include people (owners, investors, staff, customers, and vendors), property (premises, equipment, inventory, vehicles, cash, intellectual property, data, and crops), and profits.

After evaluating the severity and frequency of potential losses concerning people, a marijuana business may determine that the risk of injury to its customers and employees could represent significant losses and would therefore decide to establish rigorous safety plans and employee training to mitigate against these.

With regards to property, such potential losses can be more easily calculated and anticipated, but federal marijuana prohibition ensures cannabusinesses are unable to access common insurance packages, such as ones protecting crop or cash amounts exceeding $25,000.

As for profits, this is perhaps where marijuana businesses are most vulnerable, as they are at serious risk of regulatory fines, interrupted business, and litigation. Thanks to the various layers of local, state and federal laws, marijuana businesses are more likely to be fined than traditional businesses, yet they are also ineligible for federal support should their business be interrupted by, for example, a wildfire taking out their crop.

Marijuana businesses are also at greater risk of litigation, largely due to an absence of industry-wide health and safety standards for cannabis products. Such lawsuits can be incredibly time-consuming, plus a serious drain on your finances. Having an attorney with marijuana-industry expertise to help manage this risk could save you big in the long-run, while a competent insurer that understands the cannabis sector may be able to protect you from the worst possible outcomes.