Despite the divisive nature of the cannabis industry as a whole, you can’t deny that it makes money. Retail cannabis in the United States alone is expected to reach over $30 billion by the end of this year.
All this popularity means a lot of entrepreneurs, small businesses, and even large corporations are trying to get a piece of the cannabis industry. However, this cannabis gold rush doesn’t excuse rash business decisions. No matter what type of cannabis business you have, you need to protect your investment with insurance.
Cannabis insurance, similar to any other industry’s insurance market, can be fairly dry. It’s still necessary for protecting your business from unforeseeable circumstances, accidents, and legal suits.
The cost of repairing a building, defending against a disgruntled customer’s civil suit, or covering an injured employee’s medical expenses adds up to an expensive bill. Insurance can help with the financial strain of these and many other circumstances. Having insurance for your cannabis business is just good sense.
In this blog, we'll be looking at the benefits of having cannabis business insurance and what you need to consider before choosing a provider. As always, if you need any help understanding the ins and outs of insuring your CRB, drop our team a note. We'd love to answer any questions or help you price your coverage.
Cannabis insurance can be convoluted because of the complex legality of marijuana. Since it is a schedule 1 substance and federally illegal, states have created rules to allow for the distribution and sale of marijuana and CBD products.
Because of that legally gray area, insurance options from known and long-established insurance carriers are expensive and not easy to find. Insurance companies are creatures of habit, and they price their products as a result of claims history and risk management data. To them, your cannabis business looks risky and could end up costing them more than it costs you.
Additionally, consider these state-specific industry needs. There are currently 37 states who have provisional state laws regarding the medical or recreational distribution of marijuana. Out of those, there are only six that require cannabis-specific insurance or bonding when operating as a CRB.
Luckily, more cannabis-specific insurance options are popping up to meet the demand of cannabis-related businesses (CRB). If you don’t want to navigate these uncharted seas alone, you should consider a cannabis insurance broker. They can invest time and resources into researching the fine print to help you get the insurance program you need from reluctant or just starting out insurance companies.
As long as it’s legal in your state, you should have access to a wide variety of insurance services and coverage options. Other than marijuana, your cannabis business is just like any other in terms of insurance coverage needs.
There are regular business comparisons that can shed some light on what your business will need. Consider your dispensary as a retail storefront, your grow as an agricultural business or your lab as a testing facility.
Regardless of the kind of CRB you have, it is highly recommended (or legally required) for you to have:
Once you’ve gotten these basic insurance solutions taken care of, it’s time to get into the specific needs of a cannabis business.
Whether it’s a competitor, an unhappy customer, or a business partner, your business can be subject to litigation at the drop of a hat.
There’s no way to totally eliminate the possibility of a suit, but there are several insurance solutions to mitigate the financial damage of suits brought against your business.
There are inherent risks that come with operating a CRB. The severity of these risks can be lessened by the proper insurance coverage, so let's explore the potential risks and solutions for your CRB.
If you’re in the product industry, you need liability insurance. Whether it’s legal, financial, or operational - liability woes can hit your business where it hurts.
All cannabis products can be a liability. Every consumer processes their chemical components differently, and their reactions and behavior can range from unpredictable to disastrous.
Because of the rigorous testing required in the cannabis industry and the stringent laws in place, product recalls can represent huge losses to cannabis businesses. Depending on the type of recall and the resulting litigation, product liability or general liability can cover your expenses to a certain extent.
Here are the basic kinds of product liability that are applicable to any CRB.
This type of defect occurs because of the components of a product. In the case of cannabis, it can be caused by anything in the agricultural or processing stages that causes adverse reactions. Product recalls that are still distributed to the consumer and result in adverse side effects could be considered a manufacturer’s defect.
This type of defect occurs when there is an inherent flaw in the design of the product, like a malfunctioning vape pen or the use of cannabis products being connected to medical issues.
This type of defect occurs on the forward-facing side of cannabis. Marketing defects are things like labels omitting critical information. Edibles with high THC concentrations and a failure to clearly warn the consumer of that can fit these criteria.
Regardless of if you grow, manufacture, distribute, or sell the product in question, your business can still be held liable for any unfortunate side effects.
Even if you are a dispensary, a civil suit can still name you as a participant in the supply chain that led to the product ending up in the hands of the customer. Liability coverage can alleviate a portion of the financial strain these circumstances cause.
Did you know that 46% of cyberattacks are launched against small businesses? More likely than not, your cannabis business is responsible for fewer than a thousand employees, making it a small business in the eyes of the federal government.
The same things that leave non-cannabis businesses vulnerable can impact your CRB, too.
Your business’s potential lack of cybersecurity makes it a particularly appealing target. Whether it’s a hack, data breach, or phishing scam, a cyberattack can be disastrous for your cannabis business and its customers.
Here are some of the costs associated with cybercrime:
A cyberattack can get expensive and inconvenient quickly. When consulting an insurance provider or independent broker, be sure to consider your risk level and how much a cyberattack could cost your business.
If you and your trusted insurance partner find it necessary for your business to have this kind of insurance, cybersecurity coverage may be right for you.
This type of insurance is one of the most beneficial but underrepresented. If your cannabis business relies on data storage, processing systems, or even text alerts, any errors in those technologies that impact customers can be held against you.
If any tech errors or omissions cause enough harm or disruption to get you sued, this type of insurance policy can help with the associated costs.
Since it’s likely to assume you’re in the leadership team of your CRB if you’re reading this, it’s important to know that you could be held personally liable for malfeasance, mishandling, or bad practices in your role in the company.
Whether shareholders, other investors, or even competitors SHOULD sue you often doesn’t impact whether they do or not. D&O insurance coverage reimburses for legal fees and costs associated with protecting you from litigation. Consider this type of insurance add-on to protect your personal assets should the business be subjected to a suit.
The cannabis business insurance market is not uniform, so you have a lot of options to consider. It’s customizable based on the type of business you’re running.
See which insurance solutions are best for specific needs so you have a better idea of your priorities when designing your insurance package.
The cultivator side of CRB shares a lot in common with the agricultural industry. As such, their insurance solutions are designed for a business owner’s protection, like inventory and crop insurance for low yields or defective crops.
Since a majority of grows are indoors, their equipment is expensive, unwieldy, and potentially dangerous. Additionally, there are a substantial amount of chemicals involved in the process. Exposure, ingestion, and the improper mixture of them can result in injury or worse.
Your insurance priorities should be:
From the raw plant form to a nightly edible, processors are crucial to the cannabis industry. Your processing business is responsible for cultivating an unfinished product and making it a consumable good for customers.
As such, it’s both manufacturing plant-facing and customer-facing, and that makes it susceptible to the pitfalls of both. It’s labor-intensive, reliant on specific and expensive technology, and is also at the mercy of the customer when it comes to liability.
Your insurance priorities should be:
Due to the unpredictable nature of your business’s dealings, insurance is an absolute necessity. Labs are held to high testing and regulatory standards, so compliance is strictly enforced.
Regardless of how futuristic your lab may seem, it is still owned and operated by humans who are susceptible to human error. A lab and testing facility is the first under the microscope if things go wrong.
Not to mention the wealth of equipment your business relies on — damage to just one machine could knock out your operations (or its budget) indefinitely.
Your insurance priorities should be:
The hazards of deliveries and distribution centers can cause both inconvenience and financial blows. Your distribution business is responsible for securing and safeguarding very expensive products in either their raw or final state.
Your insurance priorities should be:
Dispensaries make up the bulk of how consumers interact with the cannabis industry. Edibles, flower, dabs, vape pens, and prerolls — the list of potential products at a dispensary can be a long one. That doesn’t even explore the list of equipment, pipes, branded merchandise and other things your dispensary may sell.
Dispensaries are rarely carbon copies of each other — there are size, volume, and location variables to take into account that can increase the cost of insurance from dispensary to dispensary. Even if you’re operating a few of them, the costs will rarely be identical.
Dispensaries face the same insurance hurdles that all brick-and-mortar retailers face since this business basically just sells products to consumers.
Your insurance priorities should be:
For every cannabis business, there is a fleet of support services and businesses that go hand in hand with it. Outsourced human resources and payroll management, waste disposal, or security services are all examples of tangentially-related cannabis businesses.
Because of the miscellany of these services, their insurance needs vary, but several helpful solutions are:
Options for cannabis insurance coverage vary greatly depending on several factors and can impact the cost.
Whether you’re in a city or the rural countryside, an upscale or up-and-coming neighborhood, or even an area with lots of foot traffic, these things influence your cannabis insurance coverage.
For instance, insurance premiums can rise based on your location’s susceptibility to natural disasters, crime, or utility disruptions.
There is no uniform sticker price for cannabis business insurance. The types of insurance products you require will impact how much you pay in premiums for the amount of coverage you need.
Cannabis business insurance is a complicated and costly process. We offer tailored solutions to our clients, so they can get the protection they need without breaking the bank.
We have helped many small-to-medium-sized businesses find the right coverage for their cannabis-related businesses. Our team of agents can help you find the right coverage for your business and make sure that you are protected against any potential losses or lawsuits.
Getting started is easy. Request your free, no-obligation cannabis insurance quote today.