Cannabis Industry Risks and Insurance: What You Need to Know

The cannabis industry is growing like a weed (get it?) and everybody wants a piece. Dispensaries, grow operations, and processing plants for cannabis products are popping up more and more. 

This isn’t your hippie aunt’s weed, either. Expert horticulturists, chemists, and botanists all have their hands in producing premium, high-quality marijuana products. 

Despite cannabis being one of the fastest-growing industries, many people still can’t wrap their minds around it. The federal government has yet to legalize it, stigmatizing it on a disruptive level. 

States that see the economic and medical effects of cannabis products have been taking matters into their own hands by declaring it legal. 37 states have laws allowing the medical or recreational use of marijuana. 

This has led to one of the largest disparities between the economy and legislature today. Take Oklahoma for instance: a state that has only had medical marijuana for a handful of years but has generated millions of dollars per year in the sale of it. Despite the lack of federal legalization in the United States, medical marijuana sales reached $25 billion dollars in 2021.

Though state laws have legalized marijuana, cannabis-related businesses (CRBs) face daunting dangers. Legal and security risks resulting from the divide between federal and state laws have them caught in the middle, forcing tangential industries like insurance and banking to work with the marijuana industry either cautiously or not at all. 

Before we jump into the rest of the blog, drop me and my team a line if you're worried about the risks facing your CRB. We’d be happy to consult with you on the risks your cannabis business faces.

A Triple Threat of Risks

No investment is a guarantee, and every business owner faces risk. The cannabis industry is no different — the risks are just much greater because federal institutions don’t make it easy to protect them.

1. Financial Risks

Theft and security risks regularly lead to the loss and damage of inventory, equipment, and finished products for cannabis businesses. Made worse by the fact that inadequate insurance may not cover such claims. Growing pains are also evident in the rise in personnel and consumer-related lawsuits that a more-established industry has equipped itself to handle.

2. Operational Risks

Cannabis now extends to many different types of businesses. Growing, manufacturing, processing, testing, and selling are all different levels of the cannabis industry. Each one faces the same operational risks as its non-cannabis counterparts, like theft and fraud. However other operational risks seem much more threatening because of thorough marijuana regulation. Frequent product recalls can cause expensive losses; fines and shutdowns can threaten your business’s survival.

3. Regulatory Risks

State-level administrators regulating marijuana growth and sales put up a lot of red tape around cannabis businesses. State regulations such as mandatory lab testing, potency limits, hours of operation, and even geographical requirements can be instituted on a whim and have major impacts on cannabis companies. Regulation is volatile and therefore uncertain. So much, so that regulation itself poses a risk to every cannabis business. 

Consequently, protecting against those risks is radically more expensive. Who incurs those costs? Why business owners like you, of course.

How Cannabis Business Insurance Can Protect Against Risk

The following statements are true: 

1. Insurance is an investment. 
2. Insurance protects your future. 
3. Insurance can seem like a scam if you don't get the right coverage.

No one knows that better than my team and me at Hopewell. Your cannabis business can incur damaging losses and face threats that can be costly and debilitating. With proper coverage, you lessen the likelihood of covering it all on your own.

Often, insurance means short-term pains (like premiums) for long-term protection (like payouts and reimbursements for damages). Since the eventual risks are much higher, costs skyrocket in anticipation of that coverage. 

From workers’ comp insurance to commercial property insurance, your grow or dispensary is no different from any other business. Costs can come out of nowhere, and you’ve got to be prepared for it. 

Insurance Carriers and Cannabis

The necessity of insurance doesn’t make it any less difficult to attain for the cannabis industry. Because of the legal and regulatory intricacies of the marijuana industry, most insurance carriers won’t touch it with a ten-foot pole. 

Consider where they’re coming from - marijuana is a Schedule 1 drug, not different in the eyes of the federal government than the likes of heroin, LSD, and meth. Naturally, this has caused insurance companies to balk. They regularly respond with either caution or withdrawal. 

Additionally, since insurance is a tried and true practice based on data and claims history. Since cannabis is a relatively new industry at the mercy of stringent regulatory policies, it seems like a huge risk management question. 

Luckily, you’re not alone in your quest. With the rise of cannabis businesses comes the equivalent increase in the need to insure them. That’s where people like me and my team come into play.

While some insurance carriers may run for the hills, newer companies are emerging to fill the need. Similarly, insurance companies are adapting and emphasizing this growing market. You just have to know where to look. 

Enter Insurance Brokers

Insurance brokers existed long before marijuana industries and cannabis business insurance. Our business has a simple goal — to locate and design insurance solutions for individuals and business owners. 

With our help, bundling and proper coverage aren’t just empty buzzwords. They are tools designed with your best interests in mind. Independent insurance brokers act as go-betweens for you and insurance carriers. Since some insurance carriers can barely make heads or tails regarding marijuana insurance needs, having someone knowledgeable ask the right questions is key.

Knowing how cannabis businesses operate and how that impacts their coverage needs is a benefit to an experienced cannabis insurance broker. Let an insurance broker be your advocate. You may not want to ask all the questions or know what to ask.

As an independent insurance broker, we make it our business to know the ins and outs of your business, its industry, and the specific insurance needs that come from it. 

Hopewell Risk Advisors and Your Marijuana Business

The Secure and Fair Enforcement (SAFE) Banking Act of 2021 promises to alleviate the financial risks posed to the cannabis industry, but who knows how long it will take the insurance industry to respond? An insurance broker will leverage constantly changing legal and industry information to keep insurance carriers honest. 

To provide that service, we go above and beyond to research insurance options, compare prices, offer bundled solutions when possible, and only give you what will help you the most. We make it our business to stay up to date with the state and federal legislative movements that can impact your business. 

With the help of a friendly neighborhood insurance broker like Hopewell, you won’t overpay for minimal coverage, and you’ll have insurance solutions that you can understand. Get started with a free cannabis insurance estimate today and let’s protect your green.