The True Cost of Cannabis Insurance and Why You Need It

The Landscape of CRB Insurance

Cannabis, in some shape or form, is legal in 37 states across the U.S. Despite it being a Schedule 1 substance, that hasn’t stopped the industry from booming. Scores of entrepreneurs and businesses are trying to get a piece of the pie. 

If you’re here as a cannabis entrepreneur yourself, insuring your business is a sound decision and sometimes a legal requirement depending on where you live. Cannabis is no different. Regardless of what stage of the industry your business participates in, your business’s insurance coverage needs are similar to those of other industries. 

Acquiring insurance for any may be tricky, though, because of the newness of the market, the vast differences between state and federal law, and the stigmas behind both legal and medical marijuana have caused insurance companies to be cautious.

Due to the lack of competition and the mercurial nature of the industry itself, the risks facing cannabis-related businesses (CRBs) are much higher, so premiums and policies can seem exorbitant in comparison to the general offerings of insurance companies. 

Know what type of insurance your business needs most to prioritize its specific vulnerabilities and design your insurance coverage accordingly. 

Our team of cannabis insurance experts is here to help you whenever you need them. You can get in touch with us at any time for help or check out our FAQs on the types of insurance required by your state for cannabis-related businesses (CRBs). 

State-Level Requirements for CRBs

Before jumping into different types of insurance, it’s first beneficial to know what’s required where you live. Out of the 37 states that offer some kind of legal cannabis program, only six require insurance or bonding due to their status as a CRB. 

Those states are:

• California - Bonding for licensees, general liability insurance required for CRBs
• Connecticut - Bonding for production only
• Florida - Bonding for dispensaries only
• Illinois - Bonding for dispensaries and cultivators only
• Massachusetts - Bonding for all CRBs, general and product liability insurance for CRBs
• Washington - General liability for all CRBs

Insurance by CRB Type

Business owners generally know their insurance needs, but it’s understandable if you’re thrown for a loop when it comes to marijuana insurance and the complications of legality involved with recreational and medical marijuana. 

Regardless of your cannabis-related business being required by law to have insurance, your business will need it. It’s a sound business decision that protects you and your assets.

Narrowing down the right kind of coverage will be much easier once your insurance agent has determined what part of the cannabis industry your business operates in. 

Here are the most common types of marijuana-related businesses with some initial coverage recommendations:

• Grows: The business that focuses on the cultivation and growing of cannabis products. Insurance needs for grows are similar to that of any other agricultural industry, like property and crop insurance.
• Processors and Manufacturers: These are the businesses that take the marijuana and turn it into products in dispensaries. Extracts, flower, resins, joints, and hemp and CBD products are usually the results of third-party processors who facilitate turning the crop into a manufactured product. As such, they face the same insurance needs as dispensaries, along with an emphasis on product liability.
• Distributors: The same as any other distributor, cannabis distributors get crops from the grow to the processors, products to dispensaries, and dispensaries to dispensaries. Cannabis distributors require the same coverage as any other distributor, like commercial auto coverage and workers’ compensation coverage.
• Dispensaries: The shops that sell marijuana flower, concentrate, resin, wax, or edibles. These storefronts also carry THC, CBD and hemp-related products. Dispensary insurance is the most similar to small business insurance needs, which we’ve explored at length. 

Knowing these preliminary recommendations, let’s shed some light on what can affect the cost of your insurance coverage for your cannabis business.  

There are several variables that impact the cost of your insurance coverage, especially for your cannabis business. The type, coverage limits, location, and scale will affect the cost of your premiums and coverage. 

Types of Insurance For Your CRB

As is the case with any business, there are several varieties of insurance packages and benefits that may or may not affect your CRB, depending on what kind of business you’re looking to insure.

1. Workers’ Compensation Insurance

If your CRB has workers, it needs workers’ compensation insurance to cover them and any accidents that may occur. The following represent threats specific to a CRB: 

• A grow, or processor business involves toxins, chemicals, and pesticides. 
• There’s an increased risk of fires in internal cultivation, so your employees could face burns and smoke inhalation if subject to a fire. 
• This says nothing of the usual slip and falls, falling equipment, and general risk of bodily injury claims any business faces on a regular basis. 

With workers comes the insurance which will protect your business from several costs down the line, like: 

• Medical expenses
• Rehabilitation and long-term care expenses
• Legal and settlement fees

All these are extremely costly, which is why workers’ compensation insurance is a legal requirement for owning a business with more than one employee. 

2. General Liability Insurance

Employees, and even you, can cause accidents when working on the job. General liability insurance covers these costly claims, so you don’t have to be solely financially responsible. 

General liability insurance can cover your business in the event of: 

• Bodily injury
• Property damage
• Legal expenses

If someone gets hurt in your dispensary or someone sues your business over property damage incurred as a result of using your product, your business could be legally liable. 

General liability insurance is usually required in property lease agreements, so chances are you need this type of insurance to protect your business and its financial future. 

3. Product Liability Insurance

Professional liability insurance covers your business in the event of mistakes, misrepresentations, or even employee recommendations gone awry. 

These can be especially tricky in the cannabis industry because tolerance, bodily chemistry, and behavior are so linked with the product. 

Here are just a few examples: 

• Should a dispensary’s client have an adverse reaction to an edible or get in a wreck while under the influence, it could be found liable. 
• If a processor or manufacturer mislabels a cannabis product as hemp or THC, they’re liable if a complainant brings suit against them. 
• If a dispensary employee advises a customer about a certain strain or product to try and the customer experiences an unpleasant reaction, that employee or dispensary could be found to be negligent. 

These and so many other unfortunate circumstances are sure to cause legal trouble. Whether your business settles out of court or not, the legal expenses associated with the settlement can cripple your business. 

Product liability insurance coverage can help with settlement costs, legal expenses, and court fees should your business be threatened. 

4. Crop Insurance

In the cannabis industry, it all begins at the grow. Whether an internal or external cultivator, a grow faces the same insurance needs as an agricultural product. 

Crop insurance can cover several aspects of a grow’s operation, like seeds, seedlings/clones, harvested plants, and finished stock insurance that can provide actual cash value for damaged or stolen finished marijuana product stocks. 

Protecting any of these valuable assets from: 

• Theft
• Fire and explosions
• Vandalism
• Equipment malfunction in monitoring and control systems
• Interruption of service in the time replacing the affected crops with new crops

All of these present serious threats to any grow’s operations and the businesses that rely on it to produce a product. 

To any cannabis business, the disruption in profit the loss of a crop would present is devastating. Knowledgeable cannabis insurance brokers can design crop insurance coverage to prevent substantial loss. 

5. Commercial Property Insurance

In the cannabis industry, your product may be your income, but the building that houses that product and the equipment to manufacture it are just as valuable. Should something happen to it or the facilities that grow it, your business is in financial jeopardy. 

Damages from the following can be expensive: 

• Burglary and theft
• Weather damage
• Fires
• Vandalism
• Temporary closure

Different policies and coverages often won’t cover these claims. With the chemicals and equipment involved in cultivators, fires are common claims. Processors and manufacturers can be financially hit if their facilities lose power because of a storm. Crimes like burglary and vandalism are common in marijuana dispensaries because of their reliance on cash flow. 

Commercial property insurance is not legally necessary and can seem expensive, but it covers more than just the CRB building, like: 

• The property itself
• Its equipment and tools
• Inventory
• Furniture and decor
• Personal property on site

The cost of replacing any or all of this, should the worst happen, could threaten your business in the wake of disaster. 

Agricultural equipment and lights are expensive and required to operate internal marijuana grows. Expensive inventory is stored and sold in dispensaries, to say nothing of the usual storefront needs like glass cases and surveillance equipment. 

Commercial property insurance gives you coverage to replace these expensive necessities in the event of damaging circumstances. 

6. Data Insurance

Data breach insurance and cyber liability insurance cover your business in the event of a breach or attack on sensitive information. 

Whether you’re a grow, dispensary, processor, or testing facility, your business is facing the same risks as any other that handles sensitive information. If your business is breached by ransomware, hacked, or accessed sensitive information, you can be held legally liable.

Small businesses that don’t keep a cybersecurity expert on the payroll are especially vulnerable to this risk. This information can be threatened, copied and stolen, causing your business and its customers quite a headache. 

Issues that cause these specifically in CRBs:

• Lack of cybersecurity protocols
• Seed-to-sale allows data collection and tracking from several vulnerable entry points in the cannabis industry 
• Employee access and inconsistent security practices 

Data breach insurance helps cover the costs if a data breach occurs. Costs involved in customer notification, legal proceedings, and credit rehabilitation offerings can be quite expensive. Data breach insurance helps alleviate that burden. 

Cybersecurity insurance is similar to errors and omissions insurance because your business is considered at fault should its cybersecurity be called into question. The losses associated with third-party credit card data, medical or identity information can be considered an error or omission that is not covered under E&O policies.

Additional Factors that Impact Cost

Coverage Limits

Your insurance coverage limits heavily impact how much you pay for that coverage. 

Even with high premiums and seemingly high coverage limits, your claims still may not be covered. 

Most insurers offer $1 million per occurrence and $2 million bundled commercial insurances (i.e., general liability, property, and product liability),  but the expenses compounded with cannabis insurance circumstances could be well above that. 

Compounded with the risks involved are these coverage limitations. If you need more coverage, you’ll have to pay much more for it. 

Consider the expensive nature of cannabis-related equipment, security, and even the inventory itself. Insuring that against any kind of claim is going to be much more intricate and therefore, expensive. 

Location

Of course, what state you’re in will impact the access and ease with which you can acquire insurance for your cannabis business. 

Whether it’s recreational or medically legal in your state can affect how responsive insurance carriers are to your business and any potential claims you make. 

Equally, the location of your business has something to say about the cost of your insurance. Whether you’re in an urban, residential, or rural area and how much foot traffic occurs within your business. Even the claims’ history data of your business’s geographic radius can color how your insurance company covers your business.

Size

Those who say size doesn’t matter aren’t talking about insurance. 

The size and scale of it influence how much coverage you need, how expensive it will be, and even the types of insurance you may need. 

Consider scale in data like: 

• How many employees your business has
• The square footage
• The quantity of inventory that passes through your business
• Your business’s age and history
• The annual profit generated by your business

Since no cannabis business is the same, all these variables require insurance customization to make sure you’re getting the coverage your business needs. 

The True Costs of Cannabis Insurance

The relative newness and legality of the cannabis industry make insuring its businesses quite the guessing game. 

Insurance carriers price their products based on claims history, risks, and historical data. With the risks still being established, the recent claims have more impact on the insurance landscape and how they choose to price their products. 

Additionally, insurance carriers have to pay special attention to the legality of marijuana and the legal ramifications it could have on them and their customers. Monitoring and adapting to new laws and regulations takes time, money, and resources that insurance companies are inclined to handle conservatively. 

Every insurance solution for CRBs is a byproduct of this tension and the increased risk insurance carriers face. By providing insurance to cannabis industries even when federally acknowledged as a Schedule 1 substance, insurance carriers and the businesses they cover are forced to walk a fine line. 

Because of this convolution, insurance solutions for CRBs can be difficult to navigate, expensive, and downright frustrating. Consider the following numbers: 

• Annual premiums for $1 million policy could run as much as $150,000 for a CRB
• Cannabis insurance can range from $4,000 to $10,000 just for general liability and property coverage
• Crop coverage for grows can range from $5,000 to $12,000 
• According to the NAIC, medical marijuana practitioners need limits up to $5 million or $10 million, if not more, while many carriers are more conservative with how much they'll cover. 

These statistics demonstrate the caution and reluctance insurance companies face when dealing with cannabis. 

Hopewell Stops Your Business from being Half-Baked

As a result of this hesitation, new insurance carriers are emerging to specifically serve this underserved market. Independent insurance agencies like ours are devoting a serious allocation of resources to this emerging market and curating specialized insurance solutions for them. 

The complexity of CRBs and their industry require specific insurance solutions. Tailoring insurance solutions for your CRB is no longer just about how much you can save by bundling your general liability and workers’ comp insurance. It’s about designing policies specifically for the cannabis industry and finding insurance carriers who will serve these businesses. 

Consequently, your cannabis business interests need to be protected by a knowledgeable insurance agency, not someone feeling around in the dark. 

Hopewell develops relationships with insurance carriers to provide the best coverage in this turbulent political landscape. 

Unsure of how to proceed, frustrated, and afraid about ending up in a bad position with no coverage? We’ll do our best to make sure that doesn’t happen, and you are covered. Get a free quote on cannabis-related business insurance today with the Hopewell team.