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Overview
Cannabis is an exciting emerging sector that poses unique challenges and risks. The industry is projected to grow to $146.4 billion by 2025. As the industry grows and becomes more regulated, so does the risk exposure.
The uncertainty surrounding the legality of marijuana has lead to many major insurance carriers being reluctant to offer insurance to the industry and presents obstacles finding the right insurance policy. Many cannabis companies struggle to get quotes and can be left with substandard insurance policies with significant gaps in coverage.
This is why it’s so important to work with an insurance broker that has access to the top industry carriers, a proven track record of placing insurance and managing claims for Cannabis companies. At Founder Shield, we have build a cannabis-specific subsidiary, AlphaRoot who partners with the leading international insurance carriers that design policies specifically for cannabis companies. We work with some of the top public cannabis companies in the US and Canada and craft tailored risk management programs that allow them to focus on the things that matter, growing their business.
Why is Insurance for Cannabis Companies Important?
Insurance is a vital way of managing risk for all industries, and Cannabis is no exception. As an emerging industry built around a federally illegal (and, in many places, currently illegal) substance, the cannabis industry is especially risky. Companies must navigate new, evolving and uneven regulations. The legal climate sometimes seems to be changing daily, making it hard for companies to keep up. Multiple recent lawsuits have highlighted the importance and a solid D&O policy for cannabis companies:
- Cronos Group Inc. has faced securities litigation.
- MedMen, a cannabis retailer, and its executives have been sued.
- Aphria Inc. has been hit with a securities lawsuit.
- CV Sciences, which manufactures and sells CBD products, has been sued for securities violations.
Legal & Regulatory
The legal status of cannabis remains hotly debated in the U.S. The 2018 Farm Bill legalized hemp and hemp-based cannabidiol. Additionally, many states have legalized recreational and/or medical marijuana. However, marijuana is still illegal on the federal level, resulting in a highly complicated legal and financial environment for marijuana companies operating under state laws.
Financial Risk
Federally regulated banks avoid accepting proceeds from a licensed cannabis business or risk losing their federal charters. With traditional banking services limited or unavailable, cannabis firms can be forced to transact business, including paying employees and taxes, in cash. Recently, a Denver, Colorado credit union received approval to receive cannabis proceeds but availability still varies significantly by state..
Product Liability
Proper product labeling is crucial. Even so, bodily injury and property damage could result from the use of the psychoactive drug, and contamination with pathogenic molds, fungus or pesticides could also result in major recalls and liability. According to Denver’s Department of Public Health & Environment, there were numerous marijuana recalls recorded over contamination issues between 2015 and 2017.
Property Protection
Theft, product tampering, or vandalism can delay business operations significantly. Protecting your crop, inventory, and equipment means having a back-up plan for when loss occurs. Acres of cannabis crops are destroyed each year due to vandals. Besides crops, thieves regularly try to steal inventory across the nation. In short, cannabis companies must protect their property.
Recommended policies for Cannabis companies
Core Coverage
These coverages form the foundation of any risk management program for Cannabis companies:
General Liability
General liability offers broad protection against some of the most fundamental risks companies face. Known as “slip-and-fall” or “all-risk” insurance, this policy covers personal or property damage and bodily injury occurring on the business premises.
Workers' Compensation
When employees sustain work-related injuries, employers are typically responsible for their medical costs and lost wages. This policy covers these expenses, protecting employees while simultaneously keeping cannabis companies running smoothly.
Cyber Liability
Cyber insurance protects companies from third-party lawsuits relating to electric activities (i.e., phishing scams). Plus, it offers many recovery benefits, supporting data restoration and reimbursement for income lost and payroll spent.
Employment Practices Liability Insurance
Any company with employees faces the risks of allegations, such as discrimination, wrongful termination, breach of contract, etc. This coverage protects companies against lawsuits related to employment practice
Cannabis Specific Coverage
These policies are essential for or can be tailored to the needs of companies operating in the Cannabis space:
Health and Employee Benefits Insurance
With health and employee benefits insurance, employers can offer healthcare, vision and dental, and life insurance, plus retirement plans (i.e., 401(k), etc.). It’s a budget-friendly way to support employees’ wellbeing, retain new talent, and save money on company taxes.
Transit & Transportation Insurance
Logistic companies move goods by the ocean, air, and land, facing the risk of damaged goods, theft, and other liabilities. This policy protects from business property loss or damage when it’s in transit or stored offsite.
Umbrella Insurance
An umbrella policy is an excess policy supplementing other coverages, such as general liability, auto, employer’s liability, to name a few. Companies can extend other vital “underlying” policies by using this overarching coverage to increase their limits of liability.
Types of Cannabis Companies that need insurance
- Cultivation
- Dispensaries
- Software as A Service
- Greenhouses & Hydroponics
- Distribution
- Data & Analytics
- Infused Products
- Delivery & On- Demand
- Grow Automation & Tech
- Testing & Extraction
- Ecommerce
- Media & Content
Cannabis Frequently Asked Questions
The cost of insurance for cannabis companies will depend on several things, including the company’s size and development stage. Other factors include:
- Exposures: risks being insured
- Company practices: views on safety, compliance, and risk management
- Program structure: the amount of deductible and willingness for a company to assume more risk
- Claims history: the type and amount of past claims against the company
