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Cannabis and Insurance – Are You Covered?

4 October 2017 / Category: Blog
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With continuous growth of the Cannabis Industry, and the recent legalization of marijuana for medical and recreational use in multiple states, more and more businesses find themselves unsure of the insurance requirements in the cannabis world.  There is a huge amount of misinformation, and individuals trying to take advantage of businesses who are unsure how to protect their investment. If you are a part of the Industry, and find yourself frustrated with the lack of information on insurance, you are not the only one. Here at Cover Cannabis we wanted to take some time and answer some of the most common question we get from business owners like yourself.

Chris Walters, our Chief Operating Officer here at Cover Cannabis takes us through some of the most common questions he encounters:

What types of cannabis businesses to do we work with?

Our primary focus had been on compliant cultivators and dispensaries.  Over the last few years we’ve been providing more and more of our services to compliant manufactures, delivery services and processors.  There is so much innovation in our industry that the business types or “classifications” are always changing.  For instance, we’re now working on providing the right scope of coverage for cannabis smoking lounges and tour services.

What type of services and policies are most commonly requested?

General Liability is the most common coverage request.  This type of insurance is typically required by your landlord when leasing space.  We’re licensed nationally and some states have insurance requirements.  For instance, Colorado requires a bond and Washington State requires Product Liability.  We help our customers meet those requirements.

We also help Cannabis Business Operations (CBO’s) protect their investments with a full line of Property Coverages.  Our property policies are designed to insure structures such as buildings and greenhouses, equipment and tools used for grow facilities, finished stock and inventory, cash on hand and even business income loss after a disaster.  For our indoor and greenhouse customers we also insure their live growing crop.  Our property polices are designed to protect against fire, theft and vandalism type losses.

We want our customers to know that they can be insured just like any other business.  Workers Compensation is something every business with employees should have.  In most States it’s required by law and is considered to be the sole remedy to pay for injuries when an employee is injured on the job.  Commercial Auto coverage is available for company vehicles.  We recommend Hired and Non-Owned Auto coverage when employees are driving their personal vehicles for business purposes.  We even write Directors and Officers policies.  We offer a wide range of solutions.

Why are there so few agencies/companies serving the cannabis industry?

I think there is a stigma that exists.  Agency owners and insurance company executives may feel working with Cannabis Businesses will damage their reputation.  You won’t see the big insurance companies that advertise on TV writing policies for Cannabis Businesses any time soon.  Therefore, you see less agencies and companies serve the cannabis market. For me, we’re happy to serve the industry.

From my perspective, a Cannabis Operation is a unique business.  You want to deal with an agent that knows the ins and outs of the industry.  You need an agent who speaks your language.  Most importantly you want to make sure that your premiums aren’t going to waste.  A policy written incorrectly is a waste of money.

There are good agencies out there who know the space and can properly underwrite your business.  You can find them, or just call us!

Is there special coverage that cannabis businesses should consider?

Most of my clients have employees and have yet to purchase workers compensation insurance.  This one is required by law in most states and often overlooked.  It’s a big step for an old school Cannabis farmer to run formal payroll and buy workers comp.  We have some great products that make it really easy to get into compliance.

Product liability insurance is the other big one.  Without formal standards for product development, testing, packaging and labeling, Cannabis Business Operators are taking big risks to pave the way.  It’s easy to sue someone and legal defense doesn’t come cheap. Legal precedent in a court room frequently sets the standard in our country.  Manufacturers are especially at risk.  A marketing defect such as improper labeling or an inadequate safety warning could easily turn into a class action suit with big dollars at stake.  Cannabis Business Operations (CBO’s) need to have a recall plan in place and be prepared to take decisive action if faced with this type of lawsuit.  Product Liability Insurance is going to provide your defense.

Because of the quasi-legal atmosphere of the cannabis industry, are there ways for dispensary owners to ensure against catastrophic or unforeseen events? For example, getting busted, robbery, fire (for grow facilities), product liability (if sued by a customer), etc.

Sure.  It’s important to note, getting busted isn’t something we can insure against.  Robbery, fire and product liability are issues we tackle.  When a farmer or dispensary owner buys a policy, they’ll need to go thru a standard safety inspection at their farm or facility.

We want to make sure the facilities are well maintained.  A licensed electrical contractor of our client’s choice will need to complete an inspection and sign off.  A product recall plan needs to be in place for customers purchasing product liability.  Outside of that it comes down to the security measures you take.  Surveillance systems are typically required.  Inventory and harvested stock needs to be secured.  Response times in the event of a fire need to be carefully considered.

Training is the most important aspect in preventing and limiting losses.  Standard operating procedures need to be in place for everything from handling cash and product to how you should react in an attempted robbery or fire.  Business owners need to be certain their staff will respond correctly under pressure.

Regarding insurance needs, what are some things an entrepreneur should consider before seriously taking on a cannabis business? Are there serious concerns?

Insurance is typically the last thing considered when preparing to open up shop.  It would be wise to move your risk control up near the top of the list.  You should certainly be meeting with an attorney, CPA, and insurance agent who know the industry.  The legal environment is uncertain and the risks are real.

What are other things important for cannabis businesses/professionals to know about insurance (or the lack of)?

The right policy and coverage is available.   Find a good agent and build a trusting relationship with them.  Your agent needs to be aware of all of your business operations.  Be sure to update them as your business plan changes.  For instance, if a cultivator decides to start manufacturing, the policy needs to be endorsed and we need to work on that product recall plan.  Ask a lot of questions and make informed decisions about potential gaps in coverage.

Are there any unique insurance products that you offer, just for cannabis clientele?

The most unique line of business is certainly our crop coverage.  If a cultivator has crop loss due to fire, theft, vandalism or equipment breakdown they can recover the wholesale value of their product.  The crop valuation uses a very simple formula that’s easy for non-insurance people to understand and the underwriting process is straightforward.  Our cultivators are frequently shocked to find out the coverage is more affordable than they thought it would be.

If you have questions that have not been answered in this blog, we encourage you to call and talk to one of our knowledgeable agents. Each business is unique and has its own set of needs, our agents can answer any question you might have and help you structure a policy that will fully cover your investment. You can also head to our about us page to learn more about Cover Cannabis. Contact us today and find out why more and more businesses rely on us for their insurance needs.