The regulations total more than 200 pages and can be read at the California Cannabis Portal. These regulations are intended to protect both the cannabis businesses and the insurance providers from legal risks and liabilities.
Some of the cannabis insurance regulations in California are:
- The Department of Cannabis Control (DCC) requires certain types of insurance coverage for cannabis businesses, depending on their license type. For example, retailers, distributors, microbusinesses, and testing laboratories must have commercial general liability insurance with a minimum limit of $1 million per occurrence and $2 million in aggregate1. More information is available in the DCC regulations2.
- The California Insurance Commissioner has approved a program to provide property and liability coverage for cannabis businesses operating in California. This program covers risks such as fire, theft, vandalism, product liability, and business interruption3. The program is offered by the California Fair Plan Association, a group of insurers that provides basic property insurance to high-risk applicants.
- The California Legislature passed Assembly Bill 2568 (AB 2568) in September 2022, which clarifies that it is not a crime for individuals and firms licensed by the California Department of Insurance (CDI) to provide insurance or related services to cannabis businesses. This bill aims to encourage more insurers to enter the cannabis market and offer more options and lower prices for cannabis businesses4. AB 2568 also allows CDI to share information with financial institutions that provide banking services to cannabis businesses, with the consent of the licensee5.
The bulk of the changes in the emergency bill serve to regulate recreational cannabis distributors in much the same manner as medical dispensaries. This dodged the need to set up an entirely new regulatory structure for recreational marijuana businesses, but it also puts in place many more regulations than a non-cannabis business is likely to see. However, one bright spot is that we now have clear guidance going forward on the insurance requirements for California businesses in the cannabis space.
What are some common risks for cannabis businesses in California?
- High taxes: Cannabis businesses have to pay high taxes at the state and local levels, which can reduce their profitability and competitiveness. Some operators have asked for a tax reprieve to survive the legal market1.
- Regulatory compliance: Cannabis businesses have to comply with various regulations from the Department of Cannabis Control, which oversees the licensing, testing, and enforcement of cannabis activities. Compliance can be costly and time-consuming, and failure to comply can result in penalties or license revocation2.
- Illicit market: Cannabis businesses face competition from the illicit market, which offers cheaper and unregulated products to consumers. The illicit market can also pose health and environmental risks due to the use of unauthorized pesticides and fertilizers3.
What are the Cannabis Business Insurance Requirements for California?
These requirements are intended to protect both the cannabis businesses and the insurance providers from legal risks and liabilities.
- The Department of Cannabis Control (DCC) requires certain types of insurance coverage for cannabis businesses, depending on their license type. For example, retailers, distributors, microbusinesses, and testing laboratories must have commercial general liability insurance with a minimum limit of $1 million per occurrence and $2 million in aggregate4. More information is available in the DCC regulations.
- The California Insurance Commissioner has approved a program to provide property and liability coverage for cannabis businesses operating in California. This program covers risks such as fire, theft, vandalism, product liability, and business interruption5. The program is offered by the California Fair Plan Association, a group of insurers that provides basic property insurance to high-risk applicants.
- The California Legislature passed Assembly Bill 2568 (AB 2568) in September 2022, which clarifies that it is not a crime for individuals and firms licensed by the California Department of Insurance (CDI) to provide insurance or related services to cannabis businesses. This bill aims to encourage more insurers to enter the cannabis market and offer more options and lower prices for cannabis businesses6. AB 2568 also allows CDI to share information with financial institutions that provide banking services to cannabis businesses, with the consent of the licensee7.
Those are the minimum liability requirements for California right now, but that will not truly protect your business. You will also likely need workers compensation insurance for your employees, crop insurance for your plants and vehicle insurance. Marijuana distributors are required under the new laws to have added layers of security for their business, so property insurance for your physical business space and security systems also makes sense.
Contact us today at 1-800-406-9166 for a free quote so we can help you get your emerging business covered!
Extra Tip:
Are there any tax incentives or deductions available to cannabis businesses?
