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Insurance for Licensed Cannabis Producers in 2023

17 January 2023 / Category: Blog
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When California and Nevada became the first states in the US to legalize recreational marijuana in 2016, stringent laws were also passed to protect the public by preventing licensed cannabis producers from legally selling contaminated flowers that had failed consumption safety tests.

Now in every state following California and Nevada’s example to legalize both medicinal and recreational marijuana, every crop has to be carefully screened at a licensed testing facility for mold, mildew, pesticides, and other contaminants. In many cases, batches that fail tests must be immediately destroyed, or at least reclaimed by the producer.

These unfortunate producers formally had no other recourse then to sell their failed product on the black market at much reduced profit margins as long as they were willing to take the risk. If contaminated flowers sold on the black market can be traced back by authorities to licensed producers who illegally sold them, these producers would face losing their businesses along with other extremely punitive consequences in the courts.

Fortunately, most licensed producers aren’t willing to lose their livelihoods to take this risk. But statewide testing is pushing compliant growers closer to a new quandary: how can they successfully continue to operate a profitable business knowing at the same time that they will have to suffer loses due to inevitable periodic failed product tests?

When mandatory testing came into effect, government authorities where hoping only to improve the new legal cannabis marketplace. California’s Bureau of Cannabis Control spokesman Alex Traverso originally stated in 2016 that,

“Mandatory statewide testing is a new thing and it’s going to take some time for everything to run smoothly, but on the whole we’re pleased with how things are progressing.”

That smooth progression apparently came to a halt this year: licensed cannabis product in California for projected tax profits was estimated at an exciting 1 Billion dollars. By the end of 2018 however, the reality of this estimate dropped to a disappointing 345,000 million dollars. Much of the blame for this shortfall came down to mandatory statewide testing that forced many licensed producers to unload their tainted product onto the black market so they could stay profitable in business.

Over 10 years ago many insurance companies started opening shop claiming to specialize in cannabis insurance so they could protect licensed growers against loses like this caused by the ever changing government regulations.

Ironically, the majority of these insurance companies claiming to be cannabis insurance specialists where simply conventional insurance companies hoping to capitalize on the burgeoning new legal cannabis industry. Because many of these standard insurance companies could not find insurance carriers willing to offer true specialized cannabis insurance policies, they remain unable to offer effective, specific cannabis insurance coverage that can fully protect and effectively meet the demands of licensed growers.

What makes Cover Cannabis unique is that we go through every policy to make sure there are no exclusions and that it is a cannabis specific policy with full coverage. Many other insurance companies avoid this, leaving their clients vulnerable to a void in protection and they can not be covered when they attempt to make a claim.

Most cannabis insurance companies offer General Liability Insurance. This is coverage that can protect businesses in the cannabis industry from a variety of claims including bodily injury, property damage, personal injury and other situations that may arise including slander, libel, copyright infringement and more.

The three main categories of General Liability Insurance coverage include:

  • Premises Liability: This coverage is to fullfill a lease requirement for slip, trip and fall hazards.
  • Medical Payments Insurance supplements medical payments for slip, trip and falls and can prevent occurrence claims.
  • Hired/Non-hired auto Insurance is incident liability coverage provided to vehicles being used in the cannabis business.

This is coverage however, that any insurance broker is willing to offer. In any business, General Liability Insurance is crucial, but ironically it is not always perceived as “required”. As a result, many cannabis business owners can be tempted to forgo the expense.

Unfortunately, business owners willing to take this massive risk to forgo insuring their businesses do not realize that all it takes is one single accident to rapidly escalate into a full-blown lawsuit that quickly uses up resources and often results in compromising the business, or worse.

General Liability is so important for all business owners because it does not only pay for damages, endorsed policies can also provide funds for costly legal defense. But as stated earlier, it is coverage that many insurance brokers will be happy to provide.

So what is true specific cannabis business insurance supposed to be…and does it even exist?

To answer this question, it is best to first examine what expectations real licensed cannabis producers and all other businesses specific to the cannabis industry actually need when it comes to the full policy insurance coverage they’re hoping to find.

Because large and small licensed cannabis businesses invest a small fortune in their facilities and all the equipment required to operate their businesses profitably, not to mention staffing their businesses with competent employees…when it comes to insuring their businesses, cannabis business owners justifiably, “want it all”.

For example, we recommend large and small indoor and accredited greenhouse licensed growers alike acquire these diverse, specific cannabis insurance policies created specifically to meet their unique cannabis business needs although they are not mandatory:

  • Herbicide/Pesticide/Fungicide endorsements for processors and growers (Available in Washington and Massachusetts).
  • Business income and extra expense for all cannabis businesses.
  • Workers Compensation for cannabis business employers.
  • Specialized Auto/Truck Insurance for vehicles used in cannabis businesses.
  • Product Liability for licensed growers.
  • Crop Coverage for licensed growers.
  • Equipment Coverage that can pay for equipment repair and parts replacement in the event of breakdowns.
  • Property In Transit and Cargo Coverage for delivery services.
  • Errors and Omissions Coverage for cannabis property managers.
  • Property and Building Coverage for cannabis property landlords.

Robust, specific cannabis insurance policies do in fact exist!

Cover Cannabis is one of the original, true cannabis insurance agencies that was created over 10 years ago.

Because Cover Cannabis took the time from its first days in business to build solid relationships with major American insurance carriers developing true specialized cannabis insurance, Cover Cannabis is able to create specific policy coverage for all facets of the cannabis industry.

If your business is in the cannabis industry Cover Cannabis is fully prepared to work with you to address the specific needs of your unique cannabis business not only in California, but across America in every legalized state from coast to coast.