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Insurance Knowledge Gaps: An Unknown Hazard for Cannabis Businesses

24 September 2020 / Category: Blog
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It’s a well-known fact that having basic liability coverage is not enough for cannabis businesses that are cultivating, selling and distributing their products. Standard general liability, property, and renter’s insurance policies do not include critical coverages needed to protect a cannabis operation.  The reason they call them “gaps” in coverage is because they leave you wide-open to commonly occurring accidents that normal policies are not intended to cover.

With the still emerging cannabis industry’s exponential growth, many cannabis operations assume that they are fully insured by purchasing traditional property policies. Unfortunately, that is not the case, and businesses often learn the hard way when they file a claim only to realize the coverage, they thought they had was never there to begin with.

Here are some common exclusions that you might want to consider when purchasing your cannabis business insurance coverage:

• Product Liability Exclusions

This is a big problem. There are policies that exclude “products-completed operations hazard” and due to the broad definition of the word “hazard”, all injury claims that arise from the insured’s products are more likely to be excluded.

Here are some common cannabis insurance exclusions that are related to product liability:

  1. Health Hazard Exclusion – Any products that are sold by a cannabis business that may cause some form of health hazard are not covered. For example, claims from “respiratory diseases” and other problems that is related “as a result of the use” of the policy holder’s products claims are excluded.
  2. Hardware Exclusion – It is important to secure coverage for the entire product, not just the cannabis. It’s critical to be aware of this exclusion if they, for example, are selling vape cartridges, batteries or any form of hardware that assist in the consumption of cannabis. 
  3. Carcinogens Exclusion – Cannabis companies that are selling vaporizers, dried flowers or any form of a cannabis product that may contain carcinogens or the have the potential of producing or creating carcinogens will not be covered if this exclusion is mentioned on the policy. As a result, this exclusion prohibits coverage for property damage, bodily injury, advertising and personal injury.
  4. Impairment Exclusion – Any cannabis product that has the potential to alter an individual’s mental state will not be covered in a product liability lawsuit if this is included to the policy’s exclusions.

• Auto policies do not cover transportation of cannabis

It is important to review coverage options with insurance experts before making the decision to hire a driver to transport cannabis. It is good to have your drivers trained how to handle accidents on the scene which includes informing law enforcement of the cannabis cargo.

An important reminder: transporting cannabis across state lines is illegal according to federal law. Even when legal on both states.

• Damage or breakdown of equipment may not be covered from property policies

There will be revenue loss if equipment fails due to mechanical or electric breakdowns due to power surges, malfunctions, and user error. Having the right equipment breakdown insurance will help you get back to full operation in lesser time and at minimal costs.

• Property coverage exclude crops

Cannabis crops require specific insurance coverage for different stages of growth (see: Growers Insurance). There is also some coverage for hazards such as fire and theft. Get your information from the insurance pros at Cover Cannabis to review your property policy and any potential exclusions related to cannabis operations.

As the cannabis industry continues its explosive growth, it is guaranteed that more insurance options will become available.

With that said, the path to a successful cannabis business is full of challenges. It is filled with confusing laws and regulations and there will be other unforeseen challenges coming. Cover Cannabis has the premier cannabis insurance expertise and you can count on top advice for insurance coverage to protect your business. Our tips and information will give you a better understanding how to tackle these challenges and will allow you to be more prepared for your exciting cannabis entrepreneurial journey ahead. Contact us now.