Loss of Income Insurance for Cannabis Businesses

With the steady growth of the cannabis industry, cannabis business owners have struggled to find the right guidance for deciding which insurance coverages are essential for their business and where to get them.

Loss of income is a business insurance policy that can cover income loss due to fire, theft, storms, and earthquakes. This insurance policy not only covers the loss of income due to calamities, but it can also cover other expenses that are incurred due to a loss of production because of employee injuries and extended medical absences. In these distressing times it is important for cannabis business owners to have this type of insurance policy to safeguard their business income.

Certain insurance carriers can also consider coverages when income is lost due to a major disease outbreak. In response to prior outbreaks of various infectious diseases, the insurance industry has developed certain endorsements, which specifically provide coverage for business interruptions due to outbreaks, even absent evidence of direct physical damage. This endorsement, if added, would have provided the cannabis business with a payout for the loss of income as a result of business interruption caused by the COVID-19 pandemic.

Are Cannabis Businesses Eligible for this Coverage?

Generally, cannabis businesses are eligible for loss of income policies. However, it is a good idea to read the fine print as insurers might be hesitant to protect loss of income involving the sale, distribution, and/or production of cannabis products. This particular exclusion is known as “General Cannabis Exclusion”. It is highly advisable for cannabis business owners to work with insurers that have the necessary experience and knowledge in providing insurance for cannabis related businesses.

Why is Loss of Income Insurance Coverage Critical to Cannabis Businesses?

Loss of income insurance is generally presented as an add on when deciding which cannabis business insurance works for your operation. However, it should be taken into consideration by cannabis business owners to help cover for unexpected drops in production or for business disruptions, which can cause cash flow issues.

In these challenging times, a comprehensive loss of income insurance can draw the line between closing or keeping a cannabis business afloat. If a cannabis business is not able to do business for an extended period of time, loss of income may be able to cover rent and other business expenses. 

This coverage is usually enough to cover the reduction of net income due to the halting of operations, either in whole or in part. Generally, insurers consider income to include:

1. Net income, net profit or loss before income taxes, that could have been earned by the insured’s business.
2. Normal operating expenses incurred (includes payroll), that continue despite the suspension of operations.

It is also a good choice to include a dependent property coverage. This coverage offers loss of income coverage if a client of a cannabis business is unable to receive goods or services as a result of a third-party supplier not being able to deliver raw materials or is suffering business interruption as well.

For example, if a cannabis supplier is unable to deliver to a dispensary the required raw materials due to a major flood, the dependent property coverage should be enough to cover the lost income of the dispensary due to non-delivery of materials.

The payouts received from loss income coverage is based on a cannabis business’ income and expense records. It is best to store these records in a safe location and if possible, stored off-site or through digital platforms.

How Much Does It Cost?

The cost of a loss of income coverage depends on the business’ number of employees and the amount of coverage needed.

Rates can also vary depending on a cannabis business’ location and the amount of risk. For example, if a cannabis business is located in an area which is prone to earthquakes, the business may need to pay more, compared to locations with a lower risk of earthquakes.

To estimate a range of cost, it is best to determine a dollar amount that needs to be protected for 2 to 12 months and include related business expenses (payroll, rent and other overhead costs). This way, a cannabis business owner is prepared when having a conversation with an insurer.

How to Get Loss of Income Insurance?

Talk to a licensed insurance specialist at Cover Cannabis to discuss the options available for loss of income insurance. With Cover Cannabis, we have access to specialized coverage that is challenging to find for the industry. We will find you the best possible coverage, for the best value, to protect your unique business needs. Call us now!