Cannabis Businesses: Insurance Needs 101
Regardless of what provider you use, it is important to consider six primary types of insurance coverage for your operations.
It’s no surprise. New issues arise practically daily for cannabis business owners and they often feel like an uphill battle. While this industry is still prohibited on a federal level, cannabis business owners have traditionally looked to smaller or state licensed resources for support finding a friendly approach.
Insurance agencies may be opening doors, rather than closing them. As the number of cannabis businesses in need of coverage has grown, a handful of larger carriers, most notably Germany's Hannover Re, have begun offering insurance products tailored to the cannabis industry. Regardless of what provider you use to obtain insurance for your cannabis business, it is important to consider purchasing six primary types of insurance coverage for your operations.
Six Major Types of Coverage:
Comprehensive first-party property insurance is an important policy for any cannabis business. The policy should include coverage for theft, property damage, and business interruption costs and in particular, ensure it contains the following:
- The highest possible policy limits to protect against theft as cannabis businesses tend to be cash-heavy
- A higher-limit property damage coverage for those businesses in the cultivation and processing sectors of the industry to address the heightened risk of fire associated with these types of operations
- Robust business interruption coverage to offset any losses or delays resulting from a break in the supply chain
- Language ensuring the carrier won't later seek to deny coverage on the basis of cannabis being prohibited on a federal level
For those cannabis businesses that transport products, it is essential to obtain commercial auto coverage. Cannabis-specific commercial auto policies extend many of the same benefits as traditional auto policies, such as accident coverage and rental reimbursement but many traditional auto insurers will refuse coverage to businesses that haul cannabis. For companies that do provide commercial auto policies to cannabis business owners, pricing for these policies may differ depending on the type of cannabis business (processor vs grower vs retailer) you are. Make sure your employees are not use their own vehicles to transport product because their personal insurance will not cover the transportation of cannabis.
Every cannabis business should consider purchasing product liability insurance as they can be brought into litigation with the wide range of legal exposure tied to their products. The industry is vulnerable to product liability litigation due to the numerous different cannabis strains and derivative products of varying potency available for purchase. When reviewing such a policy for your business, it is critical to review any exclusions to ensure the products you provide are covered.
Cannabis businesses are not exempt from the threat of cyberattacks and should consider purchasing specialized cyber insurance. Data obtained from seed-to-sale tracking is a vulnerability to cannabis businesses as data hackers are known to target customer’s personal information. We have seen this play out in Washington State many times. In addition to the seed-to-sale information, any kind of ‘trade-secret’ stored on company computers may be vulnerable as well to cyber threats. Cyber policies for cannabis businesses can be customized to cover a wide range of risks to protect this sensitive information.
Directors and Officers
As cannabis in an emerging industry, robust directors and officers (D&O) insurance is recommended to shield executives and board members against potential claims by disgruntled investors and others. For those individuals looking to join the board of directors of a cannabis business, it is encouraged to review the company’s D&O policy to ensure the insurance is sufficient and has a high policy limit.
Indoor growers may be able to secure insurance over their crop. Coverage includes crop failure due to bugs, natural disaster and mold. We have not seen the same coverage for outdoor producers but it may be coming.
How JDSA Can Help
These are just some of the types of insurance cannabis owners should consider. There may be additional insurance needs depending on the type of cannabis establishment you operate. If you have questions or need advice regarding this—or maintaining a compliant cannabis business—contact me, Lindsey Weidenbach, at JDSA Law for assistance.