Insurance Guide for Cannabis Manufacturing Companies

Manufacturing is a key piece of the seed-to-sale cannabis pipeline. This is the stage where flower is packaged or extracted and turned into any number of products, from edibles and drinks to tinctures and topical treatments. Cannabis can also be processed into various cosmetic products, including skincare, lotions, bath bombs, and more.

Cannabis manufacturing is also expanding outside of the flower. Without processes and manufacturing, we wouldn’t be able to use hempcrete, hemp insulation, hemp paper, or hemp wood, to name a few. With various uses for the hemp plant, having a robust manufacturing infrastructure is the key to unlocking the vast power of the hemp plant.

Manufacturing is a critical piece of the process if one that initially seems less glamorous. With the cannabis market projected to grow at an annual rate of 14% YOY from 2023 – 2033, having a stable and robust cannabis manufacturing industry is necessary to smooth expansion.

Since this area of the cannabis supply chain lacks the glitz and glamor of other options like dispensaries, there is still abundant opportunity here for passionate entrepreneurs willing to take risks.

Cannabis manufacturing companies face various risks, including those specific to the cannabis industry and those specific to manufacturing.

Manufacturing is an industry with many exposures, and as such, it needs comprehensive risk management to cover exposure, protect workers, and secure a business’s bottom line.

Risks faced by cannabis manufacturing companies include:

• Property loss. Manufacturing equipment is specialized and expensive — to purchase, maintain, and repair. While equipment is typically stored in secure buildings, damage can still happen, from workplace accidents to malicious outside actors. If you aren’t protected, damage to your property or machinery can add up quickly.
• Legal liability. Although cannabis is highly regulated, every business that touches a cannabis product, from flower to edibles, incurs legal liability should something go wrong. Even if you’re white-labeling your services or are a third-party vendor, your business could still be named in a lawsuit if someone gets sick from a product.
• Workplace safety. Manufacturing is a labor-heavy industry, which necessitates heavy machinery and high-hazard materials and duties. Accidents can happen in even the most safety-conscious environments, and medical bills and lost wages add up quickly.
• Employment-related issues. Even in a physically safe work environment, people can cause problems with each other. The human factor in the equation is always the wild card. Still, employment practices liability (EPL) insurance deals with hostile work environments, like an invasion of privacy, sexual harassment, and wrongful termination issues.
• Regulatory issues. Every state is its own cannabis market. As such, it comes with its own rules and regulations on the growing, selling, and manufacturing cannabis products, to say nothing of the additional regulations at the local and municipal levels. It is a lot for any business owner to keep on top of, but falling out of compliance is expensive and time-consuming.

Today more than ever, manufacturing companies rely on digital technology at every stage of the process. This approach means these companies also face unprecedented cyber risk and vulnerability.

While manufacturing companies may not handle sensitive patient data like medical dispensaries, the information they store is no less valuable to conducting business as usual and protecting your reputation. Top-secret recipes, patented extraction methods, and other sensitive client information must be protected.

Unfortunately, a cyberattack is a matter of when, not if, for most businesses. IBM predicts that 83% of companies will face a data breach at some point — a stunningly high number that highlights no one is exempt from the risk.

These attacks are also becoming more common; ransomware attacks increased 41% from 2020 to 2021. If you’re not protected against cyberattacks, your business could be on the hook for the cost of these breaches, which could total hundreds of thousands or millions of dollars in lost revenue.

A comprehensive risk management plan is essential for any cannabis business, manufacturing included. The best way to protect yourself from the abundance of risks is to understand what you’re facing, assess the level of risk acceptability, and devise a plan to deal with it.

Creating a risk management plan sounds overwhelming, but our team of cannabis insurance experts has broken it down into five easily manageable steps.

• Risk identification
• Risk analysis
• Risk evaluation
• Risk tracking
• Risk treatment

The best way to protect your cannabis manufacturing company is with the right insurance policies and best practices. The proper coverage and processes let you fearlessly charge forward in pursuit of growth and expansion.

Cannabis Insurance We Recommend

There is no “one size fits all” in cannabis insurance because each business has a unique set of needs. However, there is a set of policies that are best practices to have. These allow you to cover your bases and customize your policy needs.

General Liability

General liability offers broad protection against some of the most fundamental risks cannabis companies face. Known as “slip-and-fall” or “all-risk” insurance, this policy covers personal or property damage and bodily injury occurring on the business premises.

Cyber

Cyber insurance protects companies from third-party lawsuits relating to electronic activities (i.e., phishing scams). Plus, it offers many recovery benefits, supporting data restoration and reimbursement for income lost and payroll spent.

Errors & Omissions

Technology drives most cannabis companies’ success in the modern world. If a tech issue arises, such as a newer software causing a third party’s older system to crash, liability becomes a massive problem. Tech E&O, usually teamed with cyber liability, covers legal fees and other related costs in the event of a lawsuit.

Property

This policy is first-party coverage that protects the Total Insurable Value (TIV) of your operation’s property, reimbursing cannabis companies for direct property losses.

Product Liability

Cannabis companies offering tangible products or services risk third-party lawsuits claiming bodily injury or property damage. Product liability insurance covers defense fees and settlements, even for ungrounded claims. This coverage is particularly critical in the cannabis space as testing and manufacturing aren’t regulated at the federal level.

Directors & Officers

Shareholders, competitors, investors, etc., can sue a cannabis company’s executives, putting their personal assets at stake. Directors and officers (D&O) insurance protects these assets from lawsuits alleging leaders of wrongful acts managing the business.

Workers’ Compensation

Employers are typically responsible for their medical costs and lost wages when employees sustain work-related injuries. This policy covers these expenses, protecting employees while keeping cannabis companies running smoothly.

Employment Practices Liability

Cannabis companies with any number of employees face the risks of allegations, such as discrimination, wrongful termination, breach of contract, etc. This coverage protects cannabis companies against lawsuits related to employment practices.

Protecting your cannabis company can seem confusing; however, we’re a full-service insurance brokerage working with carriers worldwide to offer you the best coverage possible. We’re here to help! Please reach out to us today by emailing [email protected] or calling 646-854-1093 for a customized letter of commitment or learning more about your cannabis insurance options.