Cannabis Industry Growth: Tailoring Insurance for Scalability

First, a point of clarification. Growth is not the same thing as scaling. While both terms refer to expanding revenue, the avenues of getting there are different.

• Growth refers to adding new resources that influence revenue growth
• Scale refers to increasing revenue without increasing resources

The difference is subtle but important — scaling allows you to increase the money coming into your business without increasing your expenses. Scaling your business is less about growing all parts of your company, and more about finding places to increase efficiencies to positively impact revenue, without spending more money.

Scaling is a powerful goal in the cannabis industry, where profitability is often hard to achieve. Growth requires resources to sustain and brings on the risk of spending more money. On the other hand, scaling requires a focus on areas of inefficiency — processes and procedures that bog down your business and suck up time, money, and resources.

Scaling also requires creativity in your approach. Areas where you can scale your business may not be immediately obvious and may require some internal reflection. Perhaps your process for marketing approval is slow and tedious, or you have personal redundancies on production lines where people’s talents could be better utilized. Maybe your management software is disjointed and could be consolidated. If you really don’t know where to start, an internal audit may be helpful.

While business growth comes with increased risk, scaling your business is not risk-free. As your cannabis business grows, so too do the risks you must manage.

Regulatory risks

The cannabis industry is governed by a myriad of red tape, and not only are these regulations subject to change, but regulations may also differ by business size. As you scale your cannabis business, you must stay on top of regulations as they affect you now, and as they affect larger businesses. Some businesses, like designated micro-growers, may even have a limit on how much they can scale without outgrowing their license. And all of this is just about regulations on the state level. Should federal regulations around cannabis change, businesses have an entirely new world of governance to deal with.

Market risks

Yours is not the only cannabis business focused on growth. As markets mature, competition increases. Some businesses overexpand and cannot sustain themselves, and some markets become flooded with cannabis products and prices plunge. A business focused on growth must be able to navigate market and consumer changes to survive.

Financial risks

Profitability is a tricky beast to tame in cannabis. Growing businesses must be able to manage cash flow during the flood and the drought periods, between unpaid invoices, and slow business times.  Seeking outside funding for your canna-business opens a new door of challenges and opportunities.

Operational risks

As a business grows, so does its operations. Managing larger operations comes with increased risks: of supply chain disruption and quality control issues in the manufacturing process. There is also the question of acquiring and retaining talented employees, which can make or break a company’s success.

Legal risks

Increased legal risks, unfortunately, go hand in hand with growth. As a company grows, it must manage potential labor and employment issues, growing product liability risk as sales increase, and potentially intellectual property infringement as your product categories grow.

As your business and your risks grow, so too does your risk management and your insurance coverage.

It makes sense — larger businesses need larger limits than smaller businesses and policies must adjust to accommodate larger workforces and product lines. So how can you tailor your cannabis insurance coverage to set yourself up for scaling success?

First, be sure you’re working with an insurance provider who specializes in the cannabis industry, and understands the nuances and intricacies. An cannabis insurance partner who understands your industry can act as an extension of your team, helping you identify areas of exposure and point to clauses that will need to be adjusted as you grow.

• Adjust your coverage limits and increase limits and deductibles to match the pace of your growth.
• Opt for umbrella coverage whenever possible to limit growth exposures
• Add new cannabis insurance coverage and different policies as needed, during mergers and acquisitions, new hiring sprees, adding C-suite executives, or opening a new location.

Of course, this is a lot for a busy business owner to manage alone. Setting aside time to review your policies, quarterly, bi-annually, or annually with your cannabis insurance provider can help ensure that your insurance coverage keeps you covered.

Despite the excitement and growth that the industry has seen in the last decade, cannabis is still considered an emerging industry, with growth potential over the next few decades that blows the last ten years out of the water. Companies that can scale successfully establish a strong foundation for long-lasting prosperity. Doing so is not an easy task, but it is achievable with patience, strategy, and strong partnerships.

An important part of cannabis industry growth is ensuring that your company remains protected as you move through revenue milestones. 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 email [email protected] or calling 646-854-1093 for a customized letter or learning more about your cannabis insurance options.