Cannabis Insurance
in California
As the largest cannabis market in the US, California often sets the latest industry trends. However, with new opportunities comes unknown risks. Cannabis insurance aims to protect this niche California market, where one-size-fits-all insurance products can’t. With unique exposures, only insurance calibrated to the cannabis industry can measure up to the challenges California companies face. AlphaRoot is here to help.
Understanding the California Cannabis Industry
In November 2016, California voters approved the Adult Use of Marijuana Act (“AUMA”) via Proposition 64. The AUMA provided a detailed outline of the future of the adult-use industry – including regulations for cultivation, manufacturing, testing, and retail sale. In June 2017, the Legislature adopted the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”), which consolidated both medical and adult-use regulatory schemes. Recreational sales in California began on January 1, 2018.
Overview of California's Cannabis Market
In 2022, California retail stores sold about $5,279 million worth of cannabis products representing almost 20 percent of legal sales in the United States while combined sales in top five states represented more than 40 percent of U.S. sales. Since January 2018, the program has totaled over $20.5 billion in sales and $4.6 billion in tax revenue, including $2.3 billion in cannabis excise tax, $1.8 billion in sales tax and $500.4 million in cultivation tax.
California Cannabis Laws and Regulations
California became the first state to allow medicinal cannabis use when voters passed the Compassionate Use Act in 1996. Today, cannabis is legal in California for both medicinal and recreational use. The Department of Cannabis Control (DCC). DCC now licenses and regulates all commercial cannabis activity in California.
Risks Faced by Cannabis Businesses in California
Despite being one of the oldest legal markets in the country, California’s cannabis industry is still going through major changes. In July 2021, the state established the Department of Cannabis Control by consolidating the authority of three former state cannabis authorities: the Bureau of Cannabis Control, the Department of Food and Agriculture, and the Department of Public Health. Since then, state regulations have been updated and more localities have opened cannabis business applications. Even still, the California cannabis industry is still facing a few challenges entering 2022.
In 2022, California retail stores sold about $5,279 million worth of cannabis products representing almost 20 percent of legal sales in the United States while combined sales in top five states represented more than 40 percent of U.S. sales. Since January 2018, the program has totaled over $20.5 billion in sales and $4.6 billion in tax revenue, including $2.3 billion in cannabis excise tax, $1.8 billion in sales tax and $500.4 million in cultivation tax.
California became the first state to allow medicinal cannabis use when voters passed the Compassionate Use Act in 1996. Today, cannabis is legal in California for both medicinal and recreational use. The Department of Cannabis Control (DCC). DCC now licenses and regulates all commercial cannabis activity in California.
Despite being one of the oldest legal markets in the country, California’s cannabis industry is still going through major changes. In July 2021, the state established the Department of Cannabis Control by consolidating the authority of three former state cannabis authorities: the Bureau of Cannabis Control, the Department of Food and Agriculture, and the Department of Public Health. Since then, state regulations have been updated and more localities have opened cannabis business applications. Even still, the California cannabis industry is still facing a few challenges entering 2022.
Types of Cannabis Insurance
There is a wide variety of plans to choose from when it comes to you and your business. Some of these include:
Dispensary Insurance
Several risks specific to cannabis dispensaries can significantly affect the operations, due to which the state may require you to get comprehensive insurance coverage before issuing you a valid cannabis dispensary license.
Product Liability Insurance
Cannabis companies that offer tangible products or services risk third-party lawsuits claiming bodily injury or property damage. Products 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.
Property Insurance
Property Insurance is a first-party insurance policy, reimbursing cannabis companies for direct property loss (i.e., vandalism, fire, or natural disaster). This policy covers real property, business personal property, and cannabis inventory.
D&O Insurance
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 Insurance
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 simultaneously keeping cannabis companies running smoothly
Crime
Whether employees steal from you, a thief robs your armored car, or you receive a forged check or fraudulent wire transaction, money theft happens in many ways. Crime insurance guards your cannabis company against damages from these particular crimes.
Several risks specific to cannabis dispensaries can significantly affect the operations, due to which the state may require you to get comprehensive insurance coverage before issuing you a valid cannabis dispensary license.
Cannabis companies that offer tangible products or services risk third-party lawsuits claiming bodily injury or property damage. Products 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.
Property Insurance is a first-party insurance policy, reimbursing cannabis companies for direct property loss (i.e., vandalism, fire, or natural disaster). This policy covers real property, business personal property, and cannabis inventory.
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.
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 simultaneously keeping cannabis companies running smoothly
Whether employees steal from you, a thief robs your armored car, or you receive a forged check or fraudulent wire transaction, money theft happens in many ways. Crime insurance guards your cannabis company against damages from these particular crimes.
Choosing the Right Cannabis Insurance Policy in California
Unlike other industries, cannabis must navigate regulatory uncertainty across local, state, and federal agencies. Many operations have significant workforces, exposing them to employment-related issues, not to mention workplace safety concerns. Plus, the global cybersecurity landscape is unsettling. Cannabis insurance works to mitigate these risks, enabling companies to stay on the path to profitability.
Working with an Experienced Cannabis Insurance Broker
AlphaRoot is a full service insurance brokerage that focuses exclusively in the cannabis, hemp, CBD, holistic medicine and psychedelic industries. We work with companies across the entire supply chain, from seed to sale, as well as, ancillary and capital providers. Our team is heavily invested in these industries and our goal is to help companies scale to propel them forward.
Factors to Consider When Choosing Cannabis Insurance
An insurance broker is responsible for different tasks. Hiring the wrong cannabis insurance broker will waste both your time and money. The right cannabis insurance broker will understand your values and bring the right solution to you. When looking for a reliable broker, there are some essential things to consider.
- Familiarity with this fluctuating cannabis industry.
- Do they offer risk management resources?
- Know their broker expertise.
- How many insurance carriers do they carry
- Can the broker analyze your contracts and advise you?
- You can add or ask for other things depending on your business’s status.
Common Mistakes to Avoid When Buying Cannabis Insurance
They don't purchase insurance at all
One of the biggest mistakes cannabis business owners are making is not having a policy at all. While the wrong policy is problematic, not having any coverage can be devastating to a new or even an established business. Investing in insurance covers the unforeseen and mitigates risk.
They don’t purchase cannabis specific insurance
Cannabis insurance is a very specialized niche in the insurance industry. Not all insurance agents/brokers have specific knowledge about the risks in the cannabis industry. Insuring cannabis is not like insuring your house or automobile strictly because of the nature of what you’re trying to insure and how it’s viewed by the government. If you don’t have a policy that is specific to cannabis, there may be certain exclusions based on the Schedule I status of cannabis or illegal substances.
They don’t work closely enough with a cannabis insurance specialist
Working closely with someone that knows the cannabis insurance industry is critical when choosing a policy. Cannabis business owners have to ask their agents/brokers questions, lots of questions and the broker/agent needs to be able to answer those questions.
Cultivators fail to buy crop insurance
If you are a cultivator or a grower, you rely on your cannabis crop for your income. Cannabis is agriculture, just like corn, wheat, or soy. Cultivators have to protect their income; therefore, they must have cannabis insurance and, specifically, crop insurance. Every year, wildfires ravage thousands of acres of land and crops, resulting in millions of dollars of losses for cultivators.
They don’t know what's included in their policy
As a cannabis business owner, knowledge is power. You have to be aware of the changing laws at the federal, state, and local level. You also need to know your business inside and out. Part of knowing your business is understanding what is and is not in your insurance policy. You have to know what is covered and what is excluded. There are many cannabis specific exclusions that are often overlooked. https://www.s2sinsure.com/post/cannabis-insurance-top-5-mistakes-to-avoid
Benefits of Cannabis Insurance for California Businesses
AlphaRoot is licensed to provide cannabis insurance coverage throughout California, not to mention across the entire US.
AlphaRoot is not in the insurance business. We’re in the business of guiding cannabis companies through the unique risks of our industry. It’s why we don’t merely broker insurance, we curate powerful cannabis risk management solutions.
Insurers looking to provide commercial cannabis insurance to this budding market should understand its rapidly shifting landscape. They must contend with legal uncertainty, evolving regulations, lack of data, and developing business practices. Insurers will also need to understand how the cannabis industry’s first and third‐party coverage needs are unique from other industries.
Licensed commercial cannabis operators in California are required to obtain a surety bond in the amount of $5,000, payable to the state as a condition of licensure. Distributors (license Types 11 and 13) must also maintain general liability insurance coverage of at least $1 million for each loss occurrence and $2 million in the aggregate. Additionally, under the California Labor Code, all California employers must provide workers’ compensation coverage to employees; all licensed cannabis businesses in California should look into workers’ compensation insurance if they have employees.
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Cannabis Businesses
That May Need Insurance
Getting a Quote for Cannabis Insurance in California
Cannabis Insurance in California
Frequently Asked Questions
Cannabis insurance is a specialized insurance policy for small businesses that is tailored to mitigate the unique risks associated with the cannabis industry. The coverage encompasses a range of potential issues, such as workplace accidents, bodily harm or property damage caused to others inadvertently, crop failure, and theft.
The cost of cannabis insurance is largely influenced by the industry segment in which a business operates. Moreover, the type of operation, be it a dispensary, delivery service, or cultivation enterprise, can significantly impact the insurance coverage and its associated expenses. Each of these business types involves unique risks that must be carefully evaluated when selecting an appropriate insurance policy.
The Department of Cannabis Control (DCC) oversees the regulation of cannabis businesses in California. According to a PDF issued by the DCC, cannabis dispensaries are mandated to have general liability insurance of $1 million per occurrence and $2 million aggregate, along with a surety bond of $5,000 for each business location.
If reporting to Alpharoot, you can report any day, 24 hours a day: Access the claims portal through your account here.
If self-reporting to your insurance carrier directly: The first notice of loss email or phone number for reporting purposes can be found in your policy. Further information can be found here.