Cannabis Insurance
in Colorado
Since 2000, Colorado has legalized medical cannabis, and for over ten-year, cannabis has been legal in the state recreational. The Colorado market is very competitive, and protecting yourself from general risks in this industry will help the longevity of your business in this state tenfold.
As per the state rankings, Colorado has the 2nd largest cannabis industry in the country and is the first one to legalize recreational marijuana in the USA. This industry provides many residents of the state with job opportunities. Like any other business, unforeseen circumstances may arise, causing severe financial loss to the business. Insurance is there to protect them from any unexpected business costs.
The insurance provided to Cannabis businesses ranges from any general liabilities to crop insurance, also including any equipment, auto (for deliveries), and even worker’s compensation.
Understanding the Colorado Cannabis Industry
In 2000, under Amendment 20, medicinal Marijuana was first legalized in Colorado, with 53.53% voting in favor of the bill. This allowed the patients to carry and even cultivate within a specific amount.
However, it was not until 2012, when under Amendment 64, the casual use of marijuana was legalized for anyone above 21 years old. Once the demand came into the market, the state started thinking about the suppliers as well. The first legalized store to sell Marijuana opened on January 1st, 2014. The Cannabis industry expanded marginally by crossing $1 billion in revenue in 2016.
The industry has continued to grow since then, introducing new laws to make the distribution and consumption of marijuana socially easier than before.
Overview of Colorado's Cannabis Market
The Cannabis industry in Colorado is huge and widespread. During the pandemic, the market hit a revenue of $2.2 billion. Since the legalization of marijuana in 2014, more than $12 billion worth of marijuana has been sold. The state has since collected more than $2 billion in taxes.
The State charges a 2.9% sales tax, a 15% retail tax, and a 15% wholesale and transfer tax.
The cannabis industry pays a hefty dollar in taxes to the state, which is why the business has flourished and proved to be so profitable.
Colorado Cannabis Laws and Regulations
Seeing how profitable the industry has proven to be, in 2021, the state government added ten new laws.
The previous limit of unlawful possession by minors was increased from 1 ounce to 2 ounces.
Moreover, the government is looking to amend tax and cultivation laws in case marijuana becomes legal at the federal level. This would allow for interstate trade. Furthermore, to increase the cannabis industry, a program is introduced to support entrepreneurs looking to start their own marijuana business.
Considering how profitable the Cannabis industry is, the state has strict laws to ensure the testing, cultivation, and distribution of the product to ensure quality.
Risks Faced by Cannabis Businesses in Colorado
Seeing how the laws keep changing and upgrading, there’s a regulatory risk in the Cannabis business. They need to adapt quickly to new laws regarding product testing, licensing, or cultivation to avoid legal issues.
There’s also a very high risk of in-store, in-transit theft, or tampering with the product. Because of its vulnerable nature, the companies need to be mindful to ensure no product is stolen or gone missing and that they’re selling good quality marijuana.
Cannabis production can be wildly impacted by natural disasters that can easily damage crops. Moreover, cannabis cultivation requires heavy machinery that is more prone to work accidents, which is why businesses are liable to provide worker’s compensation in such events.
The Cannabis industry in Colorado is huge and widespread. During the pandemic, the market hit a revenue of $2.2 billion. Since the legalization of marijuana in 2014, more than $12 billion worth of marijuana has been sold. The state has since collected more than $2 billion in taxes.
The State charges a 2.9% sales tax, a 15% retail tax, and a 15% wholesale and transfer tax.
The cannabis industry pays a hefty dollar in taxes to the state, which is why the business has flourished and proved to be so profitable.
Seeing how profitable the industry has proven to be, in 2021, the state government added ten new laws.
The previous limit of unlawful possession by minors was increased from 1 ounce to 2 ounces.
Moreover, the government is looking to amend tax and cultivation laws in case marijuana becomes legal at the federal level. This would allow for interstate trade. Furthermore, to increase the cannabis industry, a program is introduced to support entrepreneurs looking to start their own marijuana business.
Considering how profitable the Cannabis industry is, the state has strict laws to ensure the testing, cultivation, and distribution of the product to ensure quality.
Seeing how the laws keep changing and upgrading, there’s a regulatory risk in the Cannabis business. They need to adapt quickly to new laws regarding product testing, licensing, or cultivation to avoid legal issues.
There’s also a very high risk of in-store, in-transit theft, or tampering with the product. Because of its vulnerable nature, the companies need to be mindful to ensure no product is stolen or gone missing and that they’re selling good quality marijuana.
Cannabis production can be wildly impacted by natural disasters that can easily damage crops. Moreover, cannabis cultivation requires heavy machinery that is more prone to work accidents, which is why businesses are liable to provide worker’s compensation in such events.
Types of Cannabis Insurance Coverage in Colorado
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. 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.
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.
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. 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.
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.
Choosing the Right Cannabis Insurance Policy in Colorado
The Cannabis Industry in Colorado is still expanding due to continued upgrades and changes in the local, state, and federal laws. As the business continues to grow, so do the production and labor. Considering the issues these businesses may face, it is always great to have insurance against any risks or setbacks the companies might encounter.
From protection against crop damages to insurance against workplace injuries, from providing security for the inventory from theft or any data or quality tampering, companies need to have all-rounder protection to protect their assets and investment in this billion-dollar industry. This will help them to continue to thrive within the business.
Working with an Experienced Cannabis Insurance Broker
AlphaRoot
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.
Benefits of Cannabis Insurance for Colorado Businesses
AlphaRoot is licensed to provide cannabis insurance coverage throughout Colorado, 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.
Commercial Cannabis Operators licensed by the Colorado State Government are not legally required to get any specific insurance within the Cannabis industry. However, they are required to follow similar insurance laws like any other commercial business for example having worker’s compensation.
The same rule applies to all major cities within the state as well.
Types of Businesses Covered:
- MSO’s
- Dispensaries
- Lab Testing
- Cultivation
- Investment Funds
- Manufacturing
- Distribution
- Technology
- Psychedelics
- Brands Service
- Providers
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Cannabis Businesses
That May Need Insurance
Getting a Quote for Cannabis Insurance in Colorado
Cannabis Insurance in Colorado
Frequently Asked Questions
This largely depends on the type of insurance and the scale of your business. A Cannabusiness should ideally get insurance for any general or workplace liabilities, equipment, in-transit theft, auto accidents, and workplace injury. Apart from this, you can also look into property, medicinal, or extra expense insurance.
Losses to the cannabis industry can range from lightning to theft, fire, hail, windstorms, or water damage. So, it’s better to take precautions and have protection against any future loss to the company.
The insurance cost largely depends on factors like the size of the business as well as what types of areas of the business you are protecting. It can start from a few hundred dollars and go up to tens of thousands of dollars annually.
If you are choosing something with higher coverage limits or more protection, that will come at a premium cost. If your business is on a large scale, it will cost more as compared to a small business. That is because you have expensive and/or more assets to protect.
The Cannabis businesses in Colorado are required to get licenses and permits for smooth operations in the state. However, no specific law has been mandated for business insurance by the state government.
Even though there are not any specific laws for marijuana businesses, they’re still expected to follow commercial business laws. This mandates them to get general insurance such as workplace injury or property liability insurance if required by their landlords to mitigate any losses the company might incur.
Similar to all insurance claims, you need to contact your insurance provider. You would need documented proof, such as any pictures or videos, to provide supporting evidence for your claim. Witnesses would also be encouraged in any. Make sure you are providing 100% cooperation with your adjuster to make the process go smoother. Keep in mind your coverage, limits, and policies. You should take the time to review the agreement, and if you have any questions, you should be able to consult with an agent.