Cannabis Insurance
in Illinois
In January 2020, Illinois became the eleventh state to have recreational and medical offerings for its residents. With these new opportunities, there are unknown risks. We help states grow into their unique regulatory situation through insurance managing risks so your business can stay profitable long-term.
Understanding the Illinois Cannabis Industry
As of 2022, Illinois ranked as having the 6th largest cannabis industry in the United States of America. In 2014, Illinois became the 20th state to legalize medicinal marijuana. It opened up dispensaries. However, this was a 4-year pilot program that allowed patients with specific 1 of the 42 conditions to use marijuana legally.
In 2020, the first dispensary to sell recreational marijuana was opened. In the first year, Illinois made more than $600,000 in sales.
In 2021, a bill was passed to support the equity of people impacted by the war on drugs. It provided them with the resources to contribute to the cannabis industry. In the same year, the government collected $387 million in sales taxes.
The cannabis industry has continued to increase, hitting more than $1.5 billion in sales in 2022.
Overview of Illinois's Cannabis Market
The state of Illinois charges a 7% cultivating tax on marijuana. Moreover, there is a purchase tax of 10% on marijuana with a 35% less THC level. Any edibles are taxed at 20% of the purchase price.
Last year, in 2022, due to sales of $1.5 billion, the state collected $445.3 million in taxes. Even though the industry is new to the state, it has contributed to significant revenue. The industry has also provided more than 10,000 jobs to the people.
There are 55 dispensaries licensed to sell medicinal marijuana and more than 100 selling recreational marijuana. With this rapid expansion, it is crucial to have regulatory laws to protect the business and the people. Moreover, there are certain legal insurance requirements that companies need to adhere to. This is for the protection of their investments.
Illinois Cannabis Laws and Regulations
Comparatively, Illinois has a complicated regulatory system for the cannabis industry. Unlike other states where the ballot was used for the legalization of marijuana, in Illinois, the decision was taken by legislatures.
3 different agencies are tasked with overlooking the regulations of the cannabis industry to ensure 100% compliance. Each agency covers a particular sector of the industry.
- The Illinois Department of Agriculture looks over the cultivation rules and laws of marijuana.
- The Illinois Department of Financial and Professional Regulation looks after licenses and ensures that cannabis is sold to either medicinal users or those above 21 years of age.
- The Illinois Department of public health handles the medicinal marijuana program and keeps a patient registry.
These laws protect business owners as well as ensure a legal framework from the production to the purchase of marijuana.
Risks Faced by Cannabis Businesses in Illinois
With the industry that has grown so quickly, there are certain risks and problems involved. The sale of marijuana is still illegal under Federal law. This creates tension around the sustainability of the business.
To promote inclusivity, the state is trying to provide resources so that minorities can also enter this profiting business. This industry, even though profitable, is met with multiple risks involving assets, confrontation with federal law, high regulatory laws, and liabilities involving equipment, raw materials, and labor force.
This is when insurance steps in. To provide as much protection against these risks for business.
The state of Illinois charges a 7% cultivating tax on marijuana. Moreover, there is a purchase tax of 10% on marijuana with a 35% less THC level. Any edibles are taxed at 20% of the purchase price.
Last year, in 2022, due to sales of $1.5 billion, the state collected $445.3 million in taxes. Even though the industry is new to the state, it has contributed to significant revenue. The industry has also provided more than 10,000 jobs to the people.
There are 55 dispensaries licensed to sell medicinal marijuana and more than 100 selling recreational marijuana. With this rapid expansion, it is crucial to have regulatory laws to protect the business and the people. Moreover, there are certain legal insurance requirements that companies need to adhere to. This is for the protection of their investments.
Comparatively, Illinois has a complicated regulatory system for the cannabis industry. Unlike other states where the ballot was used for the legalization of marijuana, in Illinois, the decision was taken by legislatures.
3 different agencies are tasked with overlooking the regulations of the cannabis industry to ensure 100% compliance. Each agency covers a particular sector of the industry.
- The Illinois Department of Agriculture looks over the cultivation rules and laws of marijuana.
- The Illinois Department of Financial and Professional Regulation looks after licenses and ensures that cannabis is sold to either medicinal users or those above 21 years of age.
- The Illinois Department of public health handles the medicinal marijuana program and keeps a patient registry.
These laws protect business owners as well as ensure a legal framework from the production to the purchase of marijuana.
With the industry that has grown so quickly, there are certain risks and problems involved. The sale of marijuana is still illegal under Federal law. This creates tension around the sustainability of the business.
To promote inclusivity, the state is trying to provide resources so that minorities can also enter this profiting business. This industry, even though profitable, is met with multiple risks involving assets, confrontation with federal law, high regulatory laws, and liabilities involving equipment, raw materials, and labor force.
This is when insurance steps in. To provide as much protection against these risks for business.
Types of Cannabis Insurance Coverage in Illinois
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
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
Choosing the Right Cannabis Insurance Policy in Illinois
The size of the business contributes to the type of insurance coverage. Many large-scale businesses need to protect themselves in terms of any employee-related issues along with possession and general business liabilities, location for production, and storage. Because the market is becoming saturated, having the right guidance to help the business manage these regulatory requirements is a must.
Apart from these common insurances, business owners need to ensure their marijuana crops in case of any natural disasters and the insurance bod for dispensaries that are required by the state laws.
The ideal way would be to get help from a professional insurance agent who would be able to guide you to find the most suitable insurance and bonds for your business needs. This will help the business secure a legal and successful pathway without having to worry too much about the technicalities of the laws and regulations.
Always make sure you review all the policies and paperwork and work with someone who knows the ins and out of the cannabis industry in Illinois. Choose an insurer that is the right fit for the scale of your business and who provides customer support in times of claims.
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. https://www.s2sinsure.com/post/cannabis-insurance-top-5-mistakes-to-avoid
Benefits of Cannabis Insurance for Illinois Businesses
AlphaRoot is licensed to provide cannabis insurance coverage throughout Illinois, 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.
To operate a cannabis company in Illinois, there are certain state requirements that need to be met. When it comes to operating a dispensary you need to have $50,000 worth of insurance. For cultivating companies, a $2,000,000 amount needs to be provided as evidence of financial responsibility to the Department of Agriculture. Moreover, all companies are required to have workers’ compensation with a minimum amount of $100,000 per employee.
You can find the insurance policies in detail here.
- MSO’s
- Dispensaries
- Lab Testing
- Cultivation
- Investment Funds
- Manufacturing
- Distribution
- Technology
- Psychedelics
- Brands Service
- Providers
Cannabis Businesses
That May Need Insurance
Getting a Quote for Cannabis Insurance in Illinois
Cannabis Insurance in Illinois
Frequently Asked Questions
Cannabis insurance in Illinois can cover a range of sectors while depending on the business needs. At the basic level, the insurance covers all general, property, and product liability, coverage from any theft or loss due to any outages of natural disasters, and workers comp. Additionally, it also provides insurance on marijuana crops or any extra business expense that might occur out of the usual.
The cost of insurance for cannabis depends largely on what type of insurance a company is getting. Depending on your business size and what cannabis insurance you opt for, you can expect to pay anywhere between a few hundred dollars to tens of thousands of dollars.
Generally, the cannabis insurance costs are high, however, it protects a rapidly growing, unstable industry when it comes to the Federal level. Considering it’s new to the state it’s important to cover the basics and have protection against any unforeseen financial losses.
Explicitly nothing special is required by the state of Illinois for the cannabis industry. However, just like all business general liability insurance along with workers comp should be opted for as regulated in the Illinois Cannabis Regulation and Tax Act. Even though extra insurance is not required by the law it is highly advisable as it helps the company protect itself against any challenges or risks.
In order to file claims, you need to contact your insurance provider. You will need to be patient and cooperative throughout the whole process. Answer any questions and provide as much documentary evidence as you can to make the process easier. Make sure you are aware of the policies and always go through the paperwork before signing anything.