Cannabis Insurance
in Kentucky
Kentucky signed a bill legalizing medical marijuana on March 31st, 2023, and the state is currently working on creating a legal framework for the cannabis program for its medical state residents. When the law goes into action, the industry will be in startup mode and need the tools to succeed. Having a partner who knows how to navigate these regulations and ensure long-term success can help your profitability.
Understanding the Kentucky Cannabis Industry
March 2023 was a historic moment in Kentucky’s journey toward the legalization of marijuana. Kentucky finally legalized medical marijuana, making it the 38th state in the country to do so.
The law will be effective from 2025, making the next two years crucial for businesses that want to step foot into Kentucky’s cannabis industry.
Regulations regarding licensing, legal framework, and the operational framework of the state’s medical cannabis industry are expected to be created by mid-2024.
Overview of Kentucky's Cannabis Market
The cannabis market in the United States is steadily growing and is expected to reach $31.8 billion in annual sales by the end of 2023 and a whopping $50.7 billion by 2028.
With the new medical marijuana law in Kentucky going into effect in 2025, cannabis sales across the country are expected to grow.
Mississippi recently legalized medical marijuana with sales going into effect from January 2023 and the annual sales for Mississippi for 2023 are projected to be $265 Million. Looking at the sales in Mississippi following the legalisation of medical marijuana, we can predict the course of sales of cannabis in Kentucky after sales go into effect.
The Kentucky government will license dispensaries, processors, producers, testing labs, and cultivators to operate in the state.
As of now, there have been no caps set to the number of licenses that will be given. However, the state has the full right to deny the licensing application for any reason that the cabinet deems sufficient.
Kentucky Cannabis Laws and Regulations
The Kentucky Senate passed its historic bill legalizing cannabis for medical use in March 2023. The House of Representatives in Kentucky has passed legislation for medical marijuana twice since 2020, however, none of this legislature was approved by the Senate.
In 2022, the governor of Kentucky issued an executive order, allowing the possession and use of cannabis up to 8 ounces. However, this was only applicable to severe medical cases and did not fully legalize the medical use of marijuana.
The 2023 bill is supposed to go into effect from the start of 2025 as the state government comes up with the legal and operational framework to put the law into action.
This bill legalizes the use of marijuana for patients with ailments such as cancer, epilepsy, chronic pain, and any other qualifying disease. Patients will have access to dried cannabis flowers, edibles, oils, and cannabis concentrates with a restriction on the maximum THC content for each variation. However, under this law patients will not be able to smoke the cannabis flower.
This bill only legalizes the use of marijuana for medical reasons and recreational use is still illegal and punishable by law.
Patients not legally registered under the state regulations that are found in possession of cannabis will face penalties including fines and prison sentences depending on the amount of cannabis in their possession.
Risks Faced by Cannabis Businesses in Kentucky
As the Kentucky government creates a legal framework regarding the cannabis industry, cannabis businesses must look ahead to secure their future in the state.
Cannabis businesses in Kentucky will face many risks due to the controversial nature of the industry. As the legal cannabis industry is completely new in Kentucky, businesses must prepare for any uncertain events and risks that they may have to face.
Cannabis businesses in Kentucky can face security risks, product liability risks as well as general liability risks that can affect the day-to-day operation of the business.
Kentucky cannabis businesses also face legal risks from operating under strict new laws and regulations such as improper licensing, sales to unauthorized customers as well as legal action, if the product sold, does not meet state guidelines.
The cannabis market in the United States is steadily growing and is expected to reach $31.8 billion in annual sales by the end of 2023 and a whopping $50.7 billion by 2028.
With the new medical marijuana law in Kentucky going into effect in 2025, cannabis sales across the country are expected to grow.
Mississippi recently legalized medical marijuana with sales going into effect from January 2023 and the annual sales for Mississippi for 2023 are projected to be $265 Million. Looking at the sales in Mississippi following the legalisation of medical marijuana, we can predict the course of sales of cannabis in Kentucky after sales go into effect.
The Kentucky government will license dispensaries, processors, producers, testing labs, and cultivators to operate in the state.
As of now, there have been no caps set to the number of licenses that will be given. However, the state has the full right to deny the licensing application for any reason that the cabinet deems sufficient.
The Kentucky Senate passed its historic bill legalizing cannabis for medical use in March 2023. The House of Representatives in Kentucky has passed legislation for medical marijuana twice since 2020, however, none of this legislature was approved by the Senate.
In 2022, the governor of Kentucky issued an executive order, allowing the possession and use of cannabis up to 8 ounces. However, this was only applicable to severe medical cases and did not fully legalize the medical use of marijuana.
The 2023 bill is supposed to go into effect from the start of 2025 as the state government comes up with the legal and operational framework to put the law into action.
This bill legalizes the use of marijuana for patients with ailments such as cancer, epilepsy, chronic pain, and any other qualifying disease. Patients will have access to dried cannabis flowers, edibles, oils, and cannabis concentrates with a restriction on the maximum THC content for each variation. However, under this law patients will not be able to smoke the cannabis flower.
This bill only legalizes the use of marijuana for medical reasons and recreational use is still illegal and punishable by law.
Patients not legally registered under the state regulations that are found in possession of cannabis will face penalties including fines and prison sentences depending on the amount of cannabis in their possession.
As the Kentucky government creates a legal framework regarding the cannabis industry, cannabis businesses must look ahead to secure their future in the state.
Cannabis businesses in Kentucky will face many risks due to the controversial nature of the industry. As the legal cannabis industry is completely new in Kentucky, businesses must prepare for any uncertain events and risks that they may have to face.
Cannabis businesses in Kentucky can face security risks, product liability risks as well as general liability risks that can affect the day-to-day operation of the business.
Kentucky cannabis businesses also face legal risks from operating under strict new laws and regulations such as improper licensing, sales to unauthorized customers as well as legal action, if the product sold, does not meet state guidelines.
Types of Cannabis Insurance Coverage in Kentucky
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. The workers compensation 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. The workers compensation policy covers these expenses, protecting employees while simultaneously keeping cannabis companies running smoothly.
Choosing the Right Cannabis Insurance Policy in Kentucky
When regulations regarding the cannabis business in Kentucky are created, it will be important for businesses to understand and operate under those rules. New cannabis businesses that want to protect themselves and mitigate their risks need to opt for a seasoned insurance policy provider that can assess these risks and help them navigate these unfamiliar waters.
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 Kentucky Businesses
AlphaRoot is licensed to provide cannabis insurance coverage throughout Kentucky, 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.
As of now Kentucky has no legal requirements regarding insurance for cannabis businesses. However, this may change as new regulations are created regarding the use and sale of medical marijuana in the state, following the 2023 bill.
Despite not having a legal requirement, its recommended that all cannabis businesses seek cannabis insurance to protect their business and operations and mitigate any risks associated with the business.
- 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 Kentucky
Cannabis Insurance in Kentucky
Frequently Asked Questions
Cannabis insurance coverage depends on your business requirements as well as the insurance requirements of each state. Usually, cannabis insurance will cover general liability, product liability, property damage, D&O, theft, cybercrime, and compensation for employees. You can only opt for coverages that you need for your business.
There isn’t a fixed cost for cannabis insurance, as the amount varies depending on the policy you choose and the amount of coverage you opt for.
Your expenses can range anywhere from a few hundred dollars to tens of thousands of dollars depending on the size and scale of your operations and your insurance plan.
Cannabis insurance is also priced higher than other businesses due to the inherent risks associated with the cannabis industry.
As of now, cannabis insurance is not required in Kentucky. However, this may change as new laws and regulations arise following the 2023 bill legalizing medical marijuana.
Although cannabis insurance is not legally required, it’s recommended that cannabis businesses in Kentucky opt for a cannabis-specific insurance policy protecting their business.
You can file a cannabis claim like any other insurance claim. You need to contact your cannabis insurance provider to report a claim. Your claim will then be filed and validated depending on the proof you have regarding the incident.
It’s always necessary to check out your insurance coverage policy to see if the claim is covered by your insurance company.