Cannabis Insurance
in Texas
The state of Texas has strict rules on cannabis possession. However, when federal and state laws have different regulations, it is essential to insure risks and liabilities for your company.
Understanding the Texas Cannabis Industry
In Texas, cannabis is legal for medicinal purposes only. It was allowed in a monumental move for the state in 2015 through the Texas Compassionate Use Act. There is a list of qualifying conditions for which patients can get prescribed dosages of cannabis products from their physicians.
Other than strict medical use, the possession of cannabis is considered a felony. Throughout the years, the severity of the crime has been reduced, but it has never been decriminalized. Those caught will likely get a permanent criminal record and pay hefty fines.
An interesting point to note is that cannabis or marijuana and hemp are classified as two separate products.
While there are strict laws for the former product, the latter has looser laws and more support from the government. The federal Farm Bill and Texas House Bill 1325, signed in 2019, are to thank for that.
Overview of Texas’s Cannabis Market
The cannabis market in Texas is fairly small at the moment. Only three licensed medical dispensaries are operating in the entire state. Although applications for additional licenses opened in 2023, there aren’t any promises on whether their applications will be accepted.
One major issue that comes up regarding Texas’s cannabis industry is the restricted demand. Time and time again, citizens have expressed the need to expand the medical cannabis program. However, their requests aren’t heeded. With recreational cannabis prohibited and registered patients limited, the supply in Texas has no one to sell to.
Ironically, marijuana does fall into Texas’s “Sin Tax” at a rate of $3.50 per gram, which should only be imposed on dealers (which are defined as importers, manufacturers, producers, acquirers, and those who possess it). The tax exists and brings in revenue (albeit minimal) while recreational use is banned.
The potential revenue Texas could generate with legalized cannabis looks rather promising. Reports show the state can expect around $397 million of annual sales and excise tax revenue. The number is spot on when we look at how a significant share of New Mexico’s $300 million revenue from 2022 was credited to Texan buyers.
Texas Cannabis Laws and Regulations
Texas’s history with cannabis goes as far back as 1931, when it criminalized the possession of cannabis for all, and it was punishable by imprisonment. Later in 1973, the ban remained, but punishments were softened to less time behind bars and smaller fines.
After years of campaigning and following the movements in other states, Texas finally opened its medical cannabis program in 2015. SB 339, AKA the Texas Compassionate Use Act, made cannabis-related products legal for treating a handful of illnesses.
The list of illnesses was first limited to autism, cancer, epilepsy, and PTSD. Then, in 2019, HB 3703 expanded the list of qualifying conditions treated with cannabis. After further campaigning by citizens, in 2021, Gov. Greg Abbott signed HB 1535. It added all forms of cancer and PTSD to the list. It also doubled the amount of THC allowed from 0.5% to 1%.
Throughout the progression of medical marijuana in the state, campaigns continued for the decriminalization of cannabis and legalizing recreational use. However, no advancements were made.
Research found that 67% of Texans are in favor of using recreational cannabis, but the state authorities aren’t on the same page.
Risks Faced by Cannabis Businesses in Texas
The cannabis market in Texas isn’t promising for new businesses. The restrictions of licenses and lack of demand are two looming problems that the authorities don’t address enough.
Currently, only three businesses are supplying the entire state of Texas. While it seems like a golden opportunity, it’s a difficult situation to handle as there isn’t demand to generate mass revenue. Unlike other states, Texas is far behind on numbers when it comes to taxes.
The state of Texas has about 50,000 Texans registered as patients for the use of medical cannabis. However, only about 10,000 patients are active and purchase from legal dispensaries. Compared to the purchases Texans are estimated to make out-of-state, this number is minuscule.
The cannabis market in Texas is fairly small at the moment. Only three licensed medical dispensaries are operating in the entire state. Although applications for additional licenses opened in 2023, there aren’t any promises on whether their applications will be accepted.
One major issue that comes up regarding Texas’s cannabis industry is the restricted demand. Time and time again, citizens have expressed the need to expand the medical cannabis program. However, their requests aren’t heeded. With recreational cannabis prohibited and registered patients limited, the supply in Texas has no one to sell to.
Ironically, marijuana does fall into Texas’s “Sin Tax” at a rate of $3.50 per gram, which should only be imposed on dealers (which are defined as importers, manufacturers, producers, acquirers, and those who possess it). The tax exists and brings in revenue (albeit minimal) while recreational use is banned.
The potential revenue Texas could generate with legalized cannabis looks rather promising. Reports show the state can expect around $397 million of annual sales and excise tax revenue. The number is spot on when we look at how a significant share of New Mexico’s $300 million revenue from 2022 was credited to Texan buyers.
Texas’s history with cannabis goes as far back as 1931, when it criminalized the possession of cannabis for all, and it was punishable by imprisonment. Later in 1973, the ban remained, but punishments were softened to less time behind bars and smaller fines.
After years of campaigning and following the movements in other states, Texas finally opened its medical cannabis program in 2015. SB 339, AKA the Texas Compassionate Use Act, made cannabis-related products legal for treating a handful of illnesses.
The list of illnesses was first limited to autism, cancer, epilepsy, and PTSD. Then, in 2019, HB 3703 expanded the list of qualifying conditions treated with cannabis. After further campaigning by citizens, in 2021, Gov. Greg Abbott signed HB 1535. It added all forms of cancer and PTSD to the list. It also doubled the amount of THC allowed from 0.5% to 1%.
Throughout the progression of medical marijuana in the state, campaigns continued for the decriminalization of cannabis and legalizing recreational use. However, no advancements were made.
Research found that 67% of Texans are in favor of using recreational cannabis, but the state authorities aren’t on the same page.
The cannabis market in Texas isn’t promising for new businesses. The restrictions of licenses and lack of demand are two looming problems that the authorities don’t address enough.
Currently, only three businesses are supplying the entire state of Texas. While it seems like a golden opportunity, it’s a difficult situation to handle as there isn’t demand to generate mass revenue. Unlike other states, Texas is far behind on numbers when it comes to taxes.
The state of Texas has about 50,000 Texans registered as patients for the use of medical cannabis. However, only about 10,000 patients are active and purchase from legal dispensaries. Compared to the purchases Texans are estimated to make out-of-state, this number is minuscule.
Types of Cannabis Insurance Coverage in Texas
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 Texas
From agriculture setbacks, business risks, or general liability, businesses should protect their assets in the best way possible. As a result, we have been helping the industry as it grows.
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 Texas Businesses
AlphaRoot is licensed to provide cannabis insurance coverage throughout Texas, 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.
Texas currently has a limited quota for dispensaries. There are three operating right now, with a few more expected after the application period ends in April 2023. However, obtaining these vertically integrated licenses is a tough process.
There’s a significant financial investment required. The application fee is $7,356, while a license fee (for a two-year validity) is $488,520. The license renewal costs $318,511 (for two years.) Registering and renewals cost $530 per attempt. Finally, applicants require proof of $2,000,000 in insurance.
On top of these are extensive application requirements.
- 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 Texas
Cannabis Insurance in Texas
Frequently Asked Questions
Cannabis insurance is made to mitigate risks that your business may face. Your business’s function, size, and requirements will determine your insurance coverage.
The cannabis industry is more uncertain than others because of its rapid growth and constantly changing rules. Normal insurance is insufficient here for a marijuana-related business because it isn’t created while considering the unique difficulties faced by the cannabis industry.
Your yearly insurance premium may differ based on the policies you choose. High-risk businesses require high-cost protection.
Typical premiums for basic insurance range from a few hundred dollars to over $10,000. As it can save you a lot of money on pricey litigation, think of insurance as a safety net for your business rather than an additional expense.
However, you are not required to buy any arbitrary policy. You can lower the cost of insurance by focusing on the crucial aspects of your business that need to be protected and avoiding unnecessary coverages.
Texas law requires cannabis businesses to have $2,000,000 General Aggregate limit insurance. Additionally, any businesses working with the government to some degree must have Workers’ Compensation policies, as dictated by Texas law. It has no specifications for cannabis insurance.
However, businesses dealing in cannabis or cannabis-related goods won’t be able to acquire insurance from standard brokers. They require specialized cannabis insurance brokers.
The state doesn’t have any special laws. Thus cannabis insurance claims are identical to claims from other insurance types. You must contact your insurance broker and explain the situation as a filer.
You should be well informed about the harms or charges you’re dealing with. If you are able to gather evidence to support your claims—for example, pictures or recordings of an accident for a general liability case—that would be beneficial in convincing insurance parties to cover your case.