How to Customize Cannabis Insurance for Your Specific Operations

Your risks determine your coverage needs. Determine your unique risk profile with a robust risk assessment. All businesses face risks like general liability and workers’ compensation, but cannabis businesses, particularly plant-touching ones, face distinct and elevated risks, thanks to cannabis’ complicated and conflicting legal status at the state and federal level that creates a regulatory labyrinth.

Insurance requirements for cannabis businesses vary widely by state. What one state has set for the minimum liability limits for licenses or surety bonds may be completely different just over the border. Combine that with the Schedule I status of cannabis at the federal level, and this creates confusing insurance hurdles, as well as tax and banking challenges, that require ample time and effort to navigate and remain compliant with.

Risks in cannabis come from many places. Cannabis and finished products have a high street value, particularly near states that still have prohibition, which opens cannabis businesses to an increased risk of theft. Since traditional banking options are still limited while the plant is federally illegal, many cannabis businesses, particularly dispensaries, are cash-heavy, making them prime targets for theft. Grow facilities face these increased risks as well, holding so much cannabis at once, as well as expensive growing infrastructure like irrigation and HVAC systems.

Other unique cannabis risks include:

• Consumer safety: The intoxicating properties of THC necessitate robust product liability laws, particularly as federal law is out of sync with state law.
• Supply chain: Inter-state commerce of THC products is forbidden under federal law, creating a multitude of individual supply chains, each with its own disruption potential. Mandatory seed-to-sale tracking and transportation of products across multiple legal entities also create exposures.

Risks in the cannabis industry are not the same across all verticals. A cultivation facility has different exposures than a transportation service, and a testing lab has an entirely different set of risks to worry about. When we talk about tailoring your insurance, it’s about creating customized cannabis insurance coverage that protects you from general cannabis risks, exposures in your specific vertical, and unique business needs.

While the exact umbrella of insurance coverage that each business needs is unique, there are several policies that are best practices for nearly every business in cannabis.

General Liability Insurance

This policy is important for businesses in all industries to have, covering basic third-party claims for bodily injury or property damage on business premises. In cannabis, this policy is vital to protect against customer or employee incidents. General liability may also provide limited coverage on product liability, depending on your exact policy.

Commercial Property Insurance

For businesses with physical assets, commercial property insurance protects against perils including fire, theft, vandalism, and a limited scope of natural disasters. For cannabis businesses with extensive equipment infrastructure like indoor growing facilities, this policy provides a vital financial safety net.

Plant-touching cannabis businesses must ensure that this policy specifically spells out coverage for cannabis plants at all stages and finished products, as many traditional policies exclude these or have low limits that don’t provide much coverage. It’s also important to ensure the theft limits are high enough, as cannabis inventory is high value.

Product Liability Insurance

This policy provides protection from claims of bodily injury, illness, or property damage caused by cannabis products your company grew, manufactured, transported, or sold. Product liability is vital for businesses in all niches of the cannabis industry. This policy often requires specialized carriers for cannabis businesses, but can cover mislabeling, contamination, adverse reactions, and potency issues.

Workers’ Compensation Insurance

This policy is mandatory for businesses with any number of employees in 49 states and provides a safety net against employee injury or illness on the job. While cannabis businesses may have some specific risks as it pertains to injuries with repetitive motions, extraction risks, or big machinery, this risk is not unique to cannabis and this policy is an important part of any business’s success.

For each niche within the cannabis industry, there are specific coverages that round out the proper umbrella of insurance. The policies listed below are not a comprehensive list of policies needed for each vertical; reach out to the AlphaRoot team to get a custom cannabis insurance quote for insurance policies tailored to your needs.

Cultivators & Growers

• Crop Insurance: This policy is crucial to protect living plants from seed to harvest against perils and disruptions, including pests, disease, fire, weather, or theft. A major bottom line protector for cannabis cultivators.
• Environmental/Pollution Liability: This more niche policy addresses risks to plants that come from the environment or pollution, including pesticides, fertilizers, and wastewater.
• Equipment Breakdown: This policy is particularly important for indoor grow setups that rely on large systems, like robust HVAC and intensive lighting infrastructure, but can also help outdoor grows that have an irrigation system.
• Business Interruption: A lesser-known policy for cultivators, this provides protection against loss of revenue due to covered property damage like inclement weather.

Manufacturers & Processors (Extraction, Edibles, Concentrates)

• Product Liability: As mentioned above, this policy is crucial to provide protection for businesses transforming raw cannabis material into finished cannabis products.
• Equipment Breakdown: Protect your equipment investment with this policy that covers expensive extraction machines, infusion processes, and packaging machinery. If it’s an automated part of your manufacturing process, this policy covers it.
• Product Recall Insurance: No one wants a recall to happen, but when it does, having this policy in place helps your business cover the cost of recalling defective, contaminated, or noncompliant products.
• Property Insurance with Specific Inventory: This policy covers raw materials, work-in-progresses, and finished goods for specific, specified inventory.
• Spillage/Contamination Coverage: A highly niche policy for processors, spillage coverage provides a financial safety net for accidental contamination of goods or spillage of valuable cannabis extracts.

Dispensaries & Retailers

• Crime Insurance: Dispensaries are cash-intensive businesses with products that carry a high street value, making them prime targets for break-ins. Crime insurance provides financial protection against theft, robbery, and safe burglary.
• Cyber Liability Insurance: With so much personal information on customers, cyber liability insurance is a necessity to protect sensitive data in POS systems, loyalty programs, and online ordering platforms.
• General Liability: Slip and fall insurance is vital for retail locations with high foot traffic.
• Product Liability: In the cannabis industry, every business that touches a product can be held liable in a lawsuit, even if it’s just the finished product. This policy helps protect against that.
• Loss of Income/Business Interruption: When your entire business depends on people coming to the store, any interruption in normal business function has a major impact on your bottom line—insurance against interruptions. Critical for storefronts.

Distributors & Transporters

• Commercial Auto with Cargo Coverage: If you’re moving cannabis products, you need to protect against theft, damage, and loss while in transit.
• Crime Insurance: The policy is as essential for distribution services as it is for retailers to protect cash and product during transport.
• General Liability: This policy provides protection against third-party claims during pickup and delivery services.
• Inland Marine: This lesser-known policy provides important, broader coverage for goods in transit and goods stored off-premise.

Ancillary Businesses (Testing Labs, Tech Platforms, Consultants)

• Professional Liability (E&O): If your ancillary business offers services, this policy protects against errors or omissions in services.
• Cyber Liability: For any tech platform that handles business or customer data, cyber liability is a necessity in today’s digital age.
• General Liability: Whatever your niche, if you have office space for employees or somewhere that you hold meetings, general liability is an important policy to protect your bottom line.

When building a comprehensive cannabis insurance program, a one-size-fits-all approach simply won’t work, making it essential to engineer a custom step-by-step plan that addresses your unique risks and business needs.

1. Conduct a Thorough Risk Assessment: To properly protect your business, you need to understand it inside and out, especially the risks and exposures. What are your most valuable assets? What could go wrong with them? Where do you have exposures or liabilities? It’s important to be brutally honest and thorough here.
2. Partner with a Cannabis Insurance Expert: The cannabis industry faces a unique set of regulations and risks, and it’s vital to the continued success of your business that you partner with other businesses that understand this industry. Working with a broker who specializes exclusively in cannabis helps ensure your business is properly protected from all angles.
3. Disclose Everything: Be as honest with your insurance broker as you’d be with your lawyer. Only when they know everything about your operations can they ensure that you have the policies you need. Anything undisclosed can negatively impact your coverage, especially when you need it most.
4. Review Policy Language Carefully: Insurance isn’t just about what you pay in premiums. Read your insurance language carefully—especially the exclusions, limits, and endorsements to ensure “cannabis,” “plants,” and “digital assets” are explicitly covered.
5. Regularly Review and Adjust: The cannabis industry is dynamic, and your business changes, as do regulations. Your insurance coverage needs to evolve and adjust with you to ensure your coverage is complete.

Don’t leave your cannabis insurance up to brokers who don’t understand the nuances of this complex industry. Working with a cannabis insurance specialist is the best way to customize your cannabis insurance policies and ensure that your business is protected from risk.

Protecting your cannabis company can seem confusing; however, we’re a full-service insurance brokerage working with carriers worldwide to offer you the best coverage possible. We’re here to help! Please reach out to us today by email [email protected] or calling 646-854-1093 for a customized letter or learning more about your cannabis insurance options.