Insurance Playbook for Cannabis Cultivators [and Growers]

Cultivators are a critical part of the cannabis industry, providing products for themselves and other enterprises. Even with their hands working the ground, cultivators must obtain and maintain a license issued by a state where cannabis, CBD, or hemp is legal to grow. In the dirt is where it starts, from seed to sale.

Naturally, they face similar exposures to any farm or agricultural operation; however, the nuances of cannabis often limit market capacity. As a result, here’s an insurance guide for cannabis cultivators to help protect those hard-earned assets.

The Cannabis Cultivator Landscape

The cannabis industry is thriving, with new opportunities surfacing daily. What’s more, experts predict global cannabis sales to reach $33.6 billion by 2025. Still, this industry faces plenty of stigma and misunderstanding, muddying up the landscape with unanswered questions.

Despite the doubt, several new states voted to legalize the recreational use of cannabis, including New York and New Jersey. Compliance remains the ever-present challenge cannabis companies must navigate, even as the US alters its approach to cannabis use.

Risks Cannabis Cultivators Face

Cultivators, for one, are encouraged to see industry leaders adopt their market segment, thus, encouraging more development in this space. However, with new opportunities also comes unknown risks.

Regulation and Legal Issues

Unsurprisingly, the US’s scattershot approach to cannabis creates operational nightmares for companies. Each state and municipality has laws about growing, selling, and distributing cannabis products. Complying with federal, state, and local laws is undoubtedly challenging for cannabis cultivators. Unfortunately, these operational challenges can lead to infractions, often resulting in insurance-related claims.

Also, you might be tied into a lawsuit if someone gets hurt or sick from the use of your product — even if it’s not your brand. Legal liability and compliance are significant issues for cannabis cultivators nationwide.

Property Loss

Protecting crops is a risk that hundreds of farmers take every year, but it’s one of the most uncomfortable. Losing a crop or settling for a less-than-ideal harvest could be detrimental to a cultivator. Plus, there are so many angles from which a loss could come: vandalism, climate change, accidents, etc. As mentioned, we believe it all starts with the plant — one worth protecting.

Cultivators typically use equipment or machinery that is expensive to replace or repair. And this equipment is typically stored inside secure buildings. Without adequate protection, damage to equipment or buildings could add up to loads of out-of-pocket costs.

Processor Mistreatment

Farmers file countless suits against their processors for “ruining” their plants every year.  It’s essential to partner with processors you trust. One example of a partnership gone wrong happened in two different states: South Carolina and Alabama. These farmers claimed that a processor ruined five harvests worth of hemp due to negligence in the extraction process.

Workplace Safety

Most cultivators hire farm hands or employees to support their business operation. And many of these workers operate heavy machinery. Unfortunately, if an employee gets ill or hurt on the job, the cultivator is typically held responsible for medical costs and lost wages.

Why Cannabis Cultivators Need Insurance

While some people view the cannabis industry as an emerging market, others think it’s old news. Regardless, cannabis insurance works to protect your equipment, crops, reputation, and balance sheet, to name a few. Without this vital safety net, cannabis cultivators might face costly lawsuits or expensive equipment breakdowns, resulting in unwanted legal and financial issues.

Plus, like any other company, cannabis cultivators face the same fundamental risks of merely doing business. Consider the famous “slip-and-fall” claims or the many companies dealing with employment-related litigation nowadays. These particular scenarios are only the tip of the iceberg regarding the extensive vulnerabilities you might face.

Insurance Cannabis Cultivators Need

With so much at stake for cannabis cultivators, we recommend developing a robust risk management plan. The following cannabis insurance policies will protect your company and support your progress.

General Liability

General liability coverage protects companies against basic business risks, including bodily injury and property damage on the premises. Most states require cultivators to carry the policy, and it’s often teamed with product liability insurance.

Product Liability

Product liability insurance protects cultivators from third-party liability exposure, alleging a product caused injury or damage. With federal regulations ever-changing, cultivators must prepare a legal defense to prove their products are safe. As mentioned, general liability and product liability typically go hand-in-hand, and most states require these policies.

Directors & Officers

Directors and officers (D&O) insurance covers directors and officers from investor lawsuits involving mismanagement of company funds, misrepresentation, etc. For any company relying on outside investment, this coverage is critical. Plus, most board of directors require it.

Crop Coverage

As a type of property coverage, crop insurance covers crop loss due to a physical loss by a covered peril. For example, consider a fire in the cultivation facility and the damage it would cause the cultivator’s facilities and crops.

Property

Property coverage is a first-party insurance policy, reimbursing companies for direct property loss. This policy covers a cultivator’s equipment and buildings used throughout daily operations.

Workers’ Compensation

Most states require businesses to carry workers’ compensation coverage. Consider that when employees sustain work-related injuries, employers are typically responsible for their medical costs and lost wages. This policy covers these expenses, protecting employees while simultaneously keeping businesses running smoothly.

Employment Practices Liability

Employment practices liability (EPL) is a labor law coverage that responds to claims arising from invasion of privacy, wrongful termination, sexual harassment, etc. We recommend it as standard coverage for cultivators with any number of employees in the current legal landscape.

The Next Step

Many cannabis executives want to know what insurance they need and how much it will cost to insure their operation — and the answer is nuanced. The cost of insurance for cultivators will depend on several things, including the company’s size and development stage. Other factors include:

• Exposures: risks being insured
• Company practices: views on safety, compliance, and risk management
• Program structure: the amount of deductible and willingness for a company to assume more risk
• Claims history: the type and amount of past claims against the company

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 emailing [email protected] or calling 646-854-1093 to learn more about your cannabis insurance options.