4 Types of Insurance Coverage Every Cannabis Business Should Consider

November 27, 2018

Up to 40 percent of California’s marijuana growers saw their operations either disrupted or destroyed by wildfires that erupted across the state.

And that was last year, before the recent devasting Camp fire tore through Paradise, Calif., destroying thousands of structures and killing dozens of people.

Paradise happens to be in Butte County, which is home to a good number of large-scale marijuana cultivation operations. Butte, like so much of California, has been suffering from an ongoing drought, regularly experiences extreme heat and strong winds that can turn just about anything into kindling.

In other words, what we have here is a clear-cut case for business insurance, and not just everyday property and casualty coverage but a comprehensive line-up that can help ensure a cannabis business stays in business, no matter what kind of natural disaster strikes.

Because cannabis is still illegal at the federal level, few insurance companies have been willing to enter the market. That’s changing now, a trend driven by the fact that more than 30 states have legalized cannabis in some form.

Like any business, those in the cannabis sector will need general liability coverage to protect themselves when they get sued over bodily injury or property damage claims, as well as workers’ compensation insurance to help their employees should they be injured while on the job.

We know insurance options can be confusing, so here’s a quick – and by no means exhaustive – guide to four additional important lines of coverage any marijuana-related business will want to consider:

1. Product Liability. If you’re selling edible marijuana products, dispensing marijuana or smoking devices, product liability coverage is a must-have. This coverage will help pay your costs in case of a product recall. It can also defend you against breach of warranty, failure to warn and deceptive practices claims, among others.
2. Crop. This line of coverage can provide protection for seeds, seedlings and mature plants. It also covers plants that have been harvested and are drying and curing. And it covers material that’s ready for sale. Among other scenarios, crop coverage kicks in in cases of fires, theft, hail or smoke. (Tens of millions of dollars in cannabis plants were lost to smoke and ash damage in those California fires last year.)
3. Directors and Officers. The executives and board members of any company can be held responsible for its failure to comply with state and federal regulations. They can also be sued if their company suffers losses because of operational failures and mismanagement. Think of a shareholder suit over company or stock performance. Or perhaps an investor sues, claiming mismanagement or dereliction of fiduciary duties. Those are the sorts of scenarios where a D&O policy can help a company through the turbulence.
4. Cyber. As we all know, cyber attacks have grown in frequency, with breaches hitting new records every year. Worse yet, 60% of small businesses close their doors within six months after a cyber attack. Still, a majority of companies today have no cyber insurance. A cannabis business that collects its customers’ credit card information for online purchases needs cyber insurance. Cyber policies cover the owner’s liability for a data breach in which any of that information is exposed or stolen by hackers who have gained access to the business’s online systems.

While the availability for these lines of coverage for cannabis businesses is still limited, there are insurers that are willing to underwrite such businesses. Just be sure you’re dealing with one that truly understands the industry, rather than someone who’ll sell you an exclusion-filled policy that you’ll want to set fire to.

Spencer Mahoney is a CCIG insurance advisor and heads the firm’s cannabis practice. Reach him at 720-212-2051 or SpencerM@thinkccig.com

CCIG is a Denver-area insurance brokerage with the full-service capabilities of a national brokerage. We do more than make sure you have the right policy. We help you manage your long-term cost of risk with our risk and claims management expertise and a commitment to service excellence.

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