Inside the Insurance Protection for the Budding Cannabis Industry

The move to legalize marijuana has gained momentum quickly at both state and local levels since 2010, with 33 states and the District of Columbia (DC) today permitting the use of medical marijuana. Of those, 10 states, as well as DC, have legalized recreational marijuana.  As a result, there is demand for insurance coverages from a broad array of industry participants, including growers, retailers, distributors, property owners, and lab researchers.  However, as marijuana is still illegal at the Federal level, the insurance markets willing to venture into this space is limited.  You need to partner with an insurance broker that understands and has access to the markets for this specialized industry.

Protecting Your Business with Cannabis Insurance

General Liability insurance, including both Premise/Operations and Products Liability, is critical for the cannabis industry. Premise/Operations refers to legal liability protection for a business due to injury or property damage arising from the business premises and operations. For example, this coverage will respond if a customer slips and falls on a wet floor in a dispensary and sues the dispensary for their injuries and pain and suffering.

Products Liability insurance provides coverage for claims by a third party alleging bodily injury or property damage caused by the products themselves. For example, let’s say a consumer ingests a cannabis-infused cookie and alleges a defect in the manufacturing process that caused him to get ill. He sues the manufacturer and the dispensary for damages. It is important to ensure Products Liability is included on your General Liability policy.

Commercial Property and Business Interruption (Loss of Business/Extra Expense) are also integral coverages for cannabis-related businesses. Commercial Property coverage protects property such as buildings, contents, equipment and business personal property against such perils as fire, theft and natural disaster. Business Interruption coverage protects a business against the loss of income it sustains as a result of direct loss, damage, or destruction to insured property by a covered peril, such as a fire. Typically, this coverage will pay for the profit you would have earned if the incident did not occur; normal operating expenses, even though the business is temporarily closed; and the expense of moving your business to a temporary location.

Another big risk for the cannabis industry, particularly for growers, is crop damage. Crop insurance covers cultivators if there is a loss to the crop, under certain conditions, such as fire, lightning, wind, hail, theft, and sprinkler leakage, among others. Cannabis crops are extremely valuable and take about four months to harvest. An entire grow could be destroyed in a fire, such as the fires that destroyed the crops of cannabis farmers in California in 2017.  It’s important, however, to note that losses caused by changes in climate or mold, disease and fertilization issues are generally not covered by Crop insurance policies.

You should also review your exposures and need for Product Recall, Equipment Breakdown, Commercial Auto, Crime, Cargo/Transportation/ Warehouse, Professional Liability, Cyber Liability, Directors & Officers Liability, Employment Practices Liability, and Worker’s Compensation insurance.

The need for Environmental Liability coverage must be examined as well – pollution incidents can result from the use of pesticides and other chemicals in the production process, as well as the smell emanating from production facilities.

Working with a professional who understands and has access to the available products in today’s insurance marketplace is invaluable, particularly since the cannabis sector is constantly changing. The professionals at Owens Group are well positioned to help you navigate today’s products and protect your business against the number of risks that come with working in the cannabis industry. You can rely on our insurance expertise, market relationships to structure the coverages you need, and commitment to continually keep abreast of the industry’s ever-evolving legal landscape and how it may affect your business.  For more information on the cannabis insurance we offer and how we can help protect your property, customers, employees and assets, please contact Joseph Ehrlich at 201-408-3512 or Jean Dennehy at 201-408-3506.