The Unique Insurance Exposures of CBD Infused Nutraceuticals

The cannabis industry has experience substantial growth in the past few years. Part of the reason for the growth is the use of cannabidiol (CBD) and hemp products in the nutraceutical market. CBD and hemp are being included in food, drink, beauty/cosmetics and emerging personal care and health and wellness products. In fact, CBD and hemp oils are quickly capturing a large share of the nutraceutical market and are expected to become a billion-dollar industry by next year. The U.S. nutraceuticals sector is projected to reach roughly $100 billion by 2022, according to industry analysts.

What’s important for businesses – from manufacturers to importers, distributors and wholesalers of nutraceuticals – to understand as they work to capture market share is the unique exposures they face due to the varying ingredients and use of CBD and hemp products. Products can be defective, potentially create adverse side effects and allergic reactions, or allegedly or actually adversely interfere with over-the-counter or prescription drugs and create complications. There is also the risk of product contamination during the manufacturing process with ingredients coming from unknown distributors.

Securing the proper General Liability including Products Liability coverages along with Product Recall insurance is essential for those in the nutraceuticals market. Third-party bodily injury claims with significant judgments and defense costs can be financially devastating to a company in the event of a loss. It is, therefore, prudent to carefully review the Liability limits in your policy; depending on the size of your operation you may require much more than the standard limits of $1 million for each claim/$2 million in aggregate that are available. Also, if you sell products both domestically and internationally, you will have additional exposures that need to be addressed. Ensure your policy provides worldwide coverage.

In addition, it is important to ensure your insurance policies do not contain exclusionary language for CBD or hemp-related products, as many standard markets will exclude this exposure.

Many policies on the market that exclude coverage for voluntarily or involuntarily recalling an insured’s products. This may be amended to include sub-limited coverage for the expense associated in such recalls. Working with the right insurance broker will enable you to obtain broader coverage and full limits of liability.

Beyond making sure your insurance program addresses the scope and extent of your operation’s exposures, there are important best practices underwriters recommend that you can implement to mitigate risk. These include:

  • Using a reputable third party to import ingredients to minimize the risk of potentially contaminated and untested materials.
  • Testing both raw materials and finished products either in-house or through a third-party lab.
  • Maintaining accurate records of goods and shipments. This should include keeping track of the lot and batch numbers in order to have a record of both the product and the raw materials from which the product was made. In doing so, you can track the product and manage an incident such as batch contamination.
  • Ensuring the supplier or contract manufacturer has the proper insurance coverages including General Liability and Product Liability along with adequate limits and limited exclusions; be sure you are included as an additional insured.

Owens Group specializes in providing comprehensive insurance programs for the cannabis industry including products within the nutraceuticals market. We work with a number of insurance carriers to design policies that will address our clients’ specific risks. For more information on how we can protect your business, please contact Joseph Ehrlich at 201-408-3512 or Jean Dennehy at 201-408-3506.