Protecting Your Interests With Cannabis Insurance

As legal and social support of marijuana use has risen in recent years, we’ve seen the legal cannabis industry grow by leaps and bounds. While it’s an exciting time for the many entrepreneurs stepping into this booming market, it’s vital to remember that cannabis businesses are subject to the same inherent risks as those in any industry – alongside additional concerns specific to selling, growing, or distributing a substance with medicinal and psychoactive properties, held to a high purity standard, and also fetches a high dollar value on the black market. In response to growing demand, many business insurance providers have expanded their policy offerings to include and accommodate the rapidly-growing legal cannabis industry.

Individual cannabis users, home-based growers, and medical marijuana patients also face unique insurance questions- ranging from Can I insure my personal marijuana crop? to Do dispensaries take insurance? In this article, we’ll explain who can benefit from carrying cannabis insurance, and why it’s so important.

Cannabis Insurance: What it is and Why it’s Important

If you own any type of marijuana-based business, a cannabis business insurance policy will keep it protected against the devastating financial losses that frequently accompany misfortune such as equipment failure, stolen or damaged inventory, damage from natural disasters, and lawsuits – just to name a few. Liability lawsuits and loss of inventory are among the most common claims filed by cannabis businesses. Covering these bases, and any others specific to your field (cultivation, laboratory testing, dispensary operation, etc.), is essential for all cannabis business owners.

At the personal-use level, it’s become more common for homeowner’s and renter’s insurance policies to cover the plants and equipment of individuals who legally grow their own weed. It’s also crucial for commercial and residential landlords to carry cannabis-friendly property insurance if any of their tenants grow their own, or are operating marijuana businesses.

Who Should Carry Cannabis Insurance?

Cannabis Business Owners

Running a business always carries a degree of risk, and the law requires some types of insurance (such as property and auto insurance) for businesses across all industries. However, in the still-developing cannabis industry, many types of coverage are optional, and it may be tempting to go with only the bare legal minimums to save on the cost of dispensary insurance. However, unless you have enough cash saved up to float your business through a massive loss and/or pay damages in the event of a lawsuit, purchasing insurance that covers all the areas of highest risk is crucial.

Dispensaries, commercial growers and manufacturers, testing laboratories, transport services, and even landlords need to carry some kind of cannabis business insurance. Owners of hemp or CBD businesses are also susceptible to many of the same risks, and cannabis insurance providers often offer policy options tailored to companies in that branch of the industry. Ancillary businesses, such as accountants, lawyers, and consultants providing advice to cannabis industry professionals, can also benefit from the protection of cannabis business insurance coverage.

Personal-Use Cannabis Growers

If you plan to grow your own marijuana at home (in a region where it is legal to do so, of course), it’s worth finding a homeowner’s or renter’s insurance policy that includes coverage for your plants and growing equipment. Likewise, if you are a landlord renting to a tenant who grows marijuana, it’s important to protect your property with cannabis-friendly property insurance and require your tenants to carry their own cannabis-friendly renter’s insurance policy.

What Does Cannabis Business Insurance Cover?

Cannabis business insurance is not one-size-fits-all. The type of business you have determines which areas present the highest risk and are most important to cover. The following list gives an overview of each type of insurance and what it typically covers, but it’s important to always read the fine print, as coverages offered by different agencies can vary widely.

General Liability Insurance/Premises Liability Insurance

This type of insurance coverage provides protection against lawsuits brought on by accidents or injuries occurring at your business location. This includes incidents involving members of the public, third-party vendors, repairmen, or any other visitors to the premises. For those operating cannabis retail, open to the general public, this dispensary insurance cost can be invaluable if something goes wrong.

Product Liability Insurance

Product liability insurance is one of the most important coverages for companies throughout the entire cannabis supply chain. This type of cannabis insurance protects your business, should someone claim bodily injury or property damage occurred as a result of using a product you sold, grew, distributed, or manufactured. The most common product liability concerns include:

• Manufacturing or cultivation defects causing illness, injury, or other side effects related to excessive impairment (provided the product is used in a reasonable manner).
• Warning label defects. Failure to provide adequate consumer warnings of marijuana’s psychoactive qualities and the impairment risks involved in its use can result in a lawsuit should the consumer experience injury, property damage, or even legal trouble following the use of your product.

Marijuana Crop Insurance

Most agricultural insurance policies do not cover crop loss or damage due to inhospitable weather, mold, disease, or fertilization issues, and cannabis crops are no exception. However, some insurers will write special marijuana crop insurance policies specifically for protection against this type of unforeseen loss. Marijuana crop insurance is recommended for anyone growing commercial marijuana or hemp. Crop insurance is not legally required for cannabis growers, but it is highly recommended, as all it may take is one bad season or event to devastate your crop – and potentially your entire business.

Outdoor marijuana crops carry a higher risk of exposure to environmental toxins, theft, and damage from mother nature. However, this heightened degree of risk makes it difficult to find cannabis insurance companies willing to cover outdoor crops at all. Most of the time, when outdoor marijuana crop insurance is available, it’s quite expensive and provides only minimal coverage. So it’s especially important to ask your insurance agent exactly what is (and isn’t) included in your crop insurance policy before you sign on the dotted line.

Property Insurance

Another required insurance coverage across all industries, property insurance protects against damage to your premises and (in some cases) the equipment owned and used by your business. This type of insurance typically covers theft, vandalism, explosion, fire, water damage, smoke damage, or weather-related damage. In some cases, property insurance also covers your inventory.

It is critical to disclose your intention to engage in cannabis-related business to your insurance company (or commercial landlord), as some property insurers – even in legal states – are not cannabis-friendly, and will cancel your policy if they realize you are selling or growing cannabis on-site.

Equipment Breakdown Insurance

This extra layer of coverage protects against damage to or failure of major equipment that traditional property insurance doesn’t include, such as security systems, heat and air conditioning, fire safety equipment, and items such as computers, printers, and photocopiers. This type of coverage typically covers the repair or replacement of the broken item or system, as well as any lost revenue caused by the breakdown.

Extra Expense/Excess Risk Insurance

This type of cannabis business insurance provides a layer of protection above and beyond any other policies in place. If an expensive catastrophe exceeds the limits of your regular policy, excess risk insurance is there to cover the difference. This type of insurance is strictly there to expand upon an existing policy and generally doesn’t include coverage against any additional circumstances.

Workman’s Compensation Insurance

This type of insurance is legally required across all industries in all U.S. states. Workman’s Compensation insurance protects your business from being sued if one of your employees is accidentally injured or killed on the job. This means that the insurance company is solely responsible for the process of determining and paying out compensation to injured employees (including medical expenses, lost wages, and accidental death or dismemberment payouts) – leaving your company out of it.

Employment Practices Liability Insurance

This type of insurance protects your business if a former or current employee accuses you of wrongful termination, discrimination, or any type of harassment. Employment practices liability insurance often includes protection against claims of failure to hire, wrongful demotion or termination, invasion of privacy, defamation of character, libel, and slander.

Commercial Auto Insurance

Any business that owns and operates motor vehicles is required to carry commercial auto insurance. This coverage protects against the cost of damage to the vehicle and/or injury to its occupants. It’s important for businesses that transport cannabis inventory to add cargo insurance to their auto policy if it’s available. This protects your valuable cargo against damage, theft, or loss while in transit. If cargo insurance isn’t an option on your commercial auto policy, your cargo may be included in your property insurance policy. Be sure to verify that your auto insurance provider considers cannabis an insurable type of cargo.

Professional Liability Insurance

If your company provides advice or consultation of any sort to other businesses, professional liability insurance will keep you protected in the event that your team’s errors or omissions cause financial loss or other damages to those you are advising. Cannabis testing laboratories are among those company types that need to prioritize this type of coverage.

Cyber Liability Insurance

Cyber liability insurance is important for any business that operates online and/or collects personal data. This type of insurance covers the expenses a business incurs researching the cause and mitigating the effects of data breaches, data loss, internet fraud, and funds transfer losses, and other similar issues.

How Does Cannabis Use Affect Personal Insurance?

Even in places where cannabis use is legal and considered a legitimate medical treatment, growing and/or using marijuana can make a significant difference in the rates and coverages offered by personal insurance providers.

Life Insurance – Most life insurance companies base their rates for marijuana users on how frequently you use it (often verified by a urine test). Some insurers charge cannabis users the significantly higher “smoker” rate assigned to tobacco users, but others may not.

Travel Insurance – If you are injured on vacation, while under the influence of marijuana, your travel insurance policy may not cover your expenses. It’s possible that your claim will still be approved if you are found to be using doctor-approved medical marijuana. But using any type of marijuana in a region where it is illegal will automatically deny your claim.

Health Insurance – Many health insurance servicers classify marijuana users (even medicinally) in the “smoker” category, resulting in much higher rates or even outright denial of coverage. Some applicants try to get around this practice by omitting the mention of cannabis use from their applications. However, it’s not uncommon for health insurers to require a urine test, and your application can be denied if you’re caught lying about substance use.

Is Medical Marijuana Covered by Insurance?

United States

Because marijuana is still classified at the federal level as a Schedule I substance with no medicinal value, U.S. health insurance companies are not allowed to cover the cost of medical marijuana. Only FDA (Food and Drug Administration) approved medications may be prescribed by physicians. In states where it is legal, doctors are allowed to recommend treatment with medical marijuana, but it is not considered a true prescription.

Canada

In Canada, medical marijuana is covered by a growing number of health insurance companies for the treatment of specific conditions. Medicinal and recreational marijuana are entirely separate industries in Canada, and only approved providers are allowed to distribute medical marijuana directly to patients. Recreational dispensaries do not sell medical marijuana or accept medical insurance as payment for weed, even if you are an approved patient.

Selecting the Right Cannabis Insurance Policy For Your Business

When you’re shopping for cannabis business insurance, your own risk tolerance plays a huge role. Do you have a large cushion of money saved up in the case of an unexpected emergency? Would you prefer the peace of mind of never having to tap into your cash reserves to bail out the company? In most cases, the best strategy is focusing your insurance spending on the areas that are most likely to affect your business at some point and/or would be most catastrophic if they did.

Keep the following cannabis insurance shopping tips in mind:

• Different states may have widely varying rules regarding the types of insurance required to obtain a cannabis business license and remain in compliance once you’re operational.
• It’s wise to consult your cannabis business attorney about the current legal insurance requirements before you start shopping.
• Don’t be afraid to consult more than one insurance agency before signing on the dotted line. Rates and coverages available can vary widely from broker to broker.
• You may achieve a lower rate on some types of insurance if your employees carry risk-minimizing certifications and education – such as budtender or cybersecurity certifications.
• Ask your insurance broker to clearly explain which circumstances are excluded from your policy. This can help you avoid the realization that your insurance doesn’t cover as much as you thought it did when a problem arises.
• If you are a member of certain cannabis business associations, you may have access to work with preferred cannabis insurance providers. These memberships sometimes also include access to a health plan option for your employees, which may be a business requirement in some states.
• Seek out an insurance company that is well-versed in writing policies for your particular type of cannabis business. Crop insurance and dispensary insurance, for example, are two entirely different areas of expertise.

Our Recommended Cannabis Insurance Agencies

If you’re interested in protecting your cannabis business with insurance policies tailored to the unique concerns of the legal marijuana industry, we highly recommend the following agencies: