Does Your Budding Cannabis Business Have the Right Insurance?
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As we enter 2020, 11 states plus the District of Columbia have adult-use cannabis laws in place. Another 33 states have medicinal cannabis programs and industrial hemp was legalized on a federal level passing of the 2018 Farm Bill.
This means there are thousands of cannabis companies operating throughout the country, employing more than 250,000 individuals according to data from New Frontier. And with the industry’s rapid growth and the changing legal and regulatory landscape, these numbers are expected to rise.
Given the immense opportunities this market presents, both seasoned and first-time business owners have found themselves eager to enter the space. However, many are realizing that there are challenging regulatory hurdles inherent to the marijuana industry that are not found in other fields.
One of the most unique hurdles is finding the right insurance. Companies need insurance to protect their employees and their assets. Which types of business owners should seek out specialized insurance, and how can they be sure they have obtained the appropriate coverage? Here are some answers.
Who needs cannabis coverage?
When someone mentions “cannabis business,” a dispensary or cultivation facility might come to mind. But in addition to companies that directly work with the plant, there are an estimated 13,000-18,000 ancillary cannabis businesses that have either expanded their operations or created entirely new business entities to cater to this industry.
There are also existing companies that have been operating and working with other industries (food and beverage, pharmaceutical, medical) that are now entertaining cannabis as a potentially untapped market.
Some examples of ancillary cannabis businesses include:
- Equipment suppliers (lights, extractors, labs)
- Security (surveillance, alarm and access systems, guards)
- Transportation (cash and/or products)
- Professional services (lawyers, CPAs)
New or existing companies that are entering the cannabis marketplace need to make sure the insurance program that they have in place is set up properly to support their operations.
Cannabis is currently an industry for which very few insurance carriers provide direct coverage. Insurance carriers tend to prefer when their customers work with other more traditional, familiar industries that they would also insure. Businesses must be vigilant because some plans contain unique exclusions and policy wording that eliminates coverage if the loss or claim relates to any cannabis-related entity.
How to insure your canna-business
For most businesses, procuring insurance normally entails a simple call to their local insurance agent and asking for a quick quote to begin operating. However, if a cannabis company were to try and call their local agent and explain their operations, the chances that the agent will have the subject matter expertise needed are very slim.
Insurance for those in the cannabis industry is more complex than traditional businesses due to the widely varied and ever-changing state laws. For national operators, there is also the federal legality and stigma surrounding marijuana. Given these complexities, business owners must be sure that their insurance agent or broker is knowledgeable and well-versed in assisting cannabis businesses.
When procuring insurance coverage, be aware and do your best to avoid these potential issues:
- Missing operational coverages
- Underinsured limits
- Out of compliance with contracts
- Out of compliance with leases
- Uninsured operations
- Misclassification of their business
If a company finds itself in any of these situations, they risk losing their insurance coverage and even their business. These sorts of setbacks can be detrimental for a company, especially one that is just starting.
By 2025, the U.S. marijuana market is projected to reach $30 billion, generating more than 740,000 new jobs in the process. As competition gets tougher, only savvy business owners that understand how to protect their assets will be able to stay ahead of the curve.
The insurance coverage needs for all businesses within the cannabis industry are the same. The only variability is which insurance markets can be approached based on the company’s operation. Procuring insurance for cannabis companies can be a delicate balancing act. It requires working with an insurance company/brokerage with the necessary experience to guide a business through the process while avoiding compliance issues or coverage gaps.