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Insurance for Cannabis Businesses: Protect Your Assets and Stay Compliant

Forrest Bennett Jul 14, 2023 1:04:09 PM

Operating a cannabis business comes with unique risks that require proper insurance coverage. With so many different insurance products out there, it can be dizzying trying to determine what your business needs. In this blog post, we'll explore the core policies any cannabis business needs, such as general liability and property insurance, and consider the pros and cons of policies like product liability and crop insurance. You got into business because of a passion for cannabis, not insurance–but the headaches associated with getting insured can sap the passion from any project. Let’s figure out what you need so you don’t have to stress (and don’t end up paying for things you don’t need).


If You Operate a Cannabis Business, You Operate a Valuable Business

Running any business involves considerable investment; running a cannabis business, especially while the industry is still relatively new, comes with an extra set of challenges. For the business owner, that tends to mean greater costs around every corner and greater risk for unforeseen setbacks or unexpected expenses. There is more scrutiny on the product itself than ever before, creating the opportunity for legal issues for anyone growing, processing, or selling cannabis. Additionally, whether you’re a cultivator, a processor, a retailer, or a lab – your equipment costs a lot of money. Losing a plant is hard; losing the mechanisms by which you operate your business is catastrophic. 

General Liability Insurance for Cannabis Businesses

General Liability, or GL, is a standard policy that all businesses should have. They say America’s greatest pastime is baseball, but we all know that it’s really lawsuits. America loves to sue! So, despite how well you run your business, you can’t control what others do. GL protects against things like injuries to others or to their personal property while they’re on your premises, claims of false advertising or accusations of slander and libel, and more. For example, whether a customer insists your product did not have the promised effect or they’re blaming it for the tail they grew overnight, this would help you deal with it. We recommend that any business, cannabis-focused ones included, carry some form of GL.

Cannabis Property Insurance: Protecting Your Business Property

Whether you own the building you’re operating in or you just lease it, property insurance is a must. Property obviously means the physical property you’re in, but it also refers to what’s called “business personal property,” which essentially means everything that is owned by your business. If you’re a cultivator, this means all of your grow equipment. If you’re a processor, it’s all the stuff you have in your kitchen. If you’re a retailer, this would mean all of your inventory, the furnishings in your establishment–anything that a thief could walk in, pick up, and leave with. 

If you lease your space, business personal property coverage is for you. You should also check your lease for an insurance clause – many landlords require the tenant to carry some, if not all, of the insurance on the property. 

If you own your property, full coverage is fully recommended! Especially in Oklahoma, where weather conditions can escalate faster than your insurance rate goes up. Whether the catastrophe is natural or man-made, the last thing a business owner needs is to find out that on top of losing everything, they won’t get any help from their insurance policy after the fact.

Product Liability: Ensuring Peace of Mind

By now, it should be clear that inadequate insurance coverage can lead to financial strain. In a cannabis industry with strict regulations and consumer expectations, good product liability coverage is a smart investment. But considering that one product can pass through two or three entities before arriving home with the consumer, who needs to carry this coverage? 

The most obvious answer is processors and for good reason. Processors take flower and turn it into anything from a pre-roll to a distillate. The more involved the process, the more exposure to possible errors or impurities. But when someone decides to sue for a bad product, their attorneys will encourage them to cast a wide net – sue everyone they possibly can and hope that something sticks. Because of that, it’s smart for cultivators to carry some form of product liability as well. 

If you are a dispensary, pay close attention to this: you don’t necessarily have to take out a product liability policy, so long as you collect Certificates of Insurance (COIs) from your suppliers. With a copy of your suppliers’ COI in hand, you can prove that you did your due diligence in making sure that the product was insured when you acquired it. 

If you are vertically integrated, make sure that all of your ventures are listed as “Named Insured” on your policy. In doing so, you include all entities in the coverage, so that no matter which entity a claimant is going after, you’ll be covered.

Cannabis Crop Insurance 

Just about every insurance professional will extol the virtues of crop insurance, and we understand the argument. Crop insurance is pretty straightforward – you pay a premium to protect your crops against a myriad of problems that could arise. We want to see more data on claims for cannabis crop coverage before endorsing it whole-heartedly–we realize the razor-thin margins that cannabis businesses operate under today and every dollar matters. We want the policy to pay out if you have to file a claim, but we also know that insurance companies will look for any reason to deny a claim like that – especially if it is an outdoor grow operation. Evaluate the likelihood of insurable loss based on factors like location, climate, and security measures. Premiums for crop insurance in the cannabis industry may be higher, but the protection it offers is invaluable – but only if your claim is approved. Make sure that you have taken all possible precautions against disease, infestation, and other threats to your plants so as to minimize the chances that an insurance company can successfully deny your claim.

To be clear, we do understand the value of crop insurance, and we believe that as the industry matures, premium rates will go down and the claims data will paint a clearer picture of the likelihood of loss. We recognize that our take on this topic is different from what many others have said, but we suspect that plenty of them quietly feel this way too. The difference is, we’re not going to wholeheartedly promote it anyway, just to get the commission. 

Work with an Independent Agent Who Puts Your Interests First

Navigating insurance complexities can be overwhelming. That's why working with an independent agent who understands the cannabis industry is crucial. At Hopewell Risk Advisors, we prioritize your interests. We won't sell you unnecessary coverage. Instead, we tailor policies to address your unique risks and budget. With us as your insurance ally, you can protect your cannabis business while minimizing costs.

Securing your cannabis business through proper insurance coverage is a proactive step toward mitigating risks. Now that you have a better understanding of cannabis property insurance, general liability, product liability, and crop insurance, you’re one step closer to gaining the peace of mind that comes with getting your business covered. At Hopewell Risk Advisors, we understand the challenges you face in the cannabis industry, and we want to help by taking the stress out of the insurance process. Our tailored insurance solutions are designed to meet your specific needs, and our understanding of your industry will ensure it. Let's work together to secure the future of your cannabis business.

Forrest Bennet is the owner and founder of Hopewell Risk Advisors, an independent insurance agency writing personal lines of insurance and commercial policies for industries ranging from cannabis to restaurants. A born-and-raised Oklahoman, Forrest has been fighting to provide great insurance coverage since 2021. He considers Hopewell Risk Advisors “honest brokers in the protection racket.”