After the results of the 2016 November election, medical marijuana has been legalized in 28 states and the trend is only expected to continue. While the industry is generally considered thriving, when it comes to navigating all the state laws and regulations it can be a daunting task for new business owners. Most states either require or are looking to require businesses to obtain medical marijuana insurance coverage for their dispensaries.
The problem comes in finding an insurance company willing to cover a product that is still prohibited under federal law, which means that those looking to protect their marijuana inventory or crops face limited availability in the marketplace. However, even though there has been reluctance for insurers to enter this potentially dynamic market, case law is already beginning to pave the way in favor of those in the marijuana business. But what can medical marijuana related operations do to help secure themselves affordable insurance coverage? And how will it benefit their business?
Common Insurance Requirements for Medical Marijuana Business Owners
Sufficiently addressing security concerns to the satisfaction of the insurance companies is one key component to finding affordable coverage, or coverage at all, for grow operations and dispensaries. Marijuana operations can face risks like theft (external and internal), employee injuries and grow fires, making security a top concern for insurers. In addition, choosing a viable location for any medical marijuana business can play a significant role in whether an insurer will offer coverage. This means that it is never too early to start building a relationship with an insurance professional as this will help proactively address issues in the early stages of planning, developing and building the business.
Product Quality and Liability Concerns of Medical Marijuana
Because of the rising number of claims of illness and injury from cannabis use, product liability coverage is essential for medical marijuana business owners in order to protect their operations and uphold the integrity of their business. Demands and settlements from these types of claims can sometimes be substantial enough to put an entire operation out of business, especially if the business is in the early first years and doesn’t have enough capital to cover the setback. These types of claims are not typically covered under general liability policies, so be sure to ask specifically to be covered for product liabilities.
Another emerging trend in the medical marijuana industry is product recall. Cannabis products are being recalled at a formidable rate, largely due to the presence of dangerous or banned pesticides. Product recall is expensive and none of those expenses are covered by product liability insurance. There are two steps to take in order to protect a marijuana operation from the potential impact of a recall; hire an independent third party testing company to regulate your product quality and obtain product recall insurance. This coverage is written to fit the individual business needs and can cover everything from retrieval and shipping costs to destruction costs and even provide public relations help to rebuild and maintain the insured’s reputation.
Any medical marijuana dispensary, takes on the responsibility of a highly-regulated pharmacy. Even if the business is compliant with all state and local rules and regulations, mistakes are bound to occur simply due to human error. Giving out the incorrect product, failing to confirm a patient’s identity, or violating patient privacy are some of the most common oversights. These errors and more, can be covered by a well written professional liability or E&O policy.
In Cannabis Business Times, Josh Olague, owner at Oregon-based Cannabis Nation, neatly articulated the need for comprehensive coverage as the consequences of sound risk management exceed his company’s grow and dispensaries. “The whole world is watching to see if this is going to work out, so the pressure is on us as business entrepreneurs to make sure we handle ourselves accordingly, by putting the right team in place, building a successful business and making sure you are covered in all phases of insurance so the people that follow suit have no choice but to uphold the standard and guidelines we helped build.”
We’ve all seen it in the news, and around our local towns – it goes without saying that the legal cannabis insurance industry in many states across the US is experiencing tremendous growth with states like Oregon, California, Washington, and Colorado leading the charge.
The Arc view market research group did a study showing how legal cannabis spending has grown from a 5-billion-dollar industry from 2015 now to a 7-billion-dollar industry this last year. Projections show a 300% growth over the next 5 years with a conservative estimated market of $21 billion by 2021 according to the 5th Edition of “The State of Legal Marijuana Markets” published this month.
Colorado alone had an average of over $2.5 million annual sales per dispensary for both adult and medical marijuana customers over their reported 490 dispensaries. With this comes a huge need for marijuana insurance to protect both liquid, individual and company assets.
There are laws continually being passed and changed as the states try to determine what stance they will take on the legalization of medical and recreational marijuana use. Good Marijuana Insurers are constantly evaluating which coverages makes sense to have for dispensaries and growers.
Although a social stigma still exists, the laws and the people of our country are quickly changing their views, from the ‘70s through the early ‘00s, US support for Legalizing Marijuana hovered around the 25% – 35% area. Now, within 10 short years we are approaching a 60% support rate (Gallup Poll) and so agents and brokers don’t need to worry about the public opinion as much as finding out what makes good business sense, understanding the segment, and taking advantage of the growing marijuana business segment.
Whether a cultivator, dispensary owner, supplier, landlord or any other marijuana business selling now to the public, these are now businesses that need to have marijuana insurance now more than ever, especially as the breadth of suppliers increase. As the customer base increases, so do the opportunities for lawsuits. A few days ago, a high-profile firm released a state of the union on emerging legal trends, showing the threat of product liability exposure for marijuana manufacturers and distributors. In this article, they described several claims being tested including Failure to Warn, Negligence, Breach of Contract, Youth Marketing and other areas as well.
Steps should be taken both to understand these risks, and get the proper marijuana insurance to protect against the increasing lawsuit and claims attention that this market segment is getting.
Use the following checklist to make sure all the applicable areas of your marijuana business is both educated and covered in the following areas:
- Business Income
- General Liability
- Commercial Auto
- Directors & Officers Liability
- Employment Practices Liability
- Fiduciary Liability
- Workers Compensation
- Data Breach/Network Security
- Professional Liability
- Pollution Liability
- Stock Throughput
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CBZ Insurance, LLC