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Cannabis is an emerging business sector that offers a unique set of challenges and risks when it comes to finding the right coverage for your business.

Conflicting state and federal laws, regulations concerning the treatment of cannabis and hemp products, and the reluctance of major carriers to get involved with the cannabis industry can present obstacles in finding the right insurance policy. Many are faced with purchasing substandard policies that may leave gaps in their coverage.

It takes too much hard work, capital, and sleepless nights to run your cannabis business smoothly to settle for a less-than-stellar coverage which is why we strongly encourage you to look for a broker who has a coverage tailored for your industry.

What Insurance Policies Do Cannabis Companies Need?

While every business has a specific set of insurance needs, there are typically core insurance policies that cannabis companies should obtain in order to mitigate and transfer risk:

General Liability Insurance:
A general liability insurance policy is important because it provides indemnity against the risks that nearly all cannabis business owners face. It protects your business assets from claims of bodily injury and property damage to third parties that occur on your property/facilities. Injuries related to slips and falls will be covered by the GL policy and it is typically required if you are leasing property, attending a conference, or contracting with partners.

Product Liability insurance:
An extension and subcategory of general liability that provides coverage in the event that you are found liable due to a defective product that causes bodily injury or damage to a third party. For businesses in the cannabis and hemp industry, this is a complicated and evolving issue due to the various license types and vertical integration of many businesses. Product liability will ensure that you are covered in the event that the consumption or use of your products causes illness or unwanted side effects. Any business that touches products no matter where they are in the supply chain needs a good product liability policy. Utilizing additional insured status and the right contractual language will provide the best possible protection for your business.

Commercial Property Insurance:
This policy protects property such as buildings, contents, equipment, and personal property used in the business from perils of fire, theft, and natural disasters. Additionally, commercial property insurance often provides coverage for losses of income caused by these perils. Business income coverage is not sold as a stand-alone policy but can be included with the business’s property insurance policy. This is critical for cannabis companies as many times the equipment needed is extremely expensive and could create a huge loss if not maintained properly. Another important factor is insuring your finished inventory. This is the lifeblood of your business and something that must be insured.

Crop Insurance:
Protects a cultivator’s crop throughout the growing cycle, insuring against indoor and outdoor hazards such as fire, soot, water, and temperature. However, coverage does not extend to crop failure due to mold, rot, disease, or fertilization issues, which are normally not covered by any property or crop policies, even in traditional agriculture. Crop insurance is extremely tricky and something our team has worked with the NCIA on improving. Utilizing the property and crop policies together helps you mitigate a large portion of risk.

Directors & Officers (D&O):
Covers defense costs and damages (awards and settlements) from wrongful acts, allegations, and lawsuits brought against your company’s board members and/or officers. It’s a type of insurance that was designed for the purpose of protecting your company directors (both current and past) from lawsuits and litigation. In the cannabis industry, many companies are capitalized by angel investors, VC/PE funds, and family offices. Investors are attracted to companies with D&O policies due to the quickly shifting legal landscape and the protection that such a policy offers them and their assets. This shows a business is buttoned up and ready to scale.

Employee Protection Liability (EPL) Insurance:
The need for this coverage grows as your company grows. EPL insurance will protect your business from potential employee-related claims including discrimination, harassment, failure to promote, and wrongful termination. If you are providing face-to-face services, we also strongly encourage you to get third-party coverage to protect against claims from third parties. EPL and D&O can be combined to create what’s known as a Management Liability policy. Often these claims are interrelated and the combined policies ensure the utmost protection for your C-suite.

Workers Compensation Insurance:
Employees can be exposed to risks related to your business’s daily operations. If someone from your staff is injured in the workplace, workers compensation insurance will pay for medical care and lost wages. Additionally, all 29 states with cannabis laws and Washington D.C. require cannabis companies to have a workers compensation policy in order to conduct business.

Cargo Insurance:
Cargo insurance refers to the protection of items transported by your business or for your business. A cargo policy can cover you in the event your cannabis product is lost, damaged, or stolen while being loaded, transported, or unloaded. With the right cargo policy, you can get coverage for cannabis products transported by your operation or get extra coverage for items transported by a transportation company you have hired.

Cyber Insurance incl. Data Breach:
Technology is heavily integrated into most cannabis businesses. For instance, most growers are required to keep accurate records of their inventory by state law and testing labs accumulate large amounts of sensitive product data through seed to sale platforms. On the customer-facing front, especially for companies who have “medical” licenses, PII, and being compliant with HIPPA regulations is key. Your business is legally liable to protect this data and cyber insurance policies help mitigate the risk of losses that can result from being hacked or experiencing data breaches.

Please note that the coverage may vary by the type of business you have. Our in-house broker will craft a tailored coverage for your specific business needs.

What Does It Cost?

When applying for insurance, there are many factors that carriers take into consideration while underwriting new coverage. Cost drivers will always be different based on the policy type, limits needed, and stage of the business. Working with the right partner will ensure they are not only negotiating the right coverage but the best possible pricing options for your company.

Additionally, cannabis startups are unique in the eyes of underwriters because their growth tends to outperform the expectations associated with more traditional startups.

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“Embroker has been an integral part of guiding Hillview through the ever-changing cannabis regulatory landscape. With Embroker’s guidance we feel confident to move forward with innovative research and development, launch new products, and continue to safely provide our consumers with Hillview-grade products. Their knowledge about the industry has, and will continue to be, helpful in guiding us through risk management in the cannabis and hemp space.”

Ken VandeVrede

CEO, Hillview

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