Embroker’s Cannabis Practice

Redefining the way cannabis companies purchase insurance, utilizing technology and deep insurance expertise from brokers who genuinely understand and support the industry.

In the quickly evolving cannabis business, it’s imperative to have an experienced risk management partner who understands the industry nuances and the possible exposures associated with your business’s growth.

Staying in compliance in order to maintain your license to operate, mitigating claims from customers who use your products, and transferring the financial risk of theft are just a handful of issues cannabis businesses face. We understand your issues are unique and can help tailor solutions that accurately reflect your business’s risk profile.

Our cannabis experts have 6+ years of industry experience working with clients not only on detailed risk management programs but venture funding and licenses in emerging markets as well.

We wrote this guide to help you, the reader, understand both the basics of insurance for cannabis companies as well as some more advanced considerations. Our hope is that you walk away from this article a more empowered buyer, with a better understanding of the risk you can transfer to other parties via insurance.

If you’d like help, we’d invite you to talk with a broker or get started by creating an Embroker account.

Insurance for Cannabis Businesses

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 insurance program, which is why we strongly encourage you to look for a broker who has a program tailored for your industry. Working with a partner that has experience placing cannabis companies and supporting claims ensures that they will be able to intelligently tailor an insurance program for your business across the following components:

Broker experience:

How well does your broker understand the cannabis industry and your specific needs based on your niche?

Premiums:

How much does adequate coverage cost on a monthly or yearly basis? Create a plan that allows you to build insurance costs into your long term business plans.

Limits:

How much coverage do you want/need in the event of a
claim? How much monetary risk do you expect given your company’s
size and operation? What does your risk program look like when you hit
certain milestones?

Coverage terms and conditions:

What are the details that really matter to your business? Each policy can have unique terms; endorsements that can be added and exclusions removed to tailor the coverage to your risks. A savvy broker who understands the industry and vertical will negotiate these terms to match your exposures.

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:

Commercial General Liability: 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 protections 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.

Director’s & Officer’s (D&O) Policies: 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 Insurance (EPLI): 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. EPLI 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.

Worker’s 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: 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 policieshelp mitigate the risk of losses that can result from being hacked or experiencing data breaches.

I am text block. Click edit button to change this text. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo.

Key Insurance Considerations by Type of Business

 

Cannabis Dispensaries

Having robust coverage that can help you withstand the evolving legal climate, regulation changes, and general business risks is crucial to running a successful dispensary operation.

In addition to general liability insurance and worker’s comp, which are typically required, there are a number of other insurance policies that can help protect your dispensary from loss. A property insurance policy will protect your business personal property including inventory, from perils of fire, theft, and natural disasters. The right product liability coverage is critical for dispensaries and is often something that will paired together with a strong Commercial General Liability policy.

In the event that a product results in harm, illness, or unwanted side effects the customer may hold you liable. The point of sale is typically the first point of litigation, even if the incident wasn’t your fault. Utilizing risk transfer tools such as requesting an Additional Insured status from your partners is critical in the cannabis supply chain. Depending on the state you are operating it , a seed to sale tracking technology will be required for your dispensary to operate.

Running a Point of Sale (POS), inventory management, customer loyalty, or delivery service through technology is critical to keep up with demand and stay in compliance. A strong Technology Errors & Omissions and Cyber Liability policy will protect against a plethora of claims that could cripple any dispensary.

Suggested Options

  • General Liability
  • Product Liability
  • Property Insurance
  • Worker’s Compensation
  • Business Income Coverage
  • Cyber Liability
  • Technology Errors & Omissions
Cannabis Cultivators

Cultivators face a wide variety of risks and perils to their operations, including but not limited to fire, equipment breakdown, theft, and vandalism. Cannabis and hemp cultivation takes a tremendous investment in infrastructure including equipment, lighting, seeds, security, and the crop growing at various stages of value, all of which can be points of vulnerability. Fortunately, the right insurance program can protect your investment.

Crop and property insurance are 2 of the most important insurance solutions for cultivators. When grows are in controlled environments such as greenhouses or warehouses, crop insurance is more readily available. With the boom in the hemp cultivators and the farm bill, outdoor crop is becoming more of a need that underwriters are currently warming up to.

An Inland marine or Cargo policy would be a good addition to protect inventory in transit as the businesses interact with wholesalers and dispensaries.

Suggested Options

  • General Liability
  • Product Liability
  • Property Insurance
  • Workers Comp
  • Business Income Coverage
  • Crop Coverage
  • Commercial Auto
  • Cargo
Cannabis Manufacturers

Cannabis and hemp manufacturers face significant regulatory requirements around licenses based on the inherent risks that are byproducts of the license-type.

Processing cannabis flower or hemp biomass often can change (typically increase) the value of the product and mistakes can lead to significant losses if the entire plant is not utilized to its full potential. Additionally, manufacturing plants and equipment are expensive investments and should be protected by a good commercial property policy.

Depending on the equipment that a business is using, you can specifically list valuable pieces on the equipment policy for their full retail value.  Equipment breakdown language can be added to further strengthen the value of the policy. A product liability policy can protect you in the case of a customer getting sick and will typically be required to sell products wholesale to dispensaries.

Suggested Options:

  • General Liability
  • Product Liability
  • Commercial Property
  • Workers Comp
  • Business Income Coverage
  • Cargo / Inland Marine
Software

No matter what license type you hold, software is a critical part of any scaling cannabis or hemp business. Seed to sale technology is required by every state with both medical and recreational products being traced back to the state regulatory divisions.

Wholesale platforms, Loyalty programs, advertising, POS systems, and even employee training is done through technology. Putting in place a proper Technology Errors & Omissions and Cyber Liability program will cover a wide array of issues tied to the critical nature of software.

Many software businesses have raised angel rounds of funding, eventually growing into venture capital as the company continues to grow. Having a strong Directors & Officers policy will protect the company in cases against lawsuits attacking the board, individual investors, or C-level executives in their management of the business.

As companies grow past 10 employees, adding Employment Practices Liability strengthens this policy even further.

Suggested Options:

  • Cyber Liability
  • Errors & Omissions
  • Directors & Officers
  • Business Income Coverage
  • Employment Practices Liability
Venture Capital

The rapid nature of evolution in the cannabis and hemp industry is largely driven by investors who see opportunities to get in early. Any company that becomes a fiduciary by managing investments on other peoples behalves has a large amount of risk.

Providing upside protection marrying Directors & Officers coverage with Professional Liability creates a policy often referred to as VCAP, short for Venture Capital policy.

This policy ensures the decisions made on behalf of investors are protected as are the individuals making the management calls.

Suggested Options:

  • Workers Comp
  • General Liability
  • Directors & Officers
  • Professional Liability
  • Employment Practices Liability
  • Business Income Coverage
Landlords

Landlords in the cannabis industry face a unique set of risks and challenges. Many insurance carriers may refuse to cover claims from landlords who rent to cannabis businesses if this is not discussed upfront with the yearly insurance renewal.

This is why working with a broker who has a dedicated cannabis practice can help you avoid unpaid claims for fire, vandalism, and other damages. Being as transparent as possible with your broker on who you are renting to can drastically change your experience and ability to recoup claims.

When establishing a growing real-estate portfolio of cannabis businesses, there are ways to consolidate coverage with common ownership and assets in the same state.

Suggested Options

  • General Liability
  • Property Coverage
  • Loss of Income
  • Business Income Coverage
Testing Laboratories

Testing labs are a key component for ensuring the health of the cannabis ecosystem. However, evolving state and federal regulations create a potential minefield of potential lawsuits that the right insurance policy can help you traverse, ensuring you against potential errors or mistakes made in your operations. Professional Liability, also known as Errors & Omissions, is key for laboratories reporting to the state on data points that impact public safety. Once again property coverage is critical with the amount of equipment that is required to operate a high-volume cannabis lab.

Suggested Options

  • General Liability
  • Property Insurance
  • Product Insurance
  • Errors & Omissions Insurance
  • Business Income Coverage
Delivery

Delivery is one of the most exciting areas of the cannabis industry. Whether you are a delivery-only dispensary or strictly distribution companies in this area face a complicated set of risks. Employee personal auto insurance will not provide coverage in the event of an accident or robbery, as this policy usually excludes business use. That means that your business can be held liable for damage to vehicles, injuries, and medical bills. Leveraging a Hired Owned and Non-Owned Policy can improve your risk management program. Additionally,  leveraging a cargo policy for your products once they leave your premises is a best practice. If a license holder is establishing a fleet of cars, Commercial auto coverage is required.

Suggested Options

  • Commercial Auto
  • Hired Owned & Non-Owned Auto
  • General Liability
  • Business Income Coverage
  • Product Liability
  • Commercial Property
  • Cargo Insurance
  • Worker’s Compensation
Medical Cannabis Physicians

Most insurance providers refuse to provide coverage for physicians that offer non-FDA medications. Embroker’s cannabis practice offers tailor-made coverage that will protect medical cannabis physicians from malpractice lawsuits.

Suggested Options

  • General Liability
  • Errors and Omissions / Professional Liability
Hydroponic Shops

Hydrophonic shops that work with cannabis businesses have access to a variety of coverages to ensure that they are protected from claims or damages. Commercial property coverage will protect your shop from the perils of fire, theft, and vandalism.

Additionally, product liability will protect you from claims that could arise from the equipment you sell malfunctioning and causing losses to your customers.

Suggested Options

  • General Liability
  • Product Liability
  • Property Insurance
  • Business Income Coverage
  • Cargo

Why Your Cannabis Company Needs Coverage

The cannabis industry is projected to grow to $146.4 billion by 2025. As the industry grows and becomes more regulated, it will become increasingly more difficult for businesses to avoid risk exposure.

Additionally, there are unique risks that cannabis businesses face. A minor problem can result in an expensive lawsuit or result in a loss of your business license. The legal status of medical and recreational cannabis is in constant flux and varies wildly from state to state, creating a legal minefield that the right insurance coverage can help you traverse.

Highly-Publicized Examples of Insurance at Work for Cannabis Companies

Cannabis Insurance Costs

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.

Getting Started

Now that you have a better understanding of insurance for cannabis and hemp companies, you may be wondering how all of this affects your business and where to go from here. If you need more help or information, you can reach out to our team of expert brokers. If you prefer to get started on intelligent quotes, create your Embroker account today.

Cannabis companies require unique insuring expertise and experience. Our Cannabis Practice team is redefining the way cannabis companies purchase insurance, combining technology with deep insurance expertise and genuine understanding and care for your business.

Embroker is the easiest way to intelligently insure any business. We’re here to help!