Insuring the Cannabis IndustryEvery traditional insurance policy has a clause that excludes all contraband and all fraudulent activities. These two clauses alone are enough to deny a claim for a cannabis-related business because it is defined as contraband by the federal government.
There are three types of cannabis-related businesses. Those that operate in the unregulated world, those that operate in the regulated world and those that are in-between; meaning that they started in the unregulated world and are making the transition into the regulated world.
Keep in mind that the possession of, dealing in, or cultivation of marijuana/cannabis is illegal under federal law. Understanding that 30 or so states have some form of legalized marijuana laws on their books, which were voted on by the people of their respective states. These states are operating under a guidance memoranda issued by the DOJ under the Obama administration, to prosecutors concerning marijuana enforcement under the Controlled Substance Act (CSA) making it clear that prosecuting state-legal medical marijuana cases is not a priority.
Understanding the federal issue is important because, most cannabis specific insurance policies will have a paragraph stating that you, the insured are and will always be in compliance with your state laws. If you are not in compliance with state law, then you could also be subject to federal prosecution.
The point is, if you are going to deal with-in the licensed, regulated world of cannabis, then you should not or cannot deal in the unregulated cannabis world at all. If you do, this activity this will trigger an exclusion in your company’s insurance policy which will allow the insurance carrier to deny coverage.
Why Buy Insurance?
So why buy insurance you ask? Well, think of insurance as the product that can help make your cannabis related business a more professional business, with instant third-party credibility. It is the product that some states or local municipalities are requiring, in order to obtain your business license, similar to how most states deal with the liquor industry. By requiring insurance, states are helping to protect the consumer and give professionalism to the cannabis industry. Insurance is the product that your business advisors and investors are going to want you to purchase, just in case the unexpected happens. With insurance providing financial reimbursement, your business can survive and hopefully, your investors will not lose their investment because of an insurable event.
Insurance is a risk transfer vehicle. It is a great way to cover the business’s expenses should a customer claim that your product caused them bodily injury or maybe financial harm. At IT Risk Managers, we tell all of our clients … “just because you don’t purchase insurance, the risks and exposures don’t go away, you are just self-insuring.”
While there are only a handful of insurance carriers today that will write this coverage, as the industry’s image improves and once the federal law issue is resolved, more carriers will be willing to insure this class of business.
What Coverages Do You Need?
So what coverages do you need? Well at a minimum your business should have general liability that will cover most the slip and falls, print advertising and bodily injury. The general liability policy should also include product liability coverage. As a licensed business, you should also have a workers compensation policy. This will protect your business from being sued if an employee gets hurt on the job.
Next, assuming that you will have business personal property, you will need some type of property coverage. This will cover your business personal property, the building, inventory, money, contents etc. Depending on what type of cannabis business you operate, you might also need commercial auto coverage, professional liability, directors and officers liability, employment practices liability, product recall coverage and more. These policies are not new to the insurance industry. But what is new is that they will cover a claim for contraband, ie. Cannabis.
On a final note, a significant exposure that is not insurable at this time is privacy and the loss of personally identifiable information. While this is an area of specialization for IT Risk Managers, we have not been able to find an insurance carrier that is willing to underwrite this risk and exposure. Cybercrimes are governed by federal law, and therefore we are just a little early for that to happen, but I believe it will. We will have more on this topic in our next article, so stay tuned. However in the meantime, here are 10 protection tips.