Legal Cannabis Insurance: Everything you need to know
April 2, 2018 / Author: Jake Wintczak
Legal Cannabis Insurance
If you’re an insurance agent who has prospective clients in the legal cannabis business seeking legal cannabis insurance, it can be tricky to know how to cover them. They face all the risks of a typical business, plus the additional risks of transporting expensive goods as well as growing and selling a consumable product. Here are two strategies you should keep in mind when looking at their policies:
Use excess insurance coverage to minimize the cost of uncertainty
Insurance is inherently a mathematical balancing act. With years of data regarding premiums, claims, and the cost of various risks for any type of company in every state, information is becoming more readily available for insurance companies to better calculate the risks of various claims and incidents to yourself and your clients. However, the medical cannabis industry does not have years of data regarding operational costs, liability risks, and legal hazards that face each type of business. It can be impossible to predict what claims your clients will face and how much those claims will cost.
Quantify what you can
The most certain elements of your client’s cannabis business are the hard costs they incur through equipment. As the industry faces new regulations and changing degrees of legality state by state, not only will your client’s growing and manufacturing equipment need to be repaired for typical wear and predictable damage, it may need to be replaced to match future industry standards. Having an excess insurance policy in place can help your client maintain new safety and production standards with equipment replacement that might have otherwise been placed on the back burner to the detriment of their business as a whole.
Legal cannabis clients can be a risky investment not only as the legal landscape changes but because of the lack of data surrounding the industry. Hedge against that uncertainty by talking to your clients about the advantages of excess coverage as you and they navigate the new and expanding legal cannabis industry.
Neon Marijuana Green Cross and Open sign.
Business Interruption Insurance for Legal Cannabis Industry
Traditional general liability insurance does not cover all the liabilities faced in the course of a legal cannabis business. Obtaining excess liability coverage that’s tailored to suit your business’s needs and the products and services you offer, will cover all of the gaps and will make sure that your business is adequately covered in the event of third-party claims and lawsuits that you may inevitably come across some day.
One area of additional cannabis industry liability coverage that can help secure businesses’ long-term stability and growth is business interruption insurance.
What is business interruption insurance?
Business interruption insurance, which is also called business income insurance, is an additional property insurance coverage component that covers loss of income if your business suffers a disaster and your business premises or facility has to be temporarily closed. This keeps you in business longer.
How can business interruption insurance helps protect your marijuana business?
Marijuana businesses can face the same weather-related and property damage disasters as any other company. Additionally, business interruption insurance covers income losses as a result of a government-mandated closure. This insurance also covers fixed costs that would have occurred during normal business events and may even cover the cost of a temporary location during the closure. If your business’s bottom line is being impacted by a closure beyond your control, this insurance can help you make sure the business stays afloat.
Large Marijuana Grow Operation, Commercial Cannabis Agribusiness Facility
How to Mitigate the Risk of Insuring Cannabis Edibles
As the cannabis industry gets more and more examined in the wake of increased legality, new risks are coming to light. Different states regulate traditional cannabis products and supply chains differently, but the wide range of edible cannabis products is a new concern.
Why do your clients need excess products liability coverage if they offer edible products?
The market is too new to take the risk of low coverage
Even once a sale is complete, your client can be held liable for injury or damage their customers cause under the influence of their product. Your client can only do so much to advise their customers and minimize the potential negative effects, and the risk of an extended legal battle is high until time and precedents establish a clearer line between seller and customer responsibility.
Product liability, especially because edibles have a wider range of psychological effects, is one of the greatest risks cannabis businesses face
Product liability coverage is one of the most important areas of coverage because any claims can examine anything from how the cannabis was produced to how your client advertised the products. The legal action can take years to finalize and, depending on the physical damage or injuries behind the claim, the impact of even partial responsibility can be ruinous to a company without sufficient coverage.
Cannabis infused gummy candy on a rustic table top with marijuana leaves.
How Excess Legal Cannabis Insurance Can Protect Your Clients
Insuring a marijuana dispensary can be a risky proposition; the general legal status of marijuana use and distribution can vary from state to state, and even within the state itself depending on the intended use of the marijuana products. Because the risk of liability and even criminal proceedings is much higher with marijuana dispensaries than many of the other clients you might insure, finding excess and surplus insurance is the best way to proactively minimize the risks of associated claims and to better ensure your client’s financial future. Here are some areas where additional legal cannabis insurance tailored specifically for marijuana dispensaries is critical:
Premises and property liability insurance: If your client’s marijuana dispensary includes facilities for growing and manufacturing consumable marijuana products, then your client has a great deal of expensive equipment to be insured for potentially the first time. Having excess coverage and the event of an electrical fire or other damages can help your clients get back on their feet safely and without risk to their business financial future.
Product liability: Your client is selling cannabis flowers, concentrates, or edibles, and because they are selling those products that are intended for consumption your client needs additional product liability insurance. In the event that a product harms the direct consumer or causes other damages, your client can face present and future claims regarding medical bills and property damage. Whether the alleged claim is successful or not, having additional liability insurance provides additional peace of mind especially as the political and social environment surrounding marijuana continues to remain unstable.
A green cross, the symbol used for medical marijuana, is shown on the exterior of a stucco building, with sky above. Now that recreational marijuana is legal in two states, Colorado and Washington, these cannabis retailers are popping up everywhere. There is plenty of space for your own message.
Does Your Client Need Inland Marine Coverage?
Medical marijuana business plans are beginning to strengthen and diversify into separate sectors as legalization increases and businesses begin to set down roots. However, these businesses have and will continue to have for the foreseeable future, unique risks and dangers through the growth, transportation, and distribution of marijuana products. Whether your clients are cannabis ancillaries, wholesalers, processors or extractors, or have a medical marijuana dispensary, there are different elements of insurance coverage that every legal marijuana business needs and that not every insurance plan can adequately cover on their own. One of those areas is inland marine insurance coverage.
What is inland marine insurance coverage?
Inland marine insurance covers cargo while it is being transported over land. This cargo can include not only marijuana products but additional materials and equipment that are used during the transportation process. This element of insurance also covers the products and additional cargo if they are being warehoused by a third party temporarily. Loss can occur none only through collision but also through cargo theft; having excess insurance coverage in the eventuality of cargo loss during transportation can help keep your client on their feet, especially due to the expense and value of marijuana in the current market.
Does your client need this to adequately insure their business?
Not every company in the marijuana business needs inland marine insurance; they only need this coverage if they are involved in the transportation of goods. As a general list, these clients include cannabis growers, wholesalers (who may also need additional cargo insurance), and ancillaries involved in delivery services.
If you’d like to learn more about why Prime Insurance Company is a preferred provider of excess insurance for legal marijuana businesses, please contact us here. We’re happy to help you find the right elements of coverage for your client’s business’s array of services, coverage requirements, and insurance concerns.
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