Cannabis insurance refers to business policies that collectively cover the various risks inherent to businesses operating in the cannabis industry. However, different cannabis businesses need different kinds of cannabis insurance policies. In this post we’ll cover the basics of cannabis insurance for businesses, including what kinds of marijuana insurance there is, and how it works.
Types of Cannabis Insurance
When business owners say cannabis insurance, they mean whichever collection of insurance policies will protect the assets of their cannabis business. The marijuana businesses might be cultivation operations or farms, dispensaries, and manufacturers, so the exact group of policies will differ since different assets will need to be covered.
Each policy covers a different kind of risk. For example, a commercial property policy covers damage to property owned by a business, and a general liability policy covers third-party property damage and injuries.
General Liability Insurance
General liability insurance covers costs associated with any third-party claims. This includes claims of property damage, physical injury, and reputational harm. Most policies also include coverage for harm caused by defective products. These cases typically include the medical expenses and/or repair bills of the injured party as well as legal fees.
Some examples of general liability for a cannabis business include:
- Medical bills of a customer who consumed toxins in your products
- Legal fees and damages for defamation based on negative talk about competitors on social media
- Your facility has a fire which damages neighboring businesses, incurring repair costs
General liability covers claims that are common across industries. It is also a fundamental part of cannabis business coverage.
Commercial Property Insurance
Commercial property insurance covers the property your business owns. If there is a covered event, this insurance pays you, the owner, the insured value of damaged items minus your deductible. Cannabis business owners can either deducts depreciation and insure their property at its actual cash value, or insure it for its full replacement cost.
Common events property insurance covers include:
- Human-induced problems like theft and vandalism
- Natural disasters like hurricanes, fires, hail, wind damage, or floods (but not all kinds of floods always—check the policy)
Cannabis business owners without large amounts of property, and who earn less than $1 million in revenue or have fewer than 100 employees may qualify for a business owner’s policy (BOP). BOPs combine general liability insurance and commercial property insurance at a reduced premium.
Errors and Omissions Insurance
Errors and omissions insurance (E&O) covers a defense against third parties who accuse a business of causing financial loss by making mistakes—negligence claims. Also called professional liability insurance, E&O typically covers costs such as court costs, attorney’s fees, and settlements or judgments. This is true even when the lawsuit is groundless. Medical marijuana businesses are at high risk of liability claims, because medical products do not always perform as intended.
Commercial Crime Insurance
Commercial crime insurance covers financial losses from illegal activities. As a mostly cash industry, cannabis business owners may want these policies, which typically pay whether the securities or money is stolen by employees or outside actors.
Illegal activities covered by commercial crime typically include computer fraud, employee dishonesty, false money order schemes, forgery, illegal electronic funds transfer, kidnapping, ransom, and extortion.
Workers’ Compensation Insurance
49 states (all but Texas) require employers with employees to carry workers’ compensation insurance to cover work-related illnesses and injuries. Policies typically pay the medical bills of injured employees and they may also receive replacement wages. Should an employee die at work, their family may receive death benefits.
Workers’ compensation insurance covers injuries and illnesses including:
- Repetitive stress injuries such as wrist injuries caused by scanning products or back problems caused by harvesting crops
- Sudden traumatic injuries such as those suffered in a fall in a dispensary or an explosion at a manufacturing facility for extracts
- Occupational illnesses, such as respiratory illness in lab employees
Inland Marine Insurance
Inland marine insurance is really like insurance that covers property in transit. It doesn’t have to be in transit over water. For example, while the property is in the home location of the business, it is covered by commercial property insurance. When it is being moved somewhere, such as in shipping to a distributor or retail outlet, cannabis businesses cover items that are lost, stolen, or destroyed with inland marine insurance.
For example, a cannabis business may need inland marine insurance when:
- A dispensary owner or online marijuana delivery platform starts local delivery of products
- A cultivator delivers crops to a manufacturing facility
- A manufacturer ships edibles to a dispensary
If items are destroyed by a covered event while being moved between locations, inland marine covers the insured amount minus your deductible.
Commercial Auto Insurance
Commercial auto insurance covers both first- and third-party damage to vehicles used by a business. Most states require a minimum amount of liability insurance, but most personal auto insurance policies exclude business driving, so cannabis business owners who drive their own cars for work may actually be uninsured.
Cannabis business owners can purchase additional auto coverages, including:
- Collision coverage of all auto accident damage to your business-owned vehicles
- Comprehensive coverage of all damage to your business-owned vehicles caused by anything
- Hired & non-owned auto coverage of any damage to or caused by vehicles your business leases, hires, or borrows
Additional Types of Cannabis Insurance
Most cannabis businesses do need the cannabis insurance policies we already covered. But because of the unique nature of some cannabis operations, additional coverage is important for some marijuana businesses. This is because most cannabis insurance policies have common exclusions.
Business Owner’s Policy
As mentioned, a business owner’s policy (BOP) blends commercial property insurance and general liability and insurance into one policy, usually at a lower rate.
Commercial property insurance typically will not cover crops. This means cannabis cultivators need crop insurance to cover the costs of damaged plants, seedlings, and seeds caused by vandalism, theft, equipment breakdown, fire, and other issues. Some policies only cover cannabis grown inside.
Product Liability Insurance
General liability insurance has products-completed operations, a kind of product liability coverage, to pay for bodily injury or consumers’ property damage caused by defective products. However, for cannabis businesses that manufacture products, a standalone product liability policy might be needed.
Product Recall Insurance
The general liability products-completed operations coverage does not cover the costs of pulling them from the market. Product recall insurance covers the cost of notifying customers, retrieving and disposing of products, and replacing them.
Limited special events coverage is part of most general liability insurance. However, a standalone event insurance policy is wise for cannabis business owners who want to host larger 4/20 events. Even in recreational states, if you want to host an event where people consume cannabis, you may also need an additional cannabis endorsement.
Cannabis Insurance Costs
Cannabis business insurance costs such as those for dispensary insurance vary widely. The difference depends mostly on the segment of the industry. For example, the cannabis insurance costs of outdoor growers often range between $20,000 and $30,000 annually, thanks to the need for crop insurance and coverage over extensive amounts of business property. The cannabis insurance costs of dispensaries are usually much lower, starting with general liability and ranging from $700 to over $5,000 per year for those who deliver.
How to Get Cannabis Insurance
All business owners need insurance that is well-suited to their companies. The cannabis industry is an excellent example of this need, due to the thicket of state and regulations and other guidelines surrounding consumable products that surround it.
Here are some ways to get the right cannabis business insurance:
Plan for Delays
Cannabis remains a schedule one controlled substance, which can delay applications for cannabis insurance considerably. This means cannabis insurance needs to be on your to-do list before you need it. Increase your chances of getting covered with a solid business plan, especially as a startup.
Research Cannabis Insurance Companies and Policies
Most cannabis insurance policies are sold by unlicensed, non-admitted carriers. This means they don’t receive assistance from the government if they fail. Because of this risky dynamic, cannabis business owners should research the financial ratings of any cannabis insurance company they consider.
Know the Insurance Requirements You Need to Meet
Most cannabis business owners must have workers’ compensation if they have employees. If they use vehicles, they must have some amount of commercial auto liability coverage. However, many localities and states have additional requirements that vary by coverage amount and policy. To ensure they are compliant, cannabis owners should know these before buying coverage.
Final Thoughts on Cannabis Insurance for Business
As a massive and rapidly emerging industry, recreational and medical cannabis offer many opportunities—but also challenges for traditional insurers. More admitted carriers are starting to offer cannabis insurance. However, most cannabis business owners still use non-admitted insurers by necessity. Cannabis business owners should comparison shop, and look at policy terms, multiple quotes, and the financial ratings of the business before they buy.