Cannabis businesses have now entered the economy of numerous states across the country. Based on the recent regulatory changes which have allowed these businesses to operate, business owners should evaluate several insurance considerations which are unique for cannabis-related companies. Accordingly, business owners should become familiar with business insurance coverages that can protect them and their businesses in the event of a claim.
1. Insurance Coverage for New Business Owners
First-time business owners should understand the business insurance requirements for their businesses. The key types of insurance policies which cannabis business owners should obtain include general liability, commercial property, product liability, crime, workers’ compensation, and cyber insurance, among other policies.
Commercial general liability insurance covers a business owner and their business for third-party claims, such as slip-and-fall injuries. Additionally, commercial property insurance coverage covers a business owner for first-party property claims, including claims related to their building or their insured products if the products are damaged. Crime insurance coverage can protect cannabis-related business owners from claims related to the robbery and theft of their cash and products. Business owners could also be required to obtain a workers’ compensation policy by their state’s regulatory agencies if they have more than a few employees. Moreover, if a business plans to sell its cannabis products online, or if it stores its customer data on the cloud, it should obtain cyber insurance in the event that a cyberattack or a data breach occurs in the business. Finally, a cannabis business should also obtain an umbrella insurance policy if it is able to find umbrella coverage for the cannabis business market in order to increase its available limits of liability.
2. Insurance Applications and Reliance on Counsel
Many applications for insurance coverage are long and involve highly detailed questions about a business, which make them challenging for business owners to complete. If a business owner does not completely or accurately fill out their application, an insurer could void the insurance contract due to a potential misrepresentation on the business owner’s insurance application. Business owners should ensure that each of their applications for insurance coverage is filled out with updated business information. An attorney who is familiar with the needs of cannabis-related businesses can help to advise business owners about the unique insurance and regulatory challenges which most cannabis-related businesses face.
3. Policy Forms, Coverages, and Exclusions for Cannabis-Related Businesses
Many general liability, commercial property, and other types of insurance policies have cannabis-related endorsements which exclude coverage for claims and activities which arise out of or are related to cannabis exposure and cannabis business operations. It is important for business owners to check their policies for exclusions related to business operations. If a business owner owns multiple types of businesses in the cannabis supply chain, such as manufacturing and a retail facility, they need separate insurance policies for each business to make sure that the policy coverages are tailored towards the operations of their specific business. It is key for business owners to obtain policies which specifically cover cannabis, CBD, hemp, or other product and distribution exposures which are unique to cannabis-related businesses. Given the regulatory issues that also exist between state and federal enforcement of cannabis laws, business owners should have coverage counsel confirm ways in which coverage will apply to insurance claims in different jurisdictions, based on state and federal cannabis regulations and local and federal laws governing the sale of cannabis products.
4. Risk Management Strategies
Given the highly regulated nature of the cannabis industry, cannabis-related business owners should consider additional risk management strategies to ward off claims. A solid risk management plan can help business owners demonstrate to insurers that their business has processes in place to mitigate risk which can also lead to better insurance pricing and increased coverage. Often insurance companies will require that a business owner have certain security measures and cybersecurity controls in place to secure insurance coverage for their business. A common condition insurance carriers impose on policyholders is protective safeguards against burglary and robbery. Business owners ought to regularly consult an experienced attorney who can advise them about updates to relevant federal and state regulations governing the ever-evolving cannabis industry.
Cannabis is currently legal for medicinal use in 37 states and Washington D.C. Recreational cannabis sales and use are also legal in one-third of the United States including Alaska, Arizona, California, Colorado, Connecticut, Illinois, Maine, Massachusetts, Michigan, Montana, Nevada, New Jersey, New Mexico, New York, Oregon, Vermont, Virginia, and Washington. The growth of opportunities for entrepreneurs to open cannabis-related businesses has also led to the increased need for awareness of the insurance coverages available in this specialized industry. In some states, licensees may only conduct business activities for which they are licensed at a specified site. Business owners should become familiar with state laws which regulate cannabis-related businesses in their states, including insurance requirements to allow safe and legal operation of their businesses.
Business owners of cannabis-related organizations should become knowledgeable about and keep abreast of insurance trends in their industry. An experienced coverage attorney can help to advise business owners about risk management and insurance coverage options. For more information, contact Eve-Lynn Gisonni at EGisonni@sdvlaw.com.