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Insurance for Cannabis Companies
The cannabis industry is proliferating, and so is the market for insurance for cannabis companies across the entire supply chain. From startups to established businesses, all cannabis companies are searching for ways to protect themselves from losses from pests, mold, theft, different types of liability, credit losses, equipment malfunctions, etc.
If you're a cannabis company, you should be aware of and measure your business risks. The most important thing to remember is that, just like any other business, a cannabis company needs to be insured. It’s not just about disasters, but more importantly if a loss event that is more statistically frequent materializes and you don't have the right coverage in place, it could put the company at risk of substantial cash flow losses potentially leading to liquidity issues and even bankruptcy issues. In short, cannabis companies need to protect themselves from potential lawsuits, product recalls, and all sorts of loss scenarios emanating from the unique business risks of the company.
All cannabis operations will want to consider mitigating physical, cyber, and financial risks with the following commercial insurance coverage:
· Property and casualty (P&C) including crop insurance
· Equipment Breakdown
· Product liability and product recall
· Employment practices liability
· Crime (aka. Fidelity Bond)
· Business auto, including hired and non-owned
· Workers' compensation
· Care, custody, & control coverage for distributors transporting third-party goods
· Surety bonds
· Other forms of coverage depending on the nature of operations
This content is independent of any content coming from insurance brokers, insurers, law firms, or insurance lobbyists. Commercial insurance is rarely taught in schools, and when it is, it’s mostly done through the lens of brokers or insurers. There are many misconceptions around Insurance for Cannabis Companies, like many other topics in commercial insurance, due to bad habits acquired through over reliance on insurance brokers or insurers or information providers who are lobbied by them. It is also important to note that insurance has both an operational aspect and a legal aspect, on which we put weights of 95% and 5% respectively in terms of importance to protecting a business and its investors (the point is that going to court to enforce coverage defeats the purpose of buying insurance, so you want to make sure that whatever insurance you buy protects your organization right and pays out fast on large losses).
Business Insurance for CBD companies
There are various types of business insurance for CBD companies as listed above. A basic type of business insurance for CBD companies is property and casualty (P&C) coverage. This type of coverage protects against claims related to fires, explosions, lightning strikes, and other natural disasters that can impact the business' physical assets. It also protects against general liability risk - the legal responsibility you have to pay someone else if they're injured by your actions or property. This is essential since it protects the company as well as its directors and officers against various general lawsuits that may arise because of one’s actions or failure to act in the normal course of operations.
D&O Insurance for Cannabis Companies
D&O insurance for cannabis companies covers liabilities against the company and its directors and officers mainly arising from shareholders alleging mismanagement by the company and its management. Cannabis companies that are publicly traded have a much higher D&O risk and one that is correlated to the movement of their stock price.
Many insurers offer only D&O Side A coverage for cannabis companies, which protects individual directors and officers in the event that they are not indemnified by their company. Other insurers can offer D&O Sides A, B, and C providing full coverage for the entity itself and the directors and officers. It is important to perform a cost/benefit analysis on the type of D&O insurance needed.
Property & Crop Insurance for Cannabis Companies
It would be best if Management also considered purchasing crop insurance for their cannabis company. This type of insurance covers the loss of crops from natural disasters such as floods or drought and human-caused disasters such as fires or vandalism.
CGL Insurance for Cannabis Companies
Commercial General Liability (CGL) insurance for cannabis companies is a type of coverage designed to cover various general liability driven losses arising from a business' operations.The main types of losses covered include:
- Bodily injury or property damage
- Personal injury
- Advertising injury
- Loss arising from the completion of products or operations
- Other general forms of liability driven losses
In addition to P&C coverage, Management should also consider offering workers' compensation coverage. Workers' compensation covers employee injuries and illnesses while working for you or using equipment you own at work—like a forklift truck rented from a third-party contractor.
Cannabis Insurance Brokers
Cannabis insurance brokers range from local to international brokerages and there are various options available to a cannabis business. It is important to have the brokers compete against each other in order to select the right broker and minimize cost. Every cannabis insurance broker will have its own insurer network and it is important to analyze each broker's network and the resulting product offerings. It is recommended that an insurance broker RFP be conducted every 3-5 years.