Although cannabis companies have been struggling during the COVID-19 pandemic, the growth, and expectations to grow remain. Despite the pandemic’s impact on the global economy, cannabis market leaders like Green Thumb Industries, Curaleaf, and Trulieve are expected to surpass $100 million in the second quarter of 2020.
Market data shows that spending on legal cannabis is expected to reach $57 billion worldwide by 2027, with North America making up $47.3 billion. Once banking legislation passes, enabling cannabis operators to do business with banks like federally legal companies do, the market will explode.
The industry is holding up and performing better than expected. So, what does this mean for the cannabis industry and insurance?
The good news for the cannabis industry in terms of commercial general liability coverage is the worse insurance claim fears have not come to fruition. Early concerns centered around product liability, bodily injury, failure to warn, and manufacturing defects. With few of these being an issue, the focus has changed to mislabeling claims, false advertising claims, and consumer class actions alleging deceptive business practices largely around what’s on the label.
The cannabis industry’s relationship to insurance carriers
Still, the cannabis industry remains mostly underserved by the insurance industry. Aside from the internal risks that cannabis companies face that are similar to traditional companies, they face unique external risks that other industries are mostly immune to.
The most significant risk comes from the prejudice generated from the fact that marijuana remains illegal at the federal level. Many owners purchase insurance without understanding what claims might look like and if their policy would cover them. In some cases, they are buying insurance to realize later that their policy contains exclusions for their specific type of business.
Insurance risks for the cannabis industry
The first step in getting the right coverage is knowing your risks what you need your policy to provide coverage for. The different types of risks cannabis businesses should insure for include:
- Premise Liability
- Property Damage
- Product Tampering / Defective Product Claims
- Compliance Issues
- Financial Risks
Most common myths about cannabis insurance
Despite the reluctance of some carriers to cover the cannabis industry, some providers do provide good coverage. Let’s take a brief look at some of the most prevalent myths surrounding cannabis business insurance.
Myth #1: No one will insure a cannabis company
Cannabis businesses can get the same standard of coverage as any other company. Proper coverage will include property, casualty, product liability, EPLI and D&O policies, and worker’s compensation. Coverage for the property, equipment, and crops (indoors and outdoors) are definite must-haves.
Myth #2: Product liability insurance isn’t necessary
Some cannabis business owners believe they do not need product liability insurance because they are not selling a finished product. The reality is, it doesn’t matter where you are in the supply chain; product liability is the most significant risk the cannabis industry faces. The risk is transferred to anyone associated, whether it be a producer, retailer, or extractor. All venders you work with should provide certificates of insurance, and adequate coverage amounts for any product leaving your place of business and going into consumer’s hands.
Myth #3: The landlord will cover a loss
Landlords’ policies will most likely not cover business losses and may even cause your landlord’s insurance to be nullified for having rented to a federally illegal operation. If you invest millions of dollars in building a warehouse for your grow operation, do not assume that your landlord’s insurance will cover these upgrades. Responsible cannabis business owners should send the insurance section of their lease agreement to their insurance brokers, and even attorneys to ensure they are correctly insuring their assets.
Cannabis businesses need unique coverages
With conflicting state and federal laws, and regulations constantly changing, cannabis businesses can’t afford to have a gap in coverage.
McGowan Excess & Casualty (MEC) provides retail and wholesale brokerage partners with cannabis product solutions for commercial risks. Our Cannabis Program includes coverage for a variety of eligible classes including medical dispensaries, recreational retail, wholesale distributors, and more. Coverages available include commercial general liability and commercial property coverage.
Contact us today to speak with one of our brokers and to learn how we can help.