Whether you are a grower, producer/distributor or a local dispensary, it is crucial to understand the potential perils of operating a business in this industry. All segments of the marijuana industry are exposed to risks that can be protected by insurance. This column will focus on potential industry risks and help you understand the type of policies your operation should consider.
1. Worker's Compensation Insurance
Daily, employees can be exposed to risks due to your business operations. Even one accident can be a precarious and costly expense for any business. Whether your business consists of three employees or 300, a worker’s compensation policy is a great foundation for the caring and safety of your staff. All 29 states with marijuana laws and Washington D.C. require a worker’s compensation policy to conduct business. If a worker is injured due to a chemical exposure, or a budtender slipped in your dispensary, worker's compensation insurance will pay for the medical care and lost wages of your employees.
2. Director's & Officer's (D&O) Policies
Many businesses develop leadership positions as they expand. These appointed directors and officers can be insured by your business against negative actions. D&O insurance will cover lawsuits brought by shareholders or third parties, as well as legal defense fees, so that your business can continue to operate. In the marijuana industry, many outside investors are attracted to companies with D&O policies in place because they want the protection D&O insurance provides should a claim be filed against the business.
3. General Liability/Product Completion
This type of insurance protects the products and services that a business sells. Faulty packaging, spoilage and defective products are risks that any business can incur. Like D&O insurance, this is a policy focused on covering legal expenses brought on by third-party lawsuits. In this emerging industry, there is a high level of exposure to multiple risks. Issues like mold, mildew and bacterial exposure can arise in products due to negligence and a poorly controlled grow. Also, products like faulty vaporizer batteries and cartridges can also increase your risk of general liability.
4. Cargo Thoughput
Cannabis, like any other consumable product, should be insured from seed to sale, meaning that all-cargo transportation from when the seeds are in the ground to when it reaches your customers can be insured against risks of loss. Cargo Insurance is usually written on a reporting basis or businesses can buy an open cargo policy, which can insure the entire shipment from distribution to destination.
5. Employee Protection Liability Insurance (EPLI)
EPLI protects businesses from wrongful termination claims from employees. In addition, EPLI insures against claims made based on discrimination against sex, age, race, disability or sexual misconduct. EPLI pays for compensatory and legal defense fees against these types of claims. The marijuana industry, like all businesses, is blossoming with changes on how companies can treat their employees and 21st century ideals to promote safe and diverse working environments.
6. Cyber-Defense Policies
Technology has integrated into many marijuana businesses nowadays. Most states require growers to keep accurate records of their inventories. Testing labs are required accumulate large amounts of product data. Cyber-Defense policies help mitigate the cost of being hacked or data breaches. With regards to sensitive patient/customer data that is normally collected at a dispensary or clinic, your business is legally liable to protect that data. Data Breach insurance protects business owners from legal liability, cost of rebuilding or replacement of equipment resulting from a data breach.
7. Property & Casualty (P&C)
P&C insurance is one of the most common forms of insurance policies. All businesses should have a property and casualty policy in place. P&C insurance not only protects your place of business, but also your contents, including office furniture, computers, your business inventory and other items essential to your business operations. From an industry perspective, P&C insurance provides insurance to cover property, equipment and risks from acts of others. P&C insurance protects against common perils such as fire, lightning, explosion, implosion, aircraft damage, riots, strikes and terrorism.
Aside from the seven types of insurance listed above, there are some additional, crucial factors that need consideration. First, your business needs to determine its level of risk and reward, because insurance is a product that mitigates risk. With regards to the risks of the marijuana industry, insurance can be purchased through state-regulated insurance carriers.
Businesses also need a comprehensive understanding of their daily operations and the risks involved. Essential information like sales revenues, number of employees, listing of business properties, annual payroll expenses and a business operations plan will help a professional insurance broker navigate the marketplace and make sure that your coverage is tailored to your business’ needs.
David Rahn is an insurance specialist with S2S Insurance Specialists, where he advises potential clients on cannabis insurance policy options, maintains client relationships and provides marketing materials for business development.
Top image: © Emiliezhang | Adobe Stock
