Cannabis insurance is an evolving topic. State and local laws continue to change, more insurance companies are looking for opportunities to expand their current product offerings and cannabis businesses are looking to insure against risks like any other business would. It is also becoming more common for state and local governments to require insurance as part of a complete licensing application.
State licensing agencies in California, for example, require applicants to show proof of a surety bond in the amount of $5,000. In addition, the state Bureau of Cannabis Control requires that transporters must obtain automobile insurance, although the regulations do not specify the amount. There is also a special requirement the distributors obtain commercial general liability insurance in the aggregate amount of $2 million and in an amount of no less than $1 million per loss. The licensing agencies adopted the insurance regulations based on statutory requirements.
As the law continues to evolve for the cannabis industry, it is important for businesses to understand their insurance needs. One of the most common misconceptions is that one policy fits every type of business risk. It does not. There are different types of coverage that apply to different sets of circumstances. For example, workers’ compensation is applicable to employees injured on the job, but it would not apply in a situation where a consumer complained about being sickened by a product. In this instance, product liability or products completed operations coverage might be more suitable, but businesses should check with their insurance agent or attorney to make sure it covers the needs of their operations.
Another common misconception is that businesses only need the insurance required by local and state authorities. While it is necessary to have those coverages, they are certainly not inclusive of other losses that could occur, such as theft or business interruption.
One final — and common — misconception is that smaller businesses have less risk than larger businesses. Having a smaller business does not diminish the cost of potential liability. One lawsuit or recall on a product could bankrupt your business. If you do not have insurance, you would be self-insuring (or paying out of pocket) for expenses related to business losses. Those expenses can add up quickly, and there are more lawsuits and recalls of products now that states have mandated laboratory testing of cannabis products.
What you need to know
There are several other common policy types that may be applicable and available to cannabis businesses, including crop coverage, crime and employee dishonesty coverage, employment practices liability and stock throughput policies. Crop coverage may be available to indoor and greenhouse growers, but not for outdoor growers at this time. Employment practices liability covers claims made against employees. A stock throughput policy generally covers inventory.
When looking to purchase an insurance policy, it is important for business owners to understand the language in their policies because they should know what is covered and what is excluded. If you do not have time to read your policy or need further clarification about what is eligible for coverage, ask your attorney or insurance agent/broker to go over the terms with you.
Here are some additional tips and information to help cannabis business owners and managers:
– Avoid paying for a policy that does not provide you with coverage in the event of a loss. Pay close attention to the exclusions in your insurance policy or policies.
– Be aware of public policy, federal illegality and other types of exclusions that preclude coverage.
– Understand the insurance requirements in your local jurisdiction.
– To make sure your agent/broker has a license to sell insurance, you can find it on your state Department of Insurance website or by calling the department that regulates insurance.
– Stay up to date on developing insurance matters by joining regulatory stakeholder lists. The California Department of Insurance stakeholder list contact is Info.Cannabis@insurance.ca.gov.
– Research your agent/broker to find one you are comfortable with. In California, a list of agents/brokers can be found on the state Department of Insurance website under the Cannabis Insurance tab.
– Prepare in advance a list of questions you want to ask your agent/broker about the policy or policies you might want to purchase.
– Explain the details about your business to your agent/broker. It will help them understand your business and recommend insurance that fits your business needs.
– The California Department of Insurance is continuing to track the availability of insurance and encourage the insurance industry to expand the types of insurance products available to the cannabis industry, such as outdoor crop insurance.
– If you filed a claim with your insurance company that you think was improperly denied or need additional assistance, please email Info.Cannabis@insurance.ca.gov.
Camille Dixon is a director at the California Department of Insurance. She oversees the Cannabis Insurance Policy Initiatives and the Low-Cost Auto Insurance program and sits on various cannabis policy boards and committees for the department.