Types Of Coverage Available2018-09-18T17:42:15+00:00

Types Of Marijuana Business Insurance

Insurance for a marijuana business is not that different than insuring a brewery or a liquor store. The biggest piece is finding an agency who understands the business in order to properly evaluate your exposure, and match with the best carrier who will actually cover you if something happens. Here are some of the most common insurance coverages available to cannabis facilities.

Product Liability Insurance

Before entering into business, it is important that business owners review the risks they may face operating in their market. This can be especially true when entering into the cannabis market, where the industry is ever-changing. If the risks are not properly addressed, lawsuits, financial losses and revoked licenses could follow. We have created an eight-part series designed to explain in depth the insurance coverages available to business owners operating in the cannabis industry.

The first product we will be discussing is product liability insurance. Product liability insurance is important for every business, but especially useful when manufacturing, processing or distributing cannabis products. This coverage ensures that your company is protected if there were to be a bodily injury or property damage claim filed by a 3rd party due to the use of your product. With this in mind, such coverage is useful for growers and processors, but also to retailers who may only be a distribution point for products.

One of the most important items to note, is that legal defense costs are covered within the product liability policy’s limit of insurance. The coverage would eliminate one of the biggest fears of a product liability claim – attorney fees and court costs. Product liability claims can be filed even where there is no fault to be found on the business. Therefore, legal defense fees can still be incurred to defend the business.

Consumable products is the main claim thought of when discussing product liability claims, however defective labeling and warnings can also result in a lawsuit.  While state regulations are requiring testing to become more and more accurate, there have been issues with mislabeled edibles or oils. Typically there has not been physical danger from defective labeling. However, we are aware of a lawsuit filed in Colorado by a family due to wrongful death after the father consumed an edible and went home and murdered his wife. The family sued the manufacturer of the edible for failure to warn of the side effects and dangers of the product. The manufacturer did not have product liability coverage at the time and was forced to pay their defense costs out of pocket.

Small businesses, especially cannabis businesses, operating without product liability coverage, or even inadequate product liability limits, could be faced with devastating consequences if faced with a product liability claim. With insurance products available to cannabis businesses owners to protect against product liability claims, please do not let one mistaken be the failure of your business.

Property Insurance

Property Insurance provides coverage for damages occurring at the property noted in the policy – to either the building or property located inside the building.

What is covered under Property Coverage?

As we mentioned above, listed under property coverage can be the building, other structures on the premises, and business personal property. If the business does not own the building in which they are operating, the tenant can purchase tenants improvements and betterments coverage to provide protection for permanent improvements the tenant is installing into the space.

Generally coverage includes: fire, wind, hail, fire, ice and snow, lightning, and more. Theft or malicious damage is typically included, but it is important to note when operating a cannabis businesses, some carriers will exclude theft or place strict security guidelines that must be enforced in order to obtain coverage.

Are there standard exclusions in Property policies?

It is also important to note that not everything is necessarily covered by Property Insurance policies. Often issues such as floods, groundwater backflow, earthquake, drainage backups, and other less expected events such as a nuclear war or invasion, typically require separate coverage or endorsements to be covered. Flood insurance and others can be purchased often as separate policies, and while many specific details of coverage types needed for specific situations can seem overwhelming at times, your insurance provider should be able to address all of your questions.

Many investors and operators are investing millions of dollars into real estate in the cannabis industry, and properly protecting the investments is a crucial piece in assessing the risk involved with operating a cannabis business.

Crop Insurance

While there are many ways in which federal illegality makes things difficult for cannabis businesses, such as banking, it is interesting to note that insurance products are available to cannabis operators. It is taking time for the insurance industry to come to terms with how to address the growing cannabis market in the U.S., and while market options are still low, there are carriers out there providing important insurance coverage to cannabis operators, one such crucial coverage for cultivators is that of Crop Insurance.

What is Crop Insurance and What does it Cover?

Crop is defined as living and harvested plant material while located within the building listed on the insurance policy. The overall function of insurance is to mitigate risk by transferring the risk of loss to the insurer, not the policy holder. If you look at the Michigan cannabis market as an example, a Class C license will allow up to 1500 plants. If we total this at $1,000 per plant the total crop would equal as much as $1.5 Million, which could expose the cultivator to not only monetary loss, but also loss of customers.

While coverage differs from policy to policy, typical cannabis crop insurance policies provide coverage against fire, explosion, vandalism, and theft (subject to any warranties within the policy).

Crop Insurance is an invaluable tool for any cultivation operation to protect their harvest, and is actually much more affordable than may be expected in most cases. Plants at any point of the cultivation process can be covered under such a policy generally, which means that whether a seedling, in vegetative or grow phases, as well as drying/curing product.  With as much capital as can be tied up in a single harvest for cultivators, Crop Insurance protects businesses from unexpected loss and can make the difference in one’s path to success.

Finished Stock and Inventory

For cannabis operators, it is important to consider adding finished stock coverage to your insurance policy, especially for facilities who keep large amounts of finished product on premises. Business Personal Property limits, which is a common coverage on property insurance policies, will have separate limits from finished stock, due to the complexity of insuring finished stock.

What is Finished Stock & What is Covered?

For all intents and purposes, finished stock is defined as, “mature marijuana plant, no longer in the growing medium, which has been completely processed and is ready for sale”. This can mean all of the bud for sale, edibles, oils, concentrates, etc. If the inventory has cannabis in it, you will want to have finished stock coverage on it.

The policy will most likely cover you from all of the normal causes of loss (fire, lightening, explosion, wind/hail, smoke, aircraft, sinkhole collapse, volcanic action) but perhaps the most pertinent protection it provides will be for:

  • Water damage due to things like: an automatic sprinkler system going off, losses due to condensation/humidity that affects the products, freezing.
  • Vandalism (i.e. a customer comes into your store and has an argument with one of the bud tenders so they tear down and destroy all of the stock in the process)
  • Theft (during business and non-business hours as long as all policy guidelines are met)

All policy forms are different in terms of coverage and guidelines, therefore, it is important to read your proposal/policy to ensure the above coverages are included. 

Who Needs it?

Finished stock coverage is an obvious need for businesses like provisioning centers and processors as the two facilities tend to have large amounts of finished product at their premises at any given time. However, do entities such as cultivators, secure transporters or labs need the coverage as well? For cultivators, if finished stock, prepped and ready to be sold, is on premises at any point, then the answer is yes – they should include finished stock limits on their policy.

Laboratories will need to review their specific exposure to see if they will ever have large amounts of finished stock on premises. Based on the sampling rules set forth by LARA, initial thoughts would be that laboratories will not be keeping large amounts of finished stock in their facility, however, it is important to review individual exposure to determine if coverage is needed or not.

Secure transporters definitely have a huge exposure as they will be transporting large amounts of finished stock between locations. However, transporters are unable to insure finished stock as the stock will be located off premises and they do not own it. Therefore, secure transporters will need to purchase a separate limit on their general liability policy called cargo in transit coverage in order to protect any finished product they may be transporting.

In order to determine what coverage amount to place on finished stock, answer this question: at any given time, what is the maximum amount of finished stock on premises? Premium charged for this coverage is competitive, so partnering with your insurance agent to determine the best coverage amount is imperative.

Business Auto

Owning a vehicle may not be necessary for all businesses but for others it is required. Secure transporters may have a fleet of vehicles hauling cannabis cargo. Testing facilities will have employees on the road collecting and trapsporting samples. Cultivators, processors, and provisioning centers may not own a vehicle but may have employees running errands using their own cars. You need a business auto policy to cover this.

If you purchase or lease a vehicle for your cannabis business, you will need a business auto policy. Your basic business owner’s policy does not provide coverage for autos. You will have to purchase a separate auto policy meeting your state’s requirements. Many states require you to have coverage for bodily injuries and property damage that occurs as a result of an accident. You may decide to purchase additional coverage for any physical damage to your vehicle caused by things other than accidents such as theft, vandalism or hail.

If you occasionally rent vehicles or your employees use their personal auto for business errands, you might consider hired and non-owned auto coverage. These types of insurance provide coverage for bodily injuries and property damage sustained in a collision caused by a vehicle you rent or borrow (hired) or owned by an employee (non-owned).

You are able to customize coverage for each vehicle. A transport truck will need different types and limits of coverage than a car used for sales. Trucks carrying large amounts of cash and cargo have a much greater need for higher limit cargo coverage. A sales vehicle would not be transporting cargo so there is no need to pay for that additional coverage. Tailoring coverage for individual autos gets you the most coverage for your dollar.

Hired and Non-Owned Auto

Owning a vehicle may not be necessary for all businesses but for others it is required. Secure transporters may have a fleet of vehicles hauling cannabis cargo. Testing facilities will have employees on the road collecting and trapsporting samples. Cultivators, processors, and provisioning centers may not own a vehicle but may have employees running errands using their own cars. You need a business auto policy to cover this.

If you purchase or lease a vehicle for your cannabis business, you will need a business auto policy. Your basic business owner’s policy does not provide coverage for autos. You will have to purchase a separate auto policy meeting your state’s requirements. Many states require you to have coverage for bodily injuries and property damage that occurs as a result of an accident. You may decide to purchase additional coverage for any physical damage to your vehicle caused by things other than accidents such as theft, vandalism or hail.

If you occasionally rent vehicles or your employees use their personal auto for business errands, you might consider hired and non-owned auto coverage. These types of insurance provide coverage for bodily injuries and property damage sustained in a collision caused by a vehicle you rent or borrow (hired) or owned by an employee (non-owned).

You are able to customize coverage for each vehicle. A transport truck will need different types and limits of coverage than a car used for sales. Trucks carrying large amounts of cash and cargo have a much greater need for higher limit cargo coverage. A sales vehicle would not be transporting cargo so there is no need to pay for that additional coverage. Tailoring coverage for individual autos gets you the most coverage for your dollar.

Employment Practices Liability

What is Employment Practices Liability Insurance (EPL or EPLI)?

This coverage provides employers with protection against claims from current or terminated employees alleging wrongful termination, discrimination, harassment, and others. Discrimination can be based on age, race, sex, or physical disabilities. EPL coverage protects the employer from the actions of directors, managers, and employees. For example, if you, as the employer, hire a manager who holds back raises or terminates employees based on a racial reasons, then you could be at risk if a lawsuit is filed. Since you are the owner and you made that hire, it may be seen as a sign that you allow those behaviors.

What are ways to prevent EPLI claims from occurring?

With the increase in sexual harassment claims and discrimination occurrences, it is more important now to first encourage prevention of such actions in your workplace, through education and guidelines for employees to follow. After preventive processes are in place, it is recommended to consider this coverage for your business as an additional layer of protection against employment practices claims. Some preventative actions that businesses can enforce include:

Clear and concise job details and descriptions, stating the nature of the skills and performances expected

Implementing an employee handbook with an at-will employment clause, as well as a clear description of company procedures, equal employment opportunity policy, disciplinary guidelines, and a process on how employees are to report discrimination or harassment occurrences internally

Written guidelines on acceptable workplace behavior, outlining the activities one should not do during employment

Regular employee reviews with thorough files kept regarding write ups and misconduct

It is important to note that even the best practices implemented will not prevent EPL claims from occurring. It is recommended that business owners consult with their insurance agent to properly protect their business from employment practices claims that could arise in the future.

Worker’s Compensation

The best employers know the success of their company is based on the ability of their employees to perform their tasks effectively and efficiently. Developing processes that lay the groundwork for how a company operates is a complex undertaking. An often overlooked area is workplace safety. In fact, it was such an overlooked problem at the turn of the 20th century that states started passing laws mandating employers carry workers’ compensation insurance. Wisconsin was the first state to pass such a law in 1911. Since then, all 50 states and the District of Columbia have adopted some variation of workers’ compensation law.

What is workers’ compensation?

In short, it is a state-mandated insurance program that provides benefits to employees who suffer job-related injuries or illnesses. These benefits include payment of medical expenses, lost wages, and rehabilitation costs. Families of employees killed on the job also receive death benefits. Disability payments for lost wages are generally two-thirds of the employee’s gross income and are untaxed. The employee may receive an amount close their take-home pay prior to the injury or illness.

Employees are typically eligible to receive benefits regardless of who may be at fault – the employee, the employer, a co-worker, a customer, or some other third party. However, there are some exceptions to this:

  • Self-inflicted injuries
  • Off the job injuries
  • Injuries suffered while an employee was committing a crime
  • Injuries suffered when an employee’s conduct violated a company policy

Who benefits from work comp?

Work comp insurance relies on a social contract between an employer and employee. Employers and employees benefit yet have limitations. In exchange for purchasing the insurance, businesses are protected from civil suits from an injured worker. An employee that feels he/she suffered an injury resulting from the gross recklessness of an employer may file a suit. However, by doing so they waive all rights to receive workers comp benefits. The employee may be awarded a full range of damages, including punitive damages, pain and suffering, and mental anguish.

A business’ operating plan should include work comp insurance. Employees should follow the company’s written workplace safety policies and procedures. It is important to check with your state and the Department of Labor to see if there are any other requirements your company may be subject to. Employers that provide the necessary protections for their employees and develop a culture of workplace safety create an environment where employees can be effective and efficient.