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Only a few insurance companies offer comprehensive coverage specific to cannabis operators and ancillary businesses. And even then there are limitations, including lack of customer awareness and small margins, which make it difficult for operators to get proper insurance. The current insurance predicament leaves cannabis business owners walking a fine line between regulations and protecting products, employees, and the rest of the supply chain.
The insurance challenges
There is a myriad of challenges both insurers and those looking to be insured face. It’s difficult for cannabis executives to even know that these cannabis underwriters exist. Cannabis insurance ads have been blocked by most social media platforms and search engines. Many cannabis insurers have to rely on guerilla marketing tactics, testimonials, media relations, and press releases.
When they buy insurance, cannabis companies need to make sure that they have the right coverage to secure their financial health. Some things, like worker’s compensation insurance, are mandated by state law, but others may be determined by the specific type of products/offerings the company offers, such as product liability if they are selling a product or crop protection if they are a cultivator. Protections from claims of misleading marketing and warranty issues are two other examples cannabis businesses should consider.
There are some coverages that are extremely high risk and complicated for cannabis companies to secure, such as Directors and Officers coverage, which is particularly important for a company’s financial health because a lack of proper coverage puts individual board members as being potentially personally liable for the actions of the company.
Possible federal legalization will add its hurdles as well, especially if interstate commerce is approved. But there is also hope that federal legalization should open business prospects and broader insurance capacity. Operators would be wise to understand their insurance needs before an incident should arise.
Help may be on the way
Over the past few years, many legislators have been diligently working on rules and regulations that would make compliance, liability, and business legitimacy more on par with what companies in other industries have access to.
A few legislative bills that have been introduced that would make insurance and compliance measures easier to attain sufficient coverage and stay protected include the Clarifying Law Around Insurance of Marijuana (CLAIM) Act and the Secure and Fair Enforcement (SAFE) Banking Act.
The CLAIM Act, if it became a law, would “provide a safe harbor from penalties or other adverse agency action for insurance companies that provide services to cannabis-related businesses in jurisdictions where such activity is legal.” This is especially important as it may enable additional capacity from both issuing carriers and reinsurance providers for the cannabis industry.
Though the SAFE Banking Act was recently removed from the National Defense Authorization Act (NDAA), there is still a chance that it could be reintroduced in 2022 as a standalone bill or a part of another larger measure. If this happens, the bill would “prohibit a federal banking regulator from penalizing a depository institution for providing banking services to a legitimate cannabis-related business.” It has the power to create a tremendously positive shift in the cannabis industry by allowing legal operators to finally have access to much-needed banking and loans – just like any other traditional industry.
Preparing for the future
Until federal legalization arrives, operators should position themselves by learning about insurance and other regulatory compliance measures. For starters, cannabis business executives can educate themselves on the most common types of coverage already available in the hemp and cannabis industries, including:
- Cargo Insurance
- Commercial General Liability
- Commercial Property Insurance
- Crop Insurance
- Cyber Insurance
- Director’s & Officer’s (D&O) Policies
- Employee Protection Liability Insurance (EPLI)
- Product Liability Insurance
- Worker’s Compensation Insurance