What Your Cannabis Business Should Look For When Getting Insurance
It is not often that a new industry presents itself and entrepreneurs are flocking to capitalize on the “Green Rush.” As we all know, California has legalized cannabis for adult-use this past year. With the legalization there has been a realization of what is at risk for many of the businesses.
While cannabis and insurance may not generally be mentioned in the same sentence, it is essential that business owners in this space understand the importance of proper insurance coverage.
My name is Dave Ponek. I am a licensed insurance broker with a specialty in the cannabis space.
Insurance & Cannabis?
Yes! A cannabis business is exposed to many of the same risks as any other business in California. What happens if a fire damages a green house, a dispensary is robbed, or an end consumer becomes ill from an edible?
Perhaps a cultivators trimmer cuts their hand, or an employee claims they didn’t receive over-time pay or any lunch breaks. This is why cannabis businesses need insurance coverage. There are important decisions a business owner must make when choosing the correct insurance policies. Below are only a few items to take into consideration when getting insurance:
- It all starts with the broker. Choose a broker that is committed to, and understands the cannabis industry. While there are policies available for just about every risk, it takes a committed broker to understand each cannabis business, the coverage’s, and the exclusions. Your broker should be aware of new carriers entering the cannabis space.
- Be thorough. Every business will be asked to fill out a lengthy application. The more information available to the broker and insurance carrier, the smoother the process will be and the more tailored insurance package you will receive.
- 1099 vs W2 Employee. Just because you 1099 an employee does not mean they are an independent contractor and exempt from workers compensation insurance or employment practices liability. California Labor Law is very clear that the 1099 status is not the determining factor when deciding if an individual is an independent contractor or an employee.
Basic Types of Protection For Your Cannabis Business
General Liability: If you own a dispensary and a customer slips on the floor, you will be responsible for the medical expense that customer incurs. Another example of General Liability is a bud-tender dropping a glass container causing cuts to a customer.
Product Liability: Product liability protects the business in the event they are sued if their product (flower, edible, vape pen, etc.) causes harm to the end user. Some common causes of lawsuits stem from lithium-ion vaporizers, pesticides, contamination of mold & fungus, label claims & failure to warn, and breach of warranty. Some product liability policies provide coverage for product recall and withdrawal.
Property: Coverage for fire and theft of business property such as equipment and tools, as well as Business Income. For instance, if a fire burns down a manufacturers warehouse to the ground. Property coverage would provide replacement cost for the building if it is owned, the equipment, and income to replace your revenue while the operations get up and running.
Crop: Crop coverage is specifically designed to cover the cannabis crop and finished product. At this time there are no policies available for outdoor cultivation operations, and only approved indoor facilities can obtain coverage for their crop. Crop coverage provides protection from damages or theft of seeds, clones, vegetative plants, flowering plants, harvested plants and finished stock.
Auto: Whether a business uses owned vehicles or allows employees to use their vehicle for business purposes, auto coverage is a must. Currently there are a limited number of carriers that will write a policy for business owned vehicles.
Worker’s Compensation: All businesses in California are require to purchase a Workers Compensation policy. These policies provide coverage when an employee is injured on the job.
Employment Practices Liability: Sexual Harassment, Wrongful Termination, Discrimination, Wage & Hour, and more. EPLI is a separate, but very important coverage to look into.
**These are only some of the coverage’s available. Each cannabis business is unique and needs to be treated as such.**
This industry is rapidly evolving and the insurance carriers will eventually catch up. We see new carriers entering the market place regularly. The more carriers willing to insure cannabis business, the more competitive the products and pricing will be.