There aren’t a lot of resources available for cannabis business owners to protect themselves. Traditional insurance companies and banks have been hesitant to get involved due to fear of being penalized by the federal government and that the industry is a newborn to the global marketplace.
Even with legal issues aside, there are still no standardized and widely accepted risk management tools for the industry. This prevents insurers from being able to properly gauge the amount of coverage they should provide. And if any industry needs insurance and risk management, it’s cannabis.
In this article, we’ll look at what risks to be aware of in the cannabis industry, what’s being done to mitigate risks at a policy level, and how insurance companies are finally playing a part in protecting cannabis business owners.
Risks in the Cannabis Industry
The production and sale of cannabis is a complex process that has plenty of risk from the moment a seed is planted to the point of sale. Awareness of the inherent risks throughout all facets of your business will help you put proper protections in place and be prepared for potential disasters.
Sadly, employee theft is common for a lot of cannabis business owners.
First and foremost is that the cannabis industry is largely cash-based. Because of its federally illegal status, most banks refuse to work with cannabis companies in any capacity, forcing businesses to only operate in cash and lots of it. It’s far easier and even more tempting, for employees to steal cash since it’s more probable to go undetected when compared to businesses that can operate with cashless payments.
The nature of the inventory also invites itself to all kinds of theft. Due to how expensive and in-demand cannabis products are, they are at an increased risk of being stolen.
Lastly, the high turnover rate of the industry presents a problem. A report by the cannabis data company Headset found that 55% of cannabis retail workers left within 12 months. It’s difficult to establish trust or perform proper background checks when the turnover rate is so high.
From seed to customer consumption, cannabis production requires an extensive supply chain that’s exposed to many different factors. One of these factors is an increased risk of product tampering, which exposes your company to serious liability.
Contamination or unauthorized additions could happen at any point during the production process. A tampered product could lead to serious legal and financial repercussions if it harmed a customer or made them ill. Having the right insurance to protect yourself and your business from a financial catastrophe is more important than ever.
Another potential issue with product tampering is what happens after you sell the product. After-sale product tampering for black market sales is still prevalent, and even though it’s out of your hands, your company could still be held liable.
Adhering to Regulations
The cannabis industry is developing fast, and it’s easy to get overwhelmed by all the changing laws that come with it.
Compliance regulations change frequently and vary from state to state. The regulations are across all areas of the industry; cultivation, processing and manufacturing, distribution and sales, testing, and even advertising. If a business is found to be out of compliance with state laws in any of these categories, it could face hefty fines, and potentially be put out of business.
Unfortunately, many small cannabis businesses are not prepared with a compliance plan and don’t monitor the constantly changing regulations. It’s vital to do so in order to avoid damaging fines.
What’s Being Done to Mitigate Risk?
A variety of bills are currently being proposed to reduce the risk for cannabis companies. Insurance companies, including Apex, are also offering to insure cannabis companies from the risk they encounter in their day-to-day operations.
Clarifying Law Around Insurance Marijuana (CLAIM) Act
The CLAIM Act is a proposed bill that would allow insurance companies to do business with cannabis businesses without fear of federal prosecution. The intent of this act is to reduce the amount of risk cannabis business owners face.
The act would also protect employees working for insurance companies that are engaging in business with a cannabis company. It’s been passed in the house but continues to be voted down in the Senate.
Secure and Fair Enforcement Banking (SAFE) Act
The SAFE Act is a proposed bill that would give cannabis companies access to banking services and prohibit penalization for insurance companies working in the industry. Without the possibility of federal prosecution, banks could finally provide cannabis owners with financial safety nets to mitigate risk.
Unfortunately, like the CLAIM Act, this bill has passed the house but recently failed to pass the senate for the third time in late 2022. If either of the bills listed passed, cannabis companies would gain access to a wide range of services to protect themselves. This could also lead to more trust from the investor community, allowing them more financial leeway.
Insurance Companies Entering the Market
The good news is that some insurance companies are finally insuring certain cannabis companies in legal states. Insurance is a vital risk management tool that helps protect against a variety of potential losses and liabilities. Common insurance coverage for a cannabis company could include product liability, general liability, property insurance, equipment breakdown, loss of income, and much more.
Interested in Insurance for Your Cannabis Company?
If you’d like to learn more about cannabis company insurance, or what we offer at Apex, contact us today. We love getting to know our clients and how their business works to get them the best pricing and coverage.