To everyone reading this, whether you are already a part of it, getting ready to join it, or are just fascinated by it: welcome to the most exciting and fastest growing industry in the world today! It is a truly amazing time in the history of not only the United States, but the entire world as every day you hear news about states or countries beginning to talk about or implementing Cannabis laws and regulations. For example, Pennsylvania just released the first 12 licenses for growers and will announce the rest of the winners at the end of the month for growers and dispensaries along with Nevada implementing recreational laws on July 1st. Just like I’m sure many of you believe, it is only a matter of time until all states have some sort of Cannabis law in place – whether that is medicinal, recreational, or both – making it the perfect time to join this industry.
If you are already a part of the industry then you can attest to the fast-paced nature of it. Businesses are battling to become the go-to for their specialty so that as this industry keeps growing they will be who new ventures reach out to for their knowledge, expertise, and service. In the race to be the best, many Cannabis companies are overlooking one of the most important aspects – the need to properly insure themselves and their business. I’m sure you read that sentence and went back to make sure that you read that correctly – yes you were correct. Without these businesses securing the proper insurance, they are leaving themselves and their business vulnerable to a potential uncovered claim. If too many of these begin happening, it is going to be a huge detriment to the industry. How can this be? Well, here are the top 5 things to know regarding insuring the Cannabis Industry:
NOT INSURING YOUR CANNABIS BUSINESS NOW COULD END UP HURTING THE INDUSTRY AS A WHOLE – For those unfamiliar with insurance, insurance carriers base industries, and in turn the businesses within that industry, by many factors and one of the more important factors is the business’ loss history. This means they look to see how many and how severe the losses have been in each industry while also taking note of how many of those losses were uncovered. The worse the loss history, the less likely an insurance carrier will want to cover the businesses in that industry. Unlike other industries, the Cannabis industry doesn’t have any loss history to be based of. This means that if businesses don’t secure the proper insurance now and begin suffering severe and/or uncovered losses then insurance carriers, who are already hesitant about this industry, won’t want to work with this industry. This will mean that business owners will have a much harder time finding coverage and will end up having to pay more for it because the carrier will charge much more to offset their fear. With all of the other issues this industry is facing, the last thing it needs to add to that list is bad loss history.
YOU NEED SPECIALIZED COVERAGE! – As a Cannabis business, you need to be aware that you need to have specialized coverage in place to ensure that you are insured properly. This means that you need to make sure that you’re working with an agent who can work with you to secure the specialized coverage that you need and has access to the markets to get it done. You will know right away if they are familiar with the industry or not as they should be asking you very specific and in-depth questions about your business: What is your average yield per harvest? Are you cultivating indoors or out and what security measures do you have in place? Are you delivering and if so, how are you delivering? How are you keeping customer and/or patient records? If the agent that you’re working with doesn’t get specific, you need to be very wary that they don’t truly understand your needs as this is one of the most common ways that businesses are left exposed to uncovered claims and losses.
MAKE SURE TO BE AND STAY COMPLIANT – One question that I always get is “if I were raided by the federal government, can I get insurance for that?” Within every single insurance policy, no matter what Industry or operation, there is this exclusion:
For the Cannabis Industry, if your business is thought to be out of compliance or there is the thought that you’re conducting unlawful operations (crossing state borders, selling to minors, etc.) the State or Federal Government can come into your establishment and seize all of your assets, including cash and crops. Due to the exclusion above, you would have NO COVERAGE if this were to happen so it’s best to always stay in compliance and if you are contemplating implementing an operation that makes you think “is this allowed?” or “can I get in trouble for this?” I suggest you rethink the implementation of that operation and reach out to your agent (or me!) to make sure that it is allowed and that you’d have coverage for it.
UNDERSTAND WHAT GOES INTO YOUR PREMIUM – Many times Cannabis business owners have what’s known as “Sticker Shock” when they see the price of insurance. This sticker shock sometimes leads business owners to decide that they’d rather operate without insurance in place and go by the motto of “that won’t happen to me”. This motto is what puts businesses out of business as they underestimate just what that premium is covering. For example, let’s just say for a Dispensary that the entire premium costs $25,000 for the year, which when broken down comes out to around $2,000/month. However, the business owner sees this price and says “never mind, that’s way too much. I don’t need it.” After that decision, everything is going great for 3 months until one day they receive a letter in the mail that ends up being a lawsuit from a customer who got ill due to unexpected side effects from the Cannabis that they purchased from their dispensary. The customer claims that the product wasn’t labeled properly to inform them on the potential side effects and symptoms and now you’re required to be in court in two weeks. This claim would fall under Product Liability coverage, which according to a study done by Hartford Insurance Company, states that an average Product Liability lawsuit is $35,000. The business owner now realizes that $25,000 for the year doesn’t seem as bad as now he is paying off this litigation and potential settlement from his company’s bottom line, which on average is already $10,000 more than what coverage would have cost for the year!
UNDERSTAND THAT SECURING INSURANCE IS A PROCESS AND THAT YOU NEED TO PLAN FOR IT – In today’s world, people want instant gratification and if they don’t get it right away they lose patience and move on to someone who can get it done faster. When it comes to insurance, this sentiment holds true but for the Cannabis Industry this thinking needs to be thrown away. Think about it: do you want to work with an agent who is able to speak with you one time and somehow gathered all of the information necessary to get you the coverage that you truly need? Or would you rather work with an agent who asks questions and has a process to ensure that all of your exposures are covered? Most business owners will choose the latter, but this also means that it’s not in your favor to try to secure insurance a week before you want to begin operations. You need to give enough time to allow the agent time to understand your business, find the best market for it, and get you all of the coverage’s that you need. Patience is a virtue when it comes to insurance and the longer you allocate for it, the better off you and your business will be in the long run.
The attraction of this industry has led former athletes, politicians, movie stars, and other public figures to want to join it because they see the potential that this industry has to become one of the largest ones in the world today. Look no further than Denver as the prime example as to why: In Denver alone, they sold $1.6 BILLION worth of Cannabis in 2016 with that number projecting to increase in 2017. Think about that for a second –a single state sold over $1 BILLION worth of Cannabis with almost $200 million being generated in taxes that have been allocated back to schools, public health and law enforcement. This is why that, as of today, 29 states and the District of Columbia have some sort of Cannabis laws implemented, with many more states tossing the idea around. This is what is leading more and more individuals to take the leap and join the industry but also stresses the importance of making sure that these investments are properly insured. Imagine an individual (who could be you!) who quit their steady job to join this industry but didn’t work with an agent who understood their business and after investing all of their money and resources they end up suffering an uncovered claim and don’t have the funds necessary to recover.