If you are selling cannabis products, you're dealing with merchandise that was, until very recently, illegal. Like any other business, you'll need to get protection from liability insurance due to problems that could arise from selling and distributing marijuana. But unlike more traditional businesses, you don't have a lot of precedent for how people in your industry have met their insurance needs.
Treading New Territory
Currently, twenty-nine states and the District of Columbia have laws that in some form legalize marijuana, whether it be for medicinal or recreational use. While the business of selling marijuana is still new and fairly uncommon, it does not relieve the business owner of additional responsibilities. Instead, they have added regulations and legal issues to deal with, on top of the normal day-to-day operational responsibilities all businesses have.
Just as sellers are getting used to their new freedoms, the insurance industry is finding themselves in unfamiliar territory. They may have sold insurances to businesses before, but insuring cannabis is a bit different than insuring a building, computers, or a warehouse full of merchandise (to learn more about that, see Business Insurance: Building, Contents, and Stock). The risk is higher because of the frequent changes in laws from state to state. Insurers are concerned about how regulations could change in the future. Unfortunately for those who run dispensaries, that means many carriers are refraining from assuming that risk and only a few choose to insure these types of facilities.
However, as the industry stabilizes, insurers will realize that these facilities are not going anywhere. They will tailor offerings in hopes of securing this new market. Having a voice in how regulations are set helps them have a stake in the game. With clearer definitions of what is expected of them, they can insure the marijuana industry more effectively in the future.
But you don't have to wait until then to protect your business. We'll go over what you need to know about insuring marijuana dispensaries.
How to Insure Marijuana Dispensaries
Depending on the state your dispensary is in, there will be anywhere from a few to numerous options available. It is a common misconception that due to the product having a higher risk, the cost of insurance will be expensive. In fact, it is just as affordable as regular general liability insurance.
Those in the cannabis business have to consider many of the same things other businesses do. They are just as liable for their goods and services as a convenience store or an insurance agency. With these concerns, the insurance products they must purchase must cover their investment should anything unfortunate that could result in a business loss.
If you are leasing a building, your landlord will most likely require you to purchase general liability insurance. Some states are continuing to increase requirements and are making general liability insurance mandatory for obtaining a state license.
General liability insurance offers protection for the company itself. Premises, product, and completed liability are all covered under this policy.
- Premises Liability – Protects what happens in the building. If a customer accidentally slips and falls, this part of the insurance will pay for the medical expenses associated with that injury
- Product Liability – Protects what happens with the products you sell. If you sell a product that causes harm to a customer, this part of the insurance will pay for injuries associated with the incident
- Completed Liability – This covers situations where the customer sues your company due to something that happened after the sale was completed, like a vaping device malfunction or a defective lighter
Property protection is designed to get a company back on their feet after a damaging event occurs. It covers inventory, furniture, and equipment used by the business. This would also cover damages the business would cause to the customer's property, like damage to a customer’s vehicle while it's in the parking lot.
This coverage protects the cannabis itself from fire or theft. It also covers the product while it's in transit from the cultivator to the seller’s dispensary.
Other Business Concerns
Since the dispensary is now a business, other policies of interest include:
- Workers Compensation Insurance – This covers your employees in the event of a workplace accident. It is mandatory in most states (see An Intro to Workers' Compensation to learn more)
- Business Auto Insurance – This is a policy worth having if you use your vehicle for business purposes, since your regular auto insurance policy won't cover an accident that occurs while you're using your vehicle for business
- Business Income / Extra Expense Insurance – This is important, since it covers unrealized income and expenses from an unexpected move due to a fire or theft
Business Owners Policy
Consulting with an insurance advisor is crucial to obtaining the best policy that suits your business’s needs. As the dispensary grows, you may need a larger insurance plan. A business owners policy (BOP) is sometimes preferable because it can be tailored to the specific needs of a growing business. General liability insurance comes with a BOP, but by itself has limits to what is covered. Property protection and business income/extra expense insurance are also included in a BOP (find out how a business owners policy differs from general liability insurance).
As marijuana dispensaries expand and insurance companies realize they are here to stay, options that provide suitable coverage will be plentiful. And with rules and regulations now making coverage mandatory, sellers and users can rest assured that they are always protected should the unthinkable happen.