How To Insure A Cannabis Business – Forbes Advisor

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Marijuana is legal in some form in 38 states and D.C. Cannabis businesses like dispensaries and cannabis cultivators face risks specific to the industry, such as theft, fire and lawsuits. For example, a customer could claim your product made them sick and sue your dispensary.

You can think of cannabis business insurance as a small business insurance policy that contains several coverage types to address your business needs.

What Is Cannabis Insurance?

Cannabis insurance is a small business insurance policy that is customized to address the risks specific to the cannabis industry. This includes problems such as workplace injuries, bodily injuries and property damage accidentally caused to others, crop failure and theft.

Who Needs Cannabis Insurance?

Here are some common types of small businesses that could benefit from cannabis insurance:

  • Cannabis cultivators
  • Cannabis delivery and transporters
  • Cannabis dispensaries
  • Cannabis manufacturers
  • Cannabis wholesalers and distributors
  • Hydroponic shops
  • Medical cannabis physicians
  • Testing laboratories

What Does Cannabis Business Insurance Cover?

A good cannabis insurance policy has a mix of several types of small business insurance that can cover your business from a variety of problems. Those include the cost of claims, theft and damages to your business property and lawsuits.

A business owners policy (BOP) is a good place to start. A BOP bundles three key coverage types and it’s usually cheaper than buying each coverage type separately.

Here’s what a BOP includes:

Business liability insurance

General liability insurance covers property damage and bodily injuries accidentally caused to others (not including your employees). It also covers your legal defense, judgments and settlements if you are sued because of an accident. For example, if a customer in your dispensary slips on a wet floor and sprains their wrist, your general liability insurance can pay for their medical expenses.

Commercial property insurance

If you own or lease commercial property for your cannabis business, commercial property insurance can help protect your buildings and contents from physical damage due to events like fires, storms, vandalism and theft. It covers items such as your inventory, tools, supplies, office furniture, computers, business papers and valuable records.

Business interruption insurance

If you need to temporarily close your cannabis business due to a problem covered by your policy, business interruption insurance replaces lost income. This coverage is also called “business income insurance” and covers problems like fires, wind damage, money lost due to damaged merchandise, lost earnings and the cost of moving to a new location temporarily.

Other Small Business Insurance Types for a Cannabis Business

Cannabis crop insurance

Cannabis crop insurance can help protect your business from financial loss if your crops were damaged or destroyed due to a problem covered by your policy, such as severe weather, fires, theft and employee error.

Crop insurance covers your cannabis in the growth stages from seeds to mature and harvested plants that have been fully processed and ready for sale.

Commercial auto insurance

If you or your employees use a vehicle for business purposes, such as transporting cannabis, tools or supplies, you need commercial auto insurance. Your personal car insurance won’t cover you for business use.

Here are some common commercial auto insurance coverage types:

  • Bodily injury liability. This covers injuries accidentally caused to others by you or your employees.
  • Property damage liability. This covers property damage accidentally caused to others by you or your employees.
  • Combined single limit (CSL). This combines one overall limit for property damage and bodily injury claims against you rather than having two separate limits.
  • Personal injury protection (PIP) and medical payments (MedPay). This covers you and your passengers’ medical expenses, no matter who caused the car accident.
  • Collision insurance. This pays to repair or replace your work vehicle if it is damaged in a car accident.
  • Comprehensive insurance. This pays to repair or replace your work vehicle for problems such as theft, vandalism, fire, floods, hail, falling objects and collisions with animals.
  • Uninsured motorist/underinsured motorist (UM/UIM) coverage. UM covers injuries to you and your passengers if a driver without car insurance crashes into you. UIM covers injuries to you and your passengers if someone who doesn’t have enough car insurance to cover your medical bills crashes into you. In some states, you can buy uninsured motorist property damage insurance to cover damage to your car from an uninsured driver.

Equipment breakdown insurance

Equipment breakdown insurance can help pay to repair or replace your cannabis business equipment and machinery due to problems like electrical shorts, mechanical failures, motor burnout and power surges.

Product liability insurance

Product liability insurance covers your legal defense costs if a product you grow, sell, manufacture or distribute causes harm to someone else, even if your customer uses the product incorrectly.

For instance, your product liability insurance can help cover legal costs, including judgments or settlements, if a customer consumes or smokes more than the recommended amount of your cannabis products, has adverse effects and sues you.

Another example: Your product liability insurance can cover your legal costs if you get sued because your product has a pesticide contamination that causes a customer to get sick.

Surety bonds

A surety bond may be required in your state to guarantee that your cannabis business will operate according to your state laws and regulations.

For example, in California the Bureau of Cannabis Control’s annual license application requires proof of a surety bond of at least $5,000 payable to the state of California. In Colorado, surety bonds must equal two months of your anticipated tax liability.

Workers compensation

Workers compensation insurance is required in most states if your cannabis business has any employees (even if it’s only one employee). Workers comp pays your employee lost wages, medical bills, disability benefits and other expenses (such as physical therapy) if they become injured or ill while performing work-related duties.

What’s Not Covered by Cannabis Business Insurance?

There are several types of problems that cannabis business insurance won’t cover. Here are some examples:

  • Risks associated with the illegal cultivation or sale of marijuana.
  • Losses caused by federal laws. For example, if your business is raided by federal law enforcement and your product is seized, you will not be compensated for your losses.
  • Damage caused by pests or mold. These risks are considered to be part of the inherent risk of growing cannabis, so most crop insurance policies often exclude them.

Examples of Cannabis Insurance Claims

Here are some examples of claims scenarios and the cannabis insurance coverage type that would apply.

Common cannabis insurance claims and coverage

What Types of Insurance for Dispensaries are Required?

The type of cannabis insurance required for a dispensary will vary depending on the laws in your state. Here’s a look at cannabis business insurance requirements by state.

Insurance requirements by state for cannabis dispensaries

What are the Risks of Running a Cannabis Business Without Insurance?

If certain types of insurance are required in your state, you could risk fines and penalties if you run your cannabis business without insurance. For example, failure to meet insurance requirements in California could result in a fine, suspension of your license or revocation of your license.

But it’s a good idea to consider more insurance beyond your state’s requirements (even if your state does not have any requirements). That’s because minimum general liability requirements won’t cover your cannabis business from other types of problems such as theft, fire, mechanical failure or repairing your work vehicle after a car accident, meaning your business would take the financial hit.

How Much Does Business Insurance for Dispensaries Cost?

The cost of business insurance for dispensaries will vary depending on several factors, including:

  • The minimum insurance required in your state
  • The scope and size of your operation
  • The types of policies you need
  • Your coverage limits
  • The number of cannabis licenses you have
  • Your experience in the cannabis industry
  • Any past claims you’ve made

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How to Get the Best Cannabis Business Insurance?

The California Department of Insurance has a published list of cannabis insurers. While it doesn’t endorse or recommend any of these companies, many of them insure cannabis businesses in multiple states. This list can be a good place to start your search if you’re looking for cannabis insurance.

Here are some tips to find the best cannabis business insurance in your state:

Gather your information and documents

Before you start shopping for cannabis business insurance, you’ll need to gather some information about your business. This includes:

  • Your business name and address
  • A list of the products you sell
  • Information about your employees
  • Your company’s financial statements
  • Information about any previous claims you’ve made

Having all of this information readily available will make the quoting process much easier and will help you get more accurate rates.

Bundle your business insurance

A solid start to your cannabis business insurance is with a business owners policy (BOP). A BOP bundles three essential coverage types: general liability insurance, commercial property insurance and business interruption insurance. It’s usually cheaper to buy these policies together rather than buying them separately.

You can add more coverage types to your policy as needed, such as commercial auto insurance, product liability insurance and workers compensation insurance.

Compare business insurance quotes

One of the best ways to find competitive rates is to compare business insurance quotes from multiple insurers. Not all insurers offer coverage for cannabis-related businesses, so it’s important to shop around to find one that does. You can often find free quotes online or by speaking with an independent insurance agent.

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