Cultivating change: Cannabis business insurance basics

Insurance in the cannabis industry is big business, and business owners need to know what policies are available and what those policies cover. Why? Because in insurance policies, like all other business contracts, the risk of a business venture is divided between the contracting parties. Your insurance policies are contracts where you pay your insurer to take some of the risk of your business venture away from you — for a fee, of course. Companies that insure cannabis ventures charge an above-average premium to take on above-average risk, though they may be covering less of your business risk than you think is covered.

See also: The high risk of insuring cannabis

As any seasoned marijuana business owner can tell you, this industry tends to be riskier than most due to some of these concerns:

• Potential asset seizure and forfeiture of real estate, business accounts, and other tangible business assets by a state or federal governmental entity;
• Violation of any federal, state, or municipal law or regulation;
• Heightened crime in or near your business;
• The presence of fungi (mold) and other biological substances like viruses and bacteria;
• The transmission of communicable diseases (real or perceived possibility); and
• Your incorporation of nuclear energy into the business. (No joke. Every cannabis insurance policy I have read includes this, so don’t get too creative with the source of power for your grow lights, ok?)

Broadly speaking, insurance is broken down into general categories based on risk:

1. Employee-related liabilities (covered by worker’s compensation coverage and employment practices insurance);
2. Injury to people and tangible business assets (covered by commercial general liability insurance); and
3. Damage to physical buildings and fixtures (covered by real property-casualty insurance).

Your insurance company will probably include a marijuana risk rider and many other types of riders, each of which omit a part of the business risk you thought your insurance company would cover (in a perfect world if they had your best interests at heart). Generally, you will not discover the impact of these riders until you have an event that you think should be covered by your claim and you start fighting with your insurance company over whether they are obligated to cover your event.

A typical marijuana risk rider will require you to take affirmative steps like:

• Keep all of your finished marijuana stock in a vault or locked safe (this often includes the type of safe, how it is installed, and the minimum weight);
• Install a burglar alarm that is linked to a central response center;
• Install motion detectors; and
• Have a licensed electrician perform or sign off on your electrical work, certifying that you have adequate circuits to handle your business’ gargantuan power needs.

Remember that any insurance is better than no insurance, and there are well-established companies that offer cannabis insurance business policies.

Based in Seattle, Jonathan Bench (jonathan@harrisbricken.com) is chair of the corporate practice group at Harris Bricken. This is a truncated version of an article that first published in the firm’s Canna Law Blog™. It is republished here with express permission from the author and cannot be reproduced without the author’s consent.

Jonathan Bench also will lend his expertise to our Twitter Chat on Tues., Apr. 20, 2021…