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Friday, June 28, 2019
3 Myths About Cannabis Business Insurance, Dispelled
While business insurance for the cannabis industry is still not as robust as insurance brokerHUB International’s U.S. cannabis segment leader, T.J. Frost, would like, good coverage is out there, despite what many business owners might believe.
“A lot of the misconceptions we see pertain to the availability and adequacy of insurance coverage. Potential clients often ask: Will the insurer pay if there’s a claim? We’ve had claims and they’ve been paid,” says Frost. “We haven’t, luckily, had an outdoor crop claim yet, but we’ve had indoor crop claims that have been paid. So, there is insurance coverage out there that can help protect your business.”
Here are the top three myths HUB International frequently encounters regarding cannabis business insurance—and why they are false.
1. No one will insure a cannabis business.
Insurance is available for the cannabis industry, Frost stresses, and cannabis businesses should get the same standard coverage as any other company—from property and casualty, product liability, EPLI and D&O policies to employee benefits and workers’ compensation. In addition, there are several must-have policies for cannabis cultivators specifically, Frost adds.
“Cultivators are essentially like farmers, so we want to make sure that the property’s insured, all the equipment [is insured] with equipment breakdown, general liability, and at that point, they’re going to need product liability, as well,” he says. “Because of the line of defense with product liability, they’re the first hand. … So, if there’s ever a claim, it’s going to go back on the cultivator as product liability.”
Crop insurance is also available to cultivators, whether growing indoors, in a greenhouse or outdoors, Frost says. “It’s a line of coverage that not a lot of people see value in because they’re producing so fast this day and age with all the technology, but you’re protecting against pesticides and bacteria and mold and fungi, so the coverage does pay [off], in our opinion.”
While HUB International insures both indoor and outdoor growers with crop insurance, it can be more difficult to procure coverage for outdoor cultivators, depending on the location, Frost says.
2. I’m not selling finished product, so I don’t have to worry about product liability insurance.
No matter where a business falls in the cannabis supply chain, HUB International maintains that product liability is the biggest risk the industry faces. There is a “trickle down” effect that encompasses the entire industry, from production to distribution and sales, and this even includes labeling and marketing representations. All vendors need to have adequate product liability coverage and show their certificates of insurance.
“If we … review all of [a client’s] vendors—[whether] it’s the retailer or distribution company—and we don’t see that [the vendors] have product liability, we’ll pull those contracts and we’ll tell our clients, ‘There’s no protection here. We’re the first and only defense when it comes to this. So, we advise that you tell them to get [coverage] or we need to cut the ties and move on with somebody else,’” Frost says.
3. If my operation has a loss, my landlord will cover it.
A landlord’s policy most likely won’t cover a cannabis business’s loss, and the cannabis business’s loss might even cause its landlord’s insurance to be nullified for having rented to such a business. Therefore, a landlord’s insurance policy is usually never adequate, and cannabis businesses typically always need their own coverage, Frost says.