Having the proper risk management procedures, processes, policies, tools, and resources in place is critical for any business operation. This holds true across every industry—from manufacturing and retail to professional services and agriculture.
At its core, risk management involves identifying, assessing, and mitigating potential risks to minimize losses and ensure business continuity.
A routinely used and universally accepted risk management resource that businesses invest in and secure is insurance.
Although the cannabis industry is relatively young, cannabis businesses need insurance, too. Cannabis businesses—regardless of developmental stage or size—are not immune from encountering many of the same risks that traditional businesses do, along with several unique ones. Those risks can include property damage, employee injuries, cyberattacks, product liability claims, and regulatory noncompliance, for example.
Operating in this reality, cannabis businesses need to treat insurance as a foundational component of a comprehensive risk management strategy rather than as an optional or aspirational (i.e., "we'll get to that place someday") expense.
Coverages for Cannabis Businesses
While the specific coverages these businesses need will depend on the scope and type of operation and the risks encountered, there are a number of coverages that many cannabis businesses will need or are likely to need.
The coverages that may be needed to address the risks these businesses face can include:
Workers' Compensation
Required in most states, this coverage provides benefits to employees who suffer work-related injuries or illnesses. For cannabis businesses, which often involve physical labor, exposure to chemicals, and machinery use, the risk of injury is non-negligible. Proper workers' compensation coverage protects both the employee and the business.
Commercial General Liability (CGL) Insurance
A form of business insurance that provides coverage for third-party bodily injury, property damage, and personal advertising injury claims. It is often a baseline requirement for doing business with vendors, landlords, or government entities.
Commercial Auto Liability Insurance
A must for businesses that operate delivery services, transport products, or require vehicles for day-to-day operations, as this insurance helps protect against liability for accidents involving company-owned or leased vehicles.
Product Liability Insurance
With many cannabis companies producing and selling consumable goods—whether flower, edibles, oils, or tinctures—there is a significant risk of product liability claims. This coverage is vital for protecting against lawsuits arising from alleged harm caused by a product, whether due to contamination, mislabeling, or defective manufacturing.
Crop Insurance (for Growers)
Cultivating cannabis is a high-stakes endeavor, susceptible to loss from weather events, disease, mold, and even theft. Specialized crop insurance policies help mitigate the financial impact of losing a harvest.
Property Insurance
Cannabis businesses operating out of greenhouses, warehouses, laboratories, or retail storefronts will want/need property insurance to protect physical assets—including buildings, inventory, and equipment—from risks like fire, vandalism, or theft. And depending on the location of the property, specialized types of property-based insurance like "wind and hail" or flood policies may be needed and/or required.
Surety Bonds
These bonds serve as a financial guarantee that the business will comply with applicable laws and regulations. Some states require cannabis businesses to obtain surety bonds as a condition of licensure. Failing to maintain proper bonding can result in license suspension or revocation.
But Can You GET Insurance?
Cannabis operations undoubtedly exist in an environment clouded by the federal government's continued classification of cannabis as a Schedule 1 substance under the Federal Controlled Substances Act and in a milieu riddled with and subject to state-specific requirements and regulations.
Even so, there are a growing number of insurers that have recognized the market opportunity presented by the cannabis industry's growth. The cannabis insurance market has evolved significantly in the past decade, driven by increasing state-level legalization and rising demand from business owners seeking legitimacy, protection, and financial security.
However, insuring a cannabis business is not without its complications.
Insurance carriers that offer cannabis-related coverage must navigate a complex patchwork of state regulations while avoiding violations of federal law. This makes underwriting more challenging and often more expensive.
Cannabis businesses may encounter limited coverage options, higher premiums, or additional scrutiny during the application and renewal process. Nonetheless, the availability of insurance tailored to the cannabis sector continues to grow.
Good Insurance Coverage is Worth the Effort to Obtain
Insurance is not a risk management tool that companies can afford to relegate to the top shelf, only to be pulled out when the need to use it arises in any industry.
This statement rings just as true, if not truer, in the cannabis industry. Here, businesses operate in a legal gray area defined by a constant push-and-pull between federal prohibition and growing state-level legalization. This dynamic creates uncertainty and elevates risk in virtually every area of operation.
In addition, cannabis businesses must contend with heightened regulatory compliance obligations, strict inventory tracking requirements, and frequently shifting legislative landscapes. These factors increase the potential for loss, litigation, or regulatory action. Insurance provides an essential layer of protection, helping businesses stay afloat when the unexpected occurs.
Without adequate insurance, a single incident—a fire, a lawsuit, a crop failure—can devastate a cannabis business. In an industry where margins are often thin and capital can be hard to access, such events can be fatal.
Conversely, having the right insurance coverage in place can allow business owners to recover, rebuild, and continue moving forward.
Finding the right insurance products—and the right insurers—requires expertise. The cannabis insurance market is still maturing, and policy terms, exclusions, and pricing can vary widely between carriers.
Business owners must also be mindful of compliance requirements that tie into insurance coverage, such as state-mandated minimums, bonding conditions, or licensure prerequisites. Working with a knowledgeable advisor who understands the intricacies of the cannabis industry can be invaluable.
Ward and Smith's Insurance Counseling and Recovery Team and Hemp and Cannabis Law Team have the experience and skill to help cannabis business owners make informed decisions about utilizing insurance as a risk management tool.
Our attorneys understand the regulatory, operational, and financial challenges that cannabis businesses face, and we work closely with clients to identify the best solutions to protect their operations. From helping our clients assess their risks, regulatory compliance, and coverage needs, we are here to help cannabis entrepreneurs safeguard their businesses and plan with confidence for the future.
Contact us today to learn more about how insurance can serve as a cornerstone of your cannabis business’s risk management strategy.
