This month has been a big month for lowering the risk of operating a cannabis business in California. First, the state moved toward creating a banking system for cannabis companies. Now, the California Insurance Commissioner has approved a program to allow dispensaries, storage facilities, processors, distributors, and other cannabis businesses to procure property and liability coverage.
The program, Cannabis Business Owners Policy (CannaBOP), will make it easier for insurers to enter the market and fill coverage gaps for cannabis businesses. Developed by the American Association of Insurance Services (AAIS), CannaBOP was approved quickly and is ready to offer a package policy that includes both liability and property coverage. The program is supported by rules and loss costs (as with any insurance policy package) and was developed through analysis of market exposures and rating guidelines specific to the cannabis industry.
This announcement has been building since January, 2018 when cannabis became legal state-wide. A cannabis surety bond program was launched in February, and coverage for commercial landlords renting to cannabis companies was announced in May. Before this month’s announcement, cannabis companies were limited for choice: nearly all insurers willing to offer coverage were small carries that were not regulated by the state and often hesitant to provide coverage to a perceived high-risk industry.
Should you get cannabis property insurance? The answer depends on your unique cannabis business. CannaBOP is designed for smaller cannabis operations and for start-ups that need coverage but haven’t been able to find it – until now. For cultivators working with pesticides and quality control issues, this type of insurance is a great way to protect your business from product liability lawsuits.
Keep in mind, however, that CannaBOP relates specifically to property and liability insurance – and it does not include workers comp coverage or auto insurance. For that coverage, you might look to those smaller, non-regulated insurance companies who have been providing interim property coverage until this announcement.
If you have additional questions about insurance or protecting your cannabis business, please reach out to our team! We’d be happy to help.
There is a lot to think about when becoming a new business owner. But making sure your business is properly insured is one of the most important. You already went through the work to set up your cannabis business, obtained the proper licenses or perhaps secured an investor - now it is time to protect it. Today, we will discuss the several types of insurance you need to cover yourself and your business.
General Liability Insurance
A customer can sue your company for negligence from third-party damages, whether they are injured on the premises or injured by your property. General liability insurance protects your business against these types of lawsuits. Many small businesses buy General Liability Insurance packaged with Property Insurance through a bundled policy called a Business Owner's Policy.
Commercial Property Insurance
Commercial property insurance covers your building or contents if your business is damaged. It will also cover any theft that occurs and replace your business products in the event of a loss. In addition, any lost income that has occurred due to these events, or your business being closed, will be covered.
Workers’ Compensation Insurance
If you have any employees, California requires you to have workers’ compensation insurance. This will cover your employees if they get injured on the job. Most states require this form of insurance.
Professional Liability Insurance
Professional Liability Insurance covers your business should a negligence claim be made against you. This can also include mistakes, oversights or errors that are made by accident. This type of insurance is also called Malpractice or E&O (errors and omissions) insurance. If your mistakes cause a financial loss for your client, they may try to recoup court costs, legal defense fees or judgments.
Cyber Liability Insurance
Doing business today is drastically different than 10 years ago. With major companies recently in the headlines for having their personal client information hacked, you want to be sure your business is protected should that happen to you. Cyber liability insurance is especially important if your website collects personal information or you sell items online.
Employment Practices Liability Insurance (EPLI)
If your employees interact with the general public as part of your operations, it is smart to get EPLI Insurance. EPLI insurance covers claims against your company for sexual harassment, wrongful termination and discrimination. These allegations can come from the employees or the general public. This insurance would cover your legal costs and any potential payouts you may be responsible for.
Beyond insurance, California’s minimum wage also increased in 2018.
California Cannabis CPAs wants to make sure your business is protected. We are here to walk you through each type of insurance, to help you make sense of it all. Each individual county within California may also have its own requirements, so please review accordingly. Ask us how we can help today.
On a weekly basis, we get anywhere between one to two dozen new potential clients asking us about insurance. Whenever members of the marijuana and cannabis industry seek professional services, it helps to understand the right questions to ask, and the different types of insurances that are available to you.
Take These Two Steps Before You Seek Insurance
1. What Risks Are Associated with Your Business
Since you have intimate knowledge of your business, consider the risks associated with your situation. This varies among states, but consider whether any of your customers or clients come from other states.
A grower faces different risks than a dispensary. If you create Cannabis-infused products or edibles you face another unique set of challenges.
The first step to finding the right insurance is to educate yourself on the laws, regulations, and social norms in your area. Doing so, generally involves seeking professional advice from attorneys, accountants, and other professionals in your field.
2. Ask Your Professionals for Recommendations or Referrals
Your legal and financial professionals may even be able to refer you to well-reputed insurance companies with expertise in the cannabis industry. The uncertain legal status offers a unique challenge when sourcing a comprehensive insurance plan.
Because insurance companies depend on federal licenses, most do not insure cannabis companies. Insurers fear that doing business with a firm that works in cannabis, which is federally illegal, could lead to penalties or even the loss of their federal licenses.
Californian cannabis retailers often find insurance through Surplus Line Insurers. These insurers are not federally licensed but they received approval to offer insurance within individual states.
Consider What Type of Insurance Do You Need?
In many ways, a cannabis business has the same needs as any other business. The following list is not comprehensive, but it provides an overview of the most common types of business insurance. Your specific needs vary depending on your product or service. The emerging cannabis field walks a fine line between risk and opportunity. You can't future-proof your business, but you can prevent common misfortunes from destroying your livelihood.
12 Types of Insurance You May Need for Your Cannabis Business
1. Liability insurance: Every business generally needs liability insurance. Liability insurance covers damages and defense if your business or staff are sued for causing injury or damage to a customer or third party.
2. Employment insurance: These types of insurance cover your employees. Employment insurance requirements vary by the state but this may include Workers' Compensation Insurance, Unemployment Insurance Tax, and Disability Insurance for your employees. Your specific needs will vary by the type of work you do, how many employees you have, and state or local laws. For example, most states require Worker's compensation Insurance if you employ more than 3-5 people (the exact number varies by the state). The insurance covers your employees in the event of an on-the-job injury.
3. Crops insurance: Medical marijuana and retail cannabis growers may need crops insurance to cover the risk when something goes wrong with crops. Read the policy carefully to know how the insurance applies to your seeds, active crops, and harvested crops.
4. Business Property Insurance: Theft, vandalism, fire is among the unforeseeable situations that can destroy your business property. Business Property insurance covers loss or damages to your property whether you own your premises or lease.
5. Equipment Insurance: This is similar to property insurance, but it specifically covers repairs or replacements for your business property and equipment. The coverage varies depending on the value of your essential equipment. Cover any essential property or equipment that you could not afford to repair or replace. Sometimes a single policy may cover both your business property and repairs for your equipment.
6. Inventory Insurance: This covers retail or dispensaries if inventory is lost, damaged, or stolen.
7. Legal Defense Costs Reimbursement insurance is especially important due to the ever-evolving legalities. This is in some ways similar to general liability insurance except it applies specifically to legal defense costs in criminal or civil trials.
8. Commercial Automobile Insurance: If you or your employees drive during the course of conducting business you may need commercial auto insurance. Look for specialized plans if your business requires you to deliver or transport goods.
9. Professional Liability Insurance or Errors and Omissions Insurance: Professionals who offer advice, consult, or design products may need insurance coverage in case clients sue for alleged misjudgments or errors made while offering services.
10. Directors and Officers Liability Insurance: If your business is incorporated, members of your board of directors need specialized liability insurance in case they are sued.
11. Product Liability Insurance: Businesses that create, grow, or produce products may need
coverage in case they are sued if someone claims to be harmed by their product. Whether you create edibles, oils, or any other product you need a plan that covers the potential damages you may face. You may take every precaution, but life and business are always uncertain.
12. Business Interruption Insurance: What would happen to you, your business, and your employees if you have to unexpectedly cease trade due to a disaster or unexpected emergency? This type of insurance protects you from major loss in these situations.
Some insurers provide packages that include more than one type of insurance specific to your niche within the industry. The previous list is just a starting point; specialized businesses may require additional coverage. Also, consider any assets you have that you may need to protect.
Eight Questions to Ask Your Insurance Agent
Understanding your needs positions, you to ask the right questions when you shop around. This also empowers you to negotiate the best deal on your plan.
1. Which Areas Within the Industry Does the Insurer Cover?
This information may be readily available on the insurance company website. Some specialties may face special challenges.
According to an article in "Insurance Business" online magazine, edibles face extra liabilities since uninitiated users may not be prepared for the delayed onset and product's effects.
2. What is the provider's experience in the industry?
Since retail cannabis is new the laws, regulations change and evolve. Some forward-thinking insurance providers joined at the ground floor and may offer valuable expertise on how to reduce your risks along with insurance coverage.
3. Can the plan grow with you?
Your business may grow as the sector grows. You may want a plan that you can upgrade as your needs change.
4. Does the plan cover your business assets? Is the liability coverage adequate for your exposure?
Business insurance is a situation where one size does not fit all. The right coverage depends on your assets and the damages you may face.
5. What deductibles are involved?
Most insurance plans have a deductible. Some less expensive plans carry a larger deductible. This may work well if the total coverage prevents devastating losses.
6. What approach does the company take regarding defense?
Some liability insurance plans require out-of-court settlement when possible for civil suits. Some take a strongly defensive stand on criminal and civil cases. Make sure your insurance provider uses an approach you are comfortable with.
7. Which states does the insurer do business in?
Each state has specific regulations, some insurers active in early adopter states have more of a proven track record.
8. What is the insurer's approach to dealing with state vs. federal conflicts?
The Tide is turning on voter sentiment about legalization. According to the Pew Research Center, over 57% of Americans favor legalization. Other polling bodies like Gallup report even higher numbers. Some companies are more strategic in how to deal with potential state vs. Federal issues.
Insurance cannot protect you from every possibility. However, choosing the right plan may protect your property, income, staff, and business from the most common risks business owners face. Just be sure to seek an insurer who understands the evolving cannabis industry.