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Is Your Cannabis Insurance is Compliant with California and Federal Law?

9/11/2018

 
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Every cannabis business operator in California is required by state laws to have insurance. There are quite a few insurance agencies and brokers that offer cannabis business-specific insurance packages. As recently as this June, California began offering property insurance for cannabis businesses. In a cash-rich industry that deals with a very valuable product, you may want to look into insurance to make sure your business is protected. Regardless, it’s up to you to make sure your insurance is meeting the state, local, and federal requirements and standards. Here’s a quick guide to your state, local, and federal insurance responsibilities as a cannabis operator in California.

California Cannabis Insurance Requirements

California requires cannabis businesses to have a minimum commercial general liability insurance policy of $2 million, with insurance of up to $1 million for each loss, when submitting a cannabis license application. The state also requires a $5,000 surety bond that should be addressed to the state of California.  

Anyone who does not meet the insurance requirement will likely have their business application rejected. Likewise, if your cannabis business insurance lapses, you must take the proper steps to alert the state by notifying the Bureau of Cannabis Control in writing within 10 days.

Types of Insurance for Cannabis Companies

What other insurance do you need in California? Especially as it pertains to your cannabis licensing application, you will want to have a policy for worker’s compensation insurance for your employees. The state also requires all small businesses to have disability insurance. Our experts also suggest looking into these other types of cannabis business insurance:

  • Commercial General Liability Insurance: this type of insurance protects against various claims such as bodily injury, property damage, personal injury, slander, libel and even copyright infringement.
  • Worker’s Compensation: protects employees, since every employee has the right to have compensation for short and long term injuries and disabilities incurred on the job.
  • Crop Insurance: at the moment, crops for indoor cultivation facilities is the only type of crop that can be insured. It provides some security in the event that a crop is defective and must be destroyed.
  • Vehicle Insurance: In the event that an accident occurs while on the job, this type of insurance covers physical damages and injuries.
  • Property Insurance: it covers any damages and/or repairs to the physical place of business.
  • Cargo Coverage: this protects items being transported by the business for business purposes.
  • Equipment Insurance: provides protection for equipment damage, theft and vandalism.
  • Equipment Breakdown Insurance: this type of insurance covers the cost to repair or replace damaged equipment, the costs for time and labor to repair or replace damaged equipment, as well as the costs to replace damaged cannabis stock, materials or perishable items.

To help you understand which, if any, of these additional insurance types would be most helpful for your cannabis venture, we have a guide on everything you need to know about California cannabis insurance. Check it out and get in touch with our experts if you have any questions.

Federal Insurance for Adult-Use Cannabis Businesses
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Because cannabis is still considered a Schedule I drug by the DEA, there is no official requirement from the federal government requiring a cannabis business to have insurance. However, there may be other small business insurance requirements your cannabis venture needs to meet to be compliant. Health insurance is required at the federal level – one option for businesses with one to 50 employees is the Small Business Health Options Program (SHOP) program. Generally speaking, the federal government defers insurance requirements to be decided at the state level. As a rule of thumb – with the exception of ACA regulations, make sure you’re meeting California’s insurance requirements, and you should be compliant under US federal law.

It’s also worthwhile to note that when it comes to deducting insurance from your tax return, the regulations are a little complicated due to the 280e regulation. It really depends on your specific role in the cannabis industry – commercial general liability insurance may be deductible as a COGs for some businesses, but not for others. It’s important to check with a tax expert to make sure you’re making the right choice for your insurance deduction.

If you have more questions about cannabis insurance, please get in touch with GreenGrowth CPAs today!

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