Much like cannabis businesses, insurance providers that cover such businesses have unique risks. It can help to understand the specific risks the cannabis insurance industry faces to determine your own risks and how to choose the right insurance provider for you. Outlined below are the top issues that impact the cannabis insurance industry, which include federal laws and restrictions, increased risk of crime, varying levels of coverage needs based on the type of cannabis business and issues with banks that do not embrace the cannabis industry.
Cannabis Is Illegal At The Federal Level
While more states are beginning to legalize marijuana, it remains illegal on a federal level. In fact, it is regarded as a Schedule I drug, which is the same category as heroin and cocaine. Many feel it is only a matter of time and pressure upon lawmakers by the public until the federal government legalizes cannabis, but until then its illegality creates challenges for businesses within and connected to the cannabis industry.
This has led many insurance providers to shy away from working with cannabis companies. The providers that do work with cannabis businesses must have a complete understanding of the applicable laws and regulations related to the cannabis industry. Otherwise, they are subject to violating serious laws and regulations, some of which are punishable by hefty fines or closure.
Cannabis insurance providers are not the only ones with increased risk. Banking institutions are also hesitant to work with cannabis companies until cannabis is legalized on a federal level. In recent years, the federal government has made strides to make it easier for banks, insurance companies and others to work with cannabis providers, but there is still much more progress to be made.
Crime Is A Significant Risk In The Cannabis Industry
Cannabis companies are still learning to deal with the increased risk of crime that they face. Many cannabis businesses operate primarily through cash since many banks have not embraced the cannabis industry. Subsequently, they are often the target of theft, fraud and vandalism. Of course, much of this concern could be resolved through additional protections or the legalization of cannabis by the federal government, but until that happens, cannabis growers, manufacturers and distributors, along with the insurance providers they work with, are at an increased risk of crime-related issues and costs.
There Are Specific Risks Throughout The Supply Chain
While many outside the cannabis industry only see the finished product that is sold from the dispensary, there are many levels in the supply chain. The first step is growing and cultivating the cannabis crop, followed by testing in laboratories and processing the cannabis. The cannabis products are then transported and sold to the consumer.
In addition, there are companies involved in the supply chain that are not directly related to cannabis production, transportation or sale, such as hydroponic shops. Each business type has unique risks, and the cannabis insurance industry must be able to customize policies based on each company’s individual cannabis insurance needs.
Banks Have Not Yet Fully Embraced The Cannabis Industry
Many banks are hesitant or unwilling to work with cannabis businesses since cannabis is still considered illegal at the federal level. There are some credit unions that offer banking services for cannabis businesses, but many cannabis companies operate primarily with cash. This opens them up to an increased risk of employee theft, burglary and fraud. There is also the risk of money laundering since many cannabis companies operate through cash rather than a banking system. This can add an increased risk for the cannabis insurance provider as well as the cannabis company.
There Are Specific Needs Based On Product Type
The days of consumers only smoking cannabis are over. There are now numerous ways to consume cannabis, including through baked goods and other edibles, oils, vape and more, and many products are still being studied for safety. This opens the dispensary that sells directly to the consumer up to an increased risk of claims by the consumer that the product made them sick. It is important for both the cannabis company and the insurance provider to have a full understanding of the specific risks and ways to mitigate the risk for each product type.
Mitigate Your Cannabis Company’s Risk With Cannabis Insurance
The experienced team at MFE Insurance understands the risks that our clients have, and we often incur similar risks as a cannabis insurance provider. We tailor each coverage plan based on the type of business you run, where you are located and the specific risks your cannabis company has. We are here to help you mitigate your company’s risks by providing you with the insurance coverage your cannabis company needs.