Cannabis has been legalized in many states over the last ten years. Because legalization in America has come both recently and in such a fragmented manner, it is easy to get confused about the laws newly established by individual states or counties. In some states, marijuana is still not legal. In others, cannabis is legal in medicinal scenarios but not recreationally. These highly variable laws can be overwhelming for those who want to buy, but doubly so for anyone who wants to open a dispensary.
Before they can move forward with their business, they must educate themselves on the laws of their state and on the cannabis insurance requirements by which they will need to abide. Understanding these mandatory elements is the first step toward moving forward with a thriving dispensary.
How Are Dispensaries Insured?
Dispensaries operate like any other commercial establishment in many ways and they should be insured similarly. For any growing business, obtaining commercial property insurance is wise and often required. Commercial property insurance pays for the property when it needs to be replaced after physical damage or theft. This is applicable to all businesses, but it is especially prudent for a dispensary since such establishments frequently operate on a cash-only basis. The larger-than-average amount of physical cash changing hands has been shown to attract theft.
If a dispensary transports its product from other locations such as farms or assembly sites, it will typically want inland marine insurance to cover property not always held at the business location. Additionally, all business owners should be aware of the need for general liability insurance. If a customer attempts to sue a business for personal injury or property damage, general liability insurance will cover the costs.
These kinds of insurance policies are recommended for all businesses. Still, many states include them as requirements to make certain that the exchange of goods continues safely. To keep the sale of marijuana responsible and legal, state organizations impose specific rules about what insurance must be purchased.
How Regulations Around The Sale Of Cannabis Impact Insurance By State
Because the legal status of cannabis differs from state to state, each part of the country will have a unique governing body for the commercial sale of marijuana. Most of these regulatory bodies enforce their insurance rules through their marijuana licenses.
If a dispensary fails to acquire insurance coverage as required in their state, they will be denied their license and will be unable to legally sell. Many of the required insurance policies are shared by other commercial businesses, but some are unique to cannabis. Product liability insurance is the main hallmark of insuring a dispensary.
Since dispensaries sell a product intended to intoxicate, they are vulnerable to legal disputes when a customer experiences adverse effects, such as a panic attack or other negative reactions. Product liability insurance handles the cost in such a situation.
However, while a requirement for product liability insurance and the other areas of coverage listed above is common between states, they will require them in different ways. For instance, Michigan and California have similar required coverage.
Both states require product liability coverage, commercial property insurance, business interruption insurance, and inland marine insurance. Both require workers’ compensation insurance and commercial auto insurance for business-owned vehicles as well.
However, the mandated specifics for similar insurance laws are vastly different. For example, a Michigan cannabis dispensary will require product liability insurance with a minimum of $100,000 in coverage to operate legally. Conversely, a California cannabis dispensary will have no required minimum for product liability insurance. Instead, their required minimum will be under the general liability insurance policy, for which the minimum is $1 million per occurrence, $2 million aggregate. In addition, California requires a surety bond—a contract that guarantees compensation for an insurer—of $5,000.
Work With The National Cannabis Insurance Providers At MFE Insurance Today!
Because of the relative novelty of legal cannabis distribution and its uneven emergence, establishing a new business can be very confusing. This is not helped by the fact that most insurers actively exclude dispensaries from participating in their business policies.
The complexities of many states’ insurance requirements have prompted some providers to become industry specialists in cannabis—and this is what MFE Insurance does for its clients. We are familiar with the unique difficulties faced by cannabis dispensaries when it comes to insurance coverage.