Insurance for businesses operating in the cannabis space has been an unpredictable environment for years. Given the constantly changing regulations and legality, as well as additional differences in accessibility of payment processors and other challenges, cannabis businesses have often struggled to secure coverage they can be confident in. However, many entities are surprised to learn that the distinction between CBD and THC further complicates cannabis insurance.
If your business sells both (and most do), existing insurance coverage may not be as protective as you think. Industry professionals have observed companies struggling to handle the financial fallout when their insurance does not cover THC items in the same way as CBD. Here are the main ways insurance needs differ for your products so you can make a strong insurance portfolio.
Essential Takeaways
- A business that sells both THC and CBD products should approach its insurance portfolio differently from a company selling only one type.
- Product liability insurance must consider the careful federal and state regulations tied to THC, as well as thorough testing for CBD products.
- General liability must consider advertising claims and marketing mistakes for CBD products, as well as risks such as intoxication on the premises for THC.
- Commercial property insurance often changes significantly to accommodate THC due to the sharp rise in theft potential.
How Insurance Differs for CBD vs. THC Products
When it comes to insurance policies, your insurer typically cares about one thing: risk. When some aspect of the business involves greater risk, the insurer is either less likely to cover it at all or may charge more for that protection. Thus, cannabis businesses may not realize that the elements deemed “higher risk” in marijuana products are excluded from their policies.
CBD is typically sold broadly, including online. Comparatively, THC is tightly regulated at both the federal and state levels, which means that each step of the process of selling it has a greater risk. As a result, insurance policies need to account for this difference.
Regulation
One challenge in insuring cannabis products is state regulation. CBD rules vary by state, which means your business could encounter significant risk by selling to multiple states or by choosing products manufactured in a specific place.
THC, by contrast, is often highly regulated through state cannabis programs. This is an advantage in terms of provenance, but it adds complexity to compliance.
Liability
Another common pitfall in insurance for cannabis products is liability. Many claims arise from the use of THC, especially delayed-onset edibles that prompt people to overconsume and then have a negative experience. Accidental injuries from overconsumption can prompt a liability claim.
On the CBD side, mislabeling and contamination are two persistent threats. Both may result in legal action being taken, especially if the product makes claims such as “THC-free” that it cannot support.
Labeling
THC is subject to strict packaging requirements, and businesses must comply or incur penalties. In many locations, this means child-resistant packaging, warning symbols, and more. CBD, by contrast, prompts higher scrutiny on claims (e.g., “treats pain”). Insurers commonly require COAs and other evidence of a product’s content and safety as part of a business insurance policy.
How This Might Change Your Insurance Strategy
Given the difference in how the industry and, by extension, insurance companies treat CBD and THC, it likely comes as no surprise that insurance policies must adapt to address the particular risks of each side properly. In general, three policies are most affected by CBD and THC product offerings: product liability, general liability, and commercial property insurance.
Product Liability
Overall, product liability insurance is easier to obtain for businesses selling only CBD products because CBD is less strictly regulated. If the business is incorporating THC products, expect to discuss potential exclusions (e.g., vapes, due to instances of bodily harm) and work together to address gaps.
General Liability
CBD most often butts up against general liability coverage when it prompts claims of advertising injury, as labeling and marketing for this type of product are more flexible. THC shows its risk in this arena through intoxication and on-premises harm or damage.
Commercial Property Insurance
One of the largest divergences in insurance needs between CBD and THC comes from property risk. THC generally poses a much higher theft risk to the premises, which may prompt higher coverage limits.
Get the Cannabis Coverage You Need for Both THC and CBD
If you offer both CBD and THC products, understand that your insurance plan should look different than a business that offers only one or the other. The professionals at MFE Insurance can help you understand which types of coverage work best for you, based on your particular product mix and local laws. Contact MFE Insurance to get started on a personalized plan.