Cannabis businesses often experience an uphill battle, from legalization challenges to obtaining financing, since most banks will not work with companies that sell marijuana products. However, once the business is up and running, many owners feel that the battle is won, and they ramp down their attention toward the back-end attributes of the company.
Before settling into a consistent business rhythm, however, it is essential for such companies to select their cannabis business insurance carefully. Insurance increases a business’ monthly or annual expenses, but it also provides invaluable financial protection.
In the cannabis industry, this is especially important due to the consumable nature of the products. Multiple types of insurance are beneficial for weed businesses, but product liability insurance is often overlooked among them.
Here is what your company needs to know about how product liability insurance can save cannabis profits, even if it does cost a little upfront.
What Is Product Liability Insurance?
Product liability insurance is a type of financial protection for any industry where a company produces a product rather than a service. It helps the business defend against lawsuits and other economic consequences if a product it created causes harm to a consumer.
Within the sphere of the cannabis economy, product liability insurance is most often used when a customer alleges that the weed product(s) they purchased caused them bodily harm. Less commonly, they may report that the product appeared to be tainted or contaminated, which still creates a liability issue, even if the product itself did not cause them harm.
Is Product Liability Insurance Mandatory for Cannabis Businesses?
Insurance policies that are mandatory for any business will vary depending on the state and sometimes even the county in which the company operates. In California, for example, product liability insurance is not mandatory for cannabis businesses; however, general liability insurance is. Conversely, in places such as Michigan, weed store owners are required to carry at least $100,000 in product liability insurance to operate.
Comprehending the differences in these insurance requirements, coverage minimums, and documentation is essential for operating a compliant business. Insurance agencies that have been working within the cannabis industry for years are the best option for securing insurance, as they can provide guidance relevant not just to appropriate coverage but also mandatory minimums.
The Cost of Insurance Gaps: A Real-Life Case Study
Many cannabis businesses operate on the razor’s edge of profit margins, which means that choosing to add product liability insurance can be a difficult decision. Is spending more on an additional insurance policy worth the cost? To understand why product liability insurance is non-negotiable for cannabis businesses, it is helpful to see a real-life example of what happens when coverage is lacking.
Stiiizy, a California-based cannabis brand, was sued by an unnamed plaintiff who allegedly consumed their weed products and then suffered cannabis-induced psychosis. This included the plaintiff’s claims that he experienced symptoms of psychosis, such as possession by a female spirit. He later locked his mother in a room and witnessed the resurrection of their family dog.
The plaintiff went on to sue Stiiizy for allegedly omitting safety warning labels on their products and for marketing high-THC products as “better,” even though they are significantly more potent. Other lawsuits against the company have begun to flood in claiming product negligence for anything from overstating the THC content of their items to selling marijuana that contains pesticides.
Without product liability insurance, Stiiizy would be forced to experience the full financial implications of these lawsuits, including legal fees to defend themselves in court, even if they were later cleared of the charges.
Other Important Cannabis Insurance
While product liability insurance is invaluable for cannabis businesses, it is far from the only coverage that the company should invest in. Other important protections include:
- General liability insurance – For protecting third parties and their property
- Property insurance – For protecting the business’ property, storefront, and equipment
- Workers’ compensation – To protect the employees who work in the store
- Inventory insurance – For preserving the plants both during growth and after harvesting
Protect Your Weed Business With Good Insurance
Cannabis businesses have the potential for significant growth in today’s cultural climate, but they often experience substantial financial risks. Product liability insurance is one of the most essential types of coverage a cannabis company can have, and pairing it with other smart business protections can keep your business secure against unexpected financial consequences.
The professionals at MFE Insurance work closely with cannabis companies to succeed in this challenging landscape. Contact MFE Insurance today to get started on customized insurance coverage that suits your business’s exclusive needs.