Cannabis businesses continue to blaze new paths, as companies even indirectly related to marijuana products often encounter challenges that other businesses do not. From payment providers unwilling to partner with dispensaries to insurers unfamiliar with the risks weed companies experience, business owners will need to make strategic decisions particular to this industry. Among them is what type of cannabis insurance to purchase.
Some jurisdictions do not allow businesses to open without basic protections, such as general liability and workers’ compensation. However, it is wise to expand your options further, especially if you sell edibles and extracts. These products pose additional risk to your company, which can often be mitigated through product liability insurance.
Essential Takeaways
- Product liability insurance is an invaluable but often neglected element of a strong cannabis business profile, especially for those selling edibles and extracts.
- Product liability protects a business from financial harm if a product causes an issue for a consumer.
- Labeling errors, dosage inconsistencies, contamination, and allergic reactions are common drivers behind claims.
- Good product liability insurance should be broad, addressing numerous risks at multiple points across the supply chain, and should also cover legal fees and recalls.
What Is Product Liability Insurance?
Product liability insurance is a type of protection specifically targeting the products that a business offers. Should a consumer experience harm from the product, the insurance policy can help offset financial consequences, such as medical expenses.
Product liability functions similarly to general liability insurance, which is why many dispensaries ignore it. They assume that general liability coverage will provide protection when a customer complains about a harmful product defect; however, they later find they are responsible for substantial costs because general liability excludes products.
In short, general liability insurance protects you against costs associated with harm that occurs on your premises. Product liability insurance defends against what happens after a consumer takes their product home.
Does Your Business Need Product Liability Insurance?
If you operate a cannabis business, odds are that you can benefit from product liability protection. However, dispensaries that sell labeled products such as edibles and extracts, whether produced in-house or sourced, are especially susceptible to liability claims. Some of the most common reasons why consumers bring claims against a cannabis business include:
Labeling Errors
Both products created by the dispensary that sells them and items sourced from suppliers can be mislabeled. This might include placing the wrong label on the item (e.g., the wrong product or a different size), omitting a label entirely, or including inaccurate information on the label. Consumers who are looking for Sativa products, for instance, may file a claim if they find that an Indica-labeled item is made with Sativa strains.
Dosage Inconsistencies
One of the most common reasons that consumers take legal action about a product is dosage inconsistencies. This may arise from labeling issues, as described above, a product that is improperly prepared so as not to distribute its contents equally, or from dosage markers that are inconsistent or inaccurate.
Contamination
Reputable cannabis products are tested in labs to confirm their contents. Still, sometimes a dispensary may sell an item that has failed testing or was not tested at all, typically without the dispensary’s knowledge. As a result, consumers may be exposed to contaminants such as pesticides or heavy metals from the marijuana plants harvested for the product. Consumers can file claims for harm if such contamination is found.
Allergic Reactions
Some consumers may have allergic reactions to products, regardless of whether they have consumed cannabis before. This could relate to the product’s quality (e.g., contaminants, as mentioned previously) or to another issue. In either case, they may seek coverage of their medical bills by filing a liability claim.
What Should a Liability Policy Include?
As you search for a liability policy suitable for your weed business, make sure to select one created for the cannabis industry, not one adapted from other consumer goods. Always check for:
- Broad coverage – The policy should include protection for the common claims listed above at a minimum.
- Protection across the chain – Insurance should protect you across the entire supply chain as the marijuana products you work with change hands.
- Recalls – Liability insurance should include coverage for product recalls, including financial losses from lost products.
- Defense costs – A good policy typically includes legal defense coverage to help pay for defending against lawsuits.
Get the Insurance Protection Your Business Needs
Whether you are just starting in the cannabis industry or are reevaluating your insurance protection, there is no better time than the present to invest in product liability insurance. The professionals at MFE Insurance can help you develop a customized insurance plan that includes all the coverages necessary to protect your business from the particular risks that threaten it. Contact MFE Insurance today for personalized guidance.