Are you entering the cannabis industry and have reached the point of securing insurance for your business? While many cannabis companies opted for no insurance in the past, the weed industry is quickly becoming legitimized among insurers, and many more coverage options are now available. However, when choosing cannabis insurance, both new and seasoned business owners are likely to make common mistakes.
As you consider the best ways to protect your financial interests, it is essential to understand what most new cannabis operators get wrong when selecting insurance policies. Here are six things to keep in mind so you can avoid falling into common traps.
Cannabis Insurance Overview
Six Things Cannabis Operators Get Wrong About Their Insurance
Cannabis insurance, similar to other types of business coverage, is not just a single policy; instead, it is made up of a blend of complementary policies that should work seamlessly to cover all of a business’s primary risks. New cannabis operators who are selecting their insurance tend to forget:
1. How Audits Work
When insurance companies calculate the premium for your business’s insurance policy, it will be based on your estimated sales. This allows for audits, an essential part of long-term coverage. While your hopes and dreams might see your company earning tens of thousands of dollars every month, be sure to provide a reasonable estimate of your sales for insurance purposes. That way, you do not overpay on your premiums. Regularly recalculating your estimated sales based on real data can keep your insurance price targeted.
2. How Inconsistent Business Can Be
What your dispensary earns during a boom month might dwarf what it brings in during a slow season. This fluctuation is standard in the cannabis industry and should factor into your insurance decisions. Many owners opt for coinsurance models when selecting business income insurance, meaning that if you do not have sufficient coverage when business is slow, you may not receive all of the compensation needed to cover a loss should something go wrong. Instead, opt for a monthly limitation, which rises and falls alongside your business’s earnings.
3. How Security Can Be a Bigger Liability
One of the most common ways dispensaries save money is by using their own staff for security. This is considered risky and is discouraged. You may end up paying more in liability insurance to cover the lack of proper training your employees demonstrate.
Instead, consider hiring a professional security team. They have much more experience de-escalating situations, and they often carry their own liability insurance. Overall, this investment pays dividends by reducing the risk of significant loss.
4. How Much Coverage is Appropriate
Just because your business is still small does not mean that your losses will be! Many cannabis dispensaries underestimate just how much they stand to lose and opt for lower limits on general liability.
Instead, consider increasing the limit on your general liability policy or purchasing excess liability insurance to provide more protection.
5. How Exclusions Can Cost a Lot of Money
If you do not carefully review each section of your potential insurance coverage, you may be surprised to find that many important risks are excluded from the policy. For instance, dispensaries are more likely to experience criminal acts such as assault and battery compared to other types of businesses. However, assault and battery are not typically covered under basic insurance policies.
Even if you do not believe your business will be vulnerable to this type of incident, being prepared is best. Ask whether your provider offers buy-back options to enhance your company’s resilience to excluded circumstances.
6. How Much Product Storage Matters
If your business is still small, you may be storing your cannabis products in the only places where you can fit them. However, doing so can invalidate essential parts of your insurance protection. Policies often stipulate how to safeguard inventory, such as storing it in a vault or using safes that meet the insurer’s specific standards.
When these requirements are not complied with, your coverage may be invalidated. When you need protection the most, your storage decisions cost you more than just the product.
Get Help Building the Right Insurance Blend for Your Dispensary
Whether you are a new cannabis operator or a long-standing industry leader reconsidering insurance coverage, there are a few basic mistakes that you can prevent. The team at MFE Insurance understands the specific risks posed by the cannabis industry and the common pitfalls businesses encounter when operating in this space. We can help you create a thorough insurance solution customized to your business’s needs. Contact MFE Insurance today to set up an appointment!