Cybersecurity is a concern for businesses of every size and type. The cannabis industry is no exception to this. According to the National Cybersecurity Alliance, six out of ten small businesses in the United States have been victims of cyberattacks. Within half of a year, these businesses were out of business. Cyber insurance is becoming a necessity for businesses in the cannabis industry to protect themselves from liability if a data breach occurs.
Legal pot sales are expected to reach $40.6 billion by 2024, a nearly 25 percent growth from 2018 to 2024. That type of industry growth makes it a target for cybercriminals who want to steal sensitive information for devious purposes.
How Will Cyber Liability Insurance Help Illinois Dispensaries?
There are risk-mitigation steps that a cannabis-related business can take to protect themselves from losses and claims that stem from cyber-related activities. Here we will explain the reasons that dispensaries should obtain cyber insurance today.
Responsibility Of Retailers
Cannabis retailers are ultimately the ones who are responsible for this data. The basic steps that a cannabis retailer can take to mitigate these cybersecurity risks are to install anti-virus software on computers and limit physical access servers/computers that hold customer data. They should also provide regular training with their employees about best practices in cybersecurity, establishing strong passwords, and avoiding phishing attacks.
A data breach is always a possibility, however, so a business should have a response plan to what actions to take to limit the damage and recover as quickly as possible. Acquiring cyber insurance is another protective measure that a dispensary can take.
Protecting Personal And Medical Information
COVID-19 has shifted the business practices of many dispensaries even during post-pandemic times. States like Illinois issued stay-at home-orders which dispensaries met with new, sophisticated sales channels. New models included delivery service, curbside pick-up, and online ordering. Dispensaries with these new channels have increased their reliance on technology and online orders.
To deliver cannabis, dispensaries had to collect and store the names and addresses of customers. Employees needed computer access to work remotely, and customer relationship management software that allowed them to reach out to customers via text and email were established. This data handling is in addition to the seed-to-sale tracking system that most dispensaries are required to hold. The licensing structure for states like Illinois requires that these businesses maintain data on their clients.
The necessity to keep personal medical records of clients who use cannabis for medicinal purposes has indirectly caused dispensaries to become a bigger target for cyberhackers. The cannabis industry is still a relatively new industry that enables hackers to use more traditional methods of exploitation such as phishing to obtain sensitive data.
Protecting Business From Fraud
Cyberattacks are not the only threat that looms over the emerging cannabis industry. Fraud cases involving the industry have recently been highlighted in the news. The interest and speculation into the cannabis industry have increased the number of schemes, including Ponzi and pump-and-dump.
Cash fraud is a problem among industries like cannabis that rely heavily on cash-based transactions. These businesses must have cash on hand, which makes the physical security of the cash a concern for business owners. Common methods of cash fraud include:
- Skimming – When transactions are not recorded in the books and the cash is taken beforehand.
- Collusion – An employee works out an agreement with a customer to pay less than the amount of the transaction.
- Larceny – Cash is intentionally taken without consent from the owner. This can happen at any point an employee has access to cash.
To mitigate this risk, retailers in the cannabis industry have been looking at alternatives to cash transactions. Many of these solutions have been found in the form of online payment systems like payment cards. These are tied to cannabis mobile apps and non-federally-regulated banks to offer unique marijuana-specific POS systems and cryptocurrencies. This reduces the threat of holding large amounts of cash at retail locations but increases the risk of cyber tactics being used for theft.
Dispensaries Are Increasingly Targeted
Cyber criminals find cannabis retailers to be especially attractive targets because of their clientele’s vulnerability to extortion. Despite the growing number of states that have legalized marijuana, its use remains a point of contention.
Hackers can gain access to the client database of dispensaries to find high-profile clients, such as politicians and professional athletes that can be extorted because of their desire to keep their use out of the public eye. Recent reports indicate that cannabis retailers are expected to have a “higher-than-average potential” to become targets.
Talk To The Cannabis Insurance Professionals
The cannabis industry faces challenges in obtaining insurance to protect their business from potential risks. Work with the experts at MFE to get the coverage that you need. We are a broker that works with a variety of insurers to find the right policy for your dispensary. Reach out today by phone at (213) 266-7990 to get started. We look forward to hearing from you.