Every business in any sector involves some sort of risk, and sometimes that risk can exceed the benefits of the business. Insurance is a way of managing risk. You pay a little money and in the event of a claim, you get deeper pockets to foot the bill for legal fees and claim payouts.
Every business needs insurance. Landlord and lenders require insurance coverage. So do vendors. And if your business deals with the public, like every medical or recreational marijuana business does, you leave yourself open to claims and lawsuits for a variety of things from slip and fall to product liability. Insurance is a must if you plan on staying in business for very long. We prepared a step-by-step guide that will help your business get your cannabis insurance.
- Preparation
Determine cannabis insurance needs and risk tolerance. At the early stages of running a cannabis business entrepreneurs are not always able to purchase every form of coverage to protect their assets, so the buyer must be cognizant of this reality and be prepared for losses that may not immediately be covered. In this case, one can use a self-insuring practice, which means saving or reserving money for an unexpected loss or setback. The decision to invest in cannabis insurance, on the other hand, will give you a greater degree of certainty that your loss will be covered. That certainty depends on the cost of the policy and its potential payout (coverage limits). With a large bunch of risk management services and products available to cannabis businesses, the insurance buyer should evaluate the current strengths and weaknesses of their operation before deciding in which areas of coverage they want to invest their capital.
- Due Diligence
After determining your cannabis business’ risk tolerance, the natural next step of is to do your homework required of the operating team. This means the buyer should know which insurance coverages required and understand how much insurance is, if affordable, within their budget. To do so, cannabis business owners need to rely on the expertise of their attorney, insurance broker, and accountant to guide their insurance investment decision.
Analyze specific regulations of each state, through the advice of a legal counsel and protect yourself from the pitfalls of purchasing cannabis insurance. Researching state regulations that affect your business is mandatory work, before even considering taking the next step in purchasing insurance. Establishing a stringent operating budget and determining the types and how much protection the business can afford is crucial.
- Choosing A Broker
After assessing the possible risks of your business, consulting a lawyer for necessary regulatory advice, and reviewing the financials by an accountant, every kind of cannabis enterprise needs an advocate for their insurance needs; an insurance broker. Give preference to specialists with experience in the marijuana industry. Do not grudge the time for a detailed discussion of your business plan, because such specialists typically provide a limited range of services and may not have access to all the cannabis insurances that you desire. Your insurance broker or agency will serve as a source of information on new policies, innovations, and regulations. Timely "news", as well as their analysis, will keep your business protected.
- Mitigating Insurable Risk
Recruit to your experts' team the risk management services in order to mitigate possible insurable risk. This means going above and beyond the bare minimums for compliance with state regulations by hiring loss control and safety evaluators to inspect the business operation. It is the first priority for outdoor farms and cannabis product manufacturers where risk mitigating services provide the most value for the dollar. Loss control and safety evaluators will identify the immediate risk exposures of the indoor farm, the retail space, the testing lab, etc., pointing out issues that state and federal regulators will have, as well as identifying problematic systems that could further result in non-compliance. It is highly advised to cooperate with risk engineering and environmental health safety consultation organizations. As a cannabis business owner, it’s important to work with loss control and safety evaluators to reduce the frequency and severity of insurance claims. Keep in mind that insurance companies want to offer the most expansive coverages to businesses they are confident are good consumers of insurance, meaning they are less likely to incur an insurance claim.
- Building relations
It is extremely important to navigate the relationship between cannabis insurance brokers and cannabis insurance companies/carriers. After you have built a strong team of risk management procedures, the focus shifts to the person who will be your advocate in the insurance marketplace; the broker. Their main job is to place your business insurance needs’ by presenting your application to the few leading insurance companies. Some insurance carriers have minimum requirements of insurance coverage that the business must meet to be eligible to receive that particular insurance policy. The situation differs in newly legalized states, which have a much higher barrier to entry for new businesses. Usually, the insurance broker will have to go to multiple different insurance carriers, as well as wholesale insurance companies (hard-to-place insurance) to find the coverages their client requests.
- Professional Associations
Joining local and national marijuana industry associations will create the web of professional relations that will ensure your business stays competitive and engaged in the rapidly changing market. Various conferences and networking events afforded by the association support the development of the cannabis industry, which is deprived of state financing. Moreover, among the members of the association, you may find professionals, who can help you in buying cannabis insurance. Some associations feature insurance components to them, in addition to the benefits outlined above, because the association can grow a much larger insurance pool when they consolidate the employees of many member businesses into a single plan.
- Risk Pools
While discussing with a broker your coverage options, ask if they have any information on the risk pools that have been developing across the country. The emergence of such associations is related to the strict policy of traditional insurance companies. By pooling together their insurable risk with other businesses with strong risk management strategies in place, cannabis businesses can generate claims savings, promote credible rate-making and inevitably better-priced insurance policies. This approach to insurance significantly reduces the probability of loss events, but if there are any, they will be not so serious or expensive. Risk pools provide its members with a higher degree of autonomy and a greater level of control a cannabis insurance buyer compared to traditional insurance companies.
- Purchasing the Insurance
Since insurance covers all the aspects of business operations, the process of obtaining a policy may be complicated. But paying attention to such details, the cannabis insurance buyer positions their business for long-term success and risk deterrence. Summing up all of the above: evaluate the strengths and weaknesses (and budget) of your business, before choosing your type of coverage; recruit in your expert team an attorney, insurance broker and accountant to guide your insurance investment decision; employ the risk management services in order to mitigate possible insurable risk; build the relationships between cannabis insurance brokers and cannabis insurance companies/carriers; join professional associations; learn about risk pool opportunities and alternative insurance options.
Now, choose your type of cannabis insurance:
- Cannabis general liability insurance
- Cannabis product liability insurance
- Marijuana & hemp crop insurance
- Cannabis property insurance
- Cannabis equipment breakdown insurance
- Cannabis builders risk insurance
- Cannabis excess risk insurance
- Cannabis workers compensation insurance
- Cannabis cyber liability insurance
- Executive liability insurance: D&O, EPL, crime
Hope this article will help you get your cannabis business insurance!