Cannabis Industry Product Liability: An Ounce of Prevention

Tools to Fight Marijuana Product Liability Include Stringent Compliance, Product Monitoring and Records Retention

“Like other industries, cannabis businesses are subject to audits by multiple regulatory agencies. Prudent risk managers frequently conduct self-audits to identify information gaps and address issues internally before they can be spotted by regulators. Failing a regulatory audit can lead not only to fines and suspended licenses but also to discoverable records that could be used against the company in court.”

Phillip Skaggs, AAIS

man with product liability on a business card

Continuing our coverage on the trenchant article contributed by Phillip Skaggs - assistant counsel at the American Association of Insurance Services (AAIS) – to the insurance agency-consultative Rough Notes website, we’re now learning how following stringent compliance guidelines as well as keeping excellent records and monitoring cannabis product production can help to prevent product liability cases for cannabis.

In our last post, Mr. Skaggs assertedthat product liability may be the biggest concern to the expanding marijuana production and distribution business.

Quoting Mr. Skaggs from his article, Understanding Issues Lets Agents Help Clients Address Risks:

“With these theories of product liability in mind, it is not hard to see how claims often are interwoven with compliance requirements. Plaintiffs’ attorneys are quick to link product defects to allegations of a company’s failure to meet regulatory standards. Unfortunately, the cannabis industry is drowning in statutes and rules at both the state and local levels. Keeping track of all of the applicable regulations and their frequent and unpredictable changes is a momentous task for cannabis business owners and operators. In California, the failure of a cannabis business to comply with all applicable requirements can result in the product’s being labeled “misbranded” or “adulterated” and open the floodgates to civil liability under state consumer protection laws.

When placing insurance for cannabis businesses, it is essential to ascertain whether the owners have systems in place to identify, monitor, and address compliance issues. The first step in compliance is meticulous documentation and record retention. If it isn’t documented, it didn’t happen, and having readily accessible proof of a transaction can mean the difference between a misunderstanding and a landslide of consumer lawsuits.

Cannabis business owners should be encouraged to seek assistance in compliance monitoring. Excellent legal counsel and advisory services are a must, and membership in trade organizations such as the National Cannabis Industry Association (NCIA) and the National Association of Cannabis Businesses (NACB) is quickly becoming standard. The NACB is the first national cannabis self-regulatory organization. It recently published a draft set of advertising rules for its members and plans to publish additional guidelines in the future.

Also, the American Society for Testing and Materials (ASTM) is said to be working on sets of standards for multiple aspects of the cannabis industry, including quality management, processing, and handling. As trade organizations and industry standards become more prevalent, insurance providers should require cannabis businesses to demonstrate regulatory diligence and their receipt of continued guidance through industry experts and organizations.”

National Cannabis Insurance Servicesrecognizes that growing and raising your crop, getting it to certified dispensaries, and selling it fairly at the proper price in order to thrive in this new industry takes up plenty of your vital time.

We’re here to help members of the cannabis industry save time with insurance solutions and the myriad legalities therein - including product liability insurance for cannabis operations. You can learn a bit more about us – National Cannabis Insurance Services - here.

Finally, if you’re interested in starting in the cannabis industry and want to understand insurance coverages, or if you’re already in the business and want coverage for your operations, please don’t hesitate to contact us. We’ll get back to you very quickly.

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