If you have a cannabis business, there are more risks than you realize – and your insurance policy may not cover them.
The legal cannabis industry is unfolding as we watch, with more states decriminalizing and legalizing marijuana for medical and recreational use. And of course, there is a mad rush to get the gold.
And with good reason. There’s gold in that green!
But along with the rush comes risk. In a new industry, some things are well-established and others are being established as we go.
As we have spoken to cultivators, processors, distributors and others, we have encountered some insurance coverage gaps that every business owner should know about.
Theft / Break-Ins
While nearly all businesses carry the risk of theft, cannabis businesses – especially retail – are particularly vulnerable due to the high amount of cash on hand and the sheer street value of products. A recent surge of break-ins in Washington state has caused concern, even to the point that few banks are willing to risk working in the industry. Keep in mind that even if the thieves don’t actually steal anything, they still can cause damage to your property that needs to be covered.
In an industry which relies on products that are prone to abuse, overuse or misuse, pitfalls are everywhere. The industry is poised for litigation in a number of areas:
Negligence – defined as when a party acts in a careless manner that results in bodily or property damage. Failure to provide ample warnings such as a label on the product is one aspect of negligence. One such case that has been filed involves a consumer who allegedly ingested their product and killed his wife in a marijuana-induced delirium.
Breach-of-Contract Claims – this is when a consumer thinks the purchased product did not execute as expected or was more dangerous than they thought it would be, an obvious issue in the recreational category.
Intentional Misrepresentation – this is essentially a claim related to fraud, and since the industry’s marketing practices are not being effectively monitored, these types of claims are likely to increase. Use of banned pesticides is already an issue within the industry involving one lawsuit that claimed the use of banned pesticides in the product.
Marketing to Youth – much like the claims made against the tobacco industry, lack of self-monitoring in the industry’s advertising could see attempts by plaintiffs to make youth marketing claims.
Defective Design Claims – claims of defective design argue that the product’s intended purpose is not safe or suitable. The constantly evolving edibles market and hybridization of marijuana strains exposes manufacturers and distributors to consumer claims that design defects or alterations resulted in health risks, addiction, or are more dangerous than product warnings indicated.
Breach-of-Warranty Claims – such claims arise if the manufacturer’s or distributor’s representation about their product turns out to be false. With regard to medical marijuana, these could be claims about the product’s effectiveness in preventing, curing, or controlling specific medical disorders. Those in the industry shouldn’t make unsubstantiated claims about their products and it’s recommended they have an implied and express warranties disclaimer.
In recent months, marijuana products have been recalled in several states as well as in Canada. A variety of products – ranging from edibles and medical cannabis to vape pens – have been recalled for pesticide contamination, higher concentrations of THC than advertised, mold and mites, packaging issues and other problems. And marijuana companies – and the industry in general – are more prone to fallout from recalls than more established industries. There is still a social stigma and the fact that the product is classified as a Schedule 1 drug.
Still Illegal Under Federal Law
With all the hype surrounding the legalization of marijuana, it is important to remember that this drug is still an illegal substance for recreational consumption throughout most of the United States. Only nine states along with Washington DC have legalized cannabis for both medical and recreational purposes.
To complicate things further, there is a vast range of legislative policy regulating usage of this drug between states. Such discrepancy between laws makes communication highly vulnerable to confusion and misunderstanding, even for those well established providers of services within the industry.
Also, in California, a state that has fully legalized pot for both medical and recreational use, there are Federal checkpoints to avoid if one wishes to circumvent potential legal complications in the courtroom.
Buyers With Fake IDs
Another risk in the ganja business is the use of fake IDs, as selling to wrongful patrons will end you in a heap of legal trouble.
Such offenders often include both curious minors looking for a new experience; and those more hardened individuals who present fake medical cards in states that prohibit cannabis sales for recreational use.
Since January 2017, pot shops in Breckenridge, Colorado have confiscated over 178 fake IDs. And this is only scratching the surface, as one comment on a related article’s feed alluded.
You must be alert to this risk and know that the legal consequences of selling to such impostors is not worth the short term benefits of making a sale.
The risk of selling marijuana-infused edibles is not pretty.
Consider the consequences of going to a party and having your choice between two types of brownies— one regular and one laced. To a normal observer, both brownies look the same. But if it weren’t for the labels identifying each type of brownie you would have no way of knowing which brownies were regular and which brownies were laced.
Now imagine someone accidentally switched the labels on the brownies and you unknowingly ate a whole bunch because they tasted so good. It takes time for you to feel the effects of ingested cannabis, so you think nothing of it…until you’re driving home that night, and lose focus on the road…and cause an accident.
Now imagine you’re a young child at this same party, with even less understanding of the potential dangers of consuming laced edibles. Can you see the potential liability and risk caused by manufacturing such products?
Another risk in the pot industry is the basic practicalities of transportation. At nearly every step in the “Seed to Sale” process transportation is needed; and moving highly valued product often accompanied with large amounts of cash is no small matter.
Because demand for specialized transportation within the industry is growing, companies like Hardcar Security are springing into action to help. Not only do they offer a fleet of armored vehicles with mostly ex-military and law enforcement drivers, but also refrigerated units to assist with the diverse range of frozen products that must be shipped to market as well.
Damaging Weather For Outdoor Growers
Damaging weather can also be a significant risk to outdoor marijuana growers. Whether it’s freezing temperatures, hail, high wind, torrential rains, flooding or the like that causes damage, it’s really no different than for any other farmer. But due to the unique nature of the crop only certain insurance companies will cover you.
Once your crop is planted, there’s only so much you can do to protect against the elements. And being prepared for the unexpected with the
right insurance coverage is highly advised.
Workers Compensation Insurance
Workers compensation insurance in the cannabis business is separate from other industries. Consider the obvious difference of maintaining a “drug-free” work environment. Aside from the obvious mishaps, how do you determine if a worker was drug impaired when it is their job to handle marijuana plants and/or products on a daily basis?
Consider also the psychological risks of those handling this drug in an ongoing way. Depending on the form of the drug, there is a risk of impaired judgment which could lead to negative behavior of which you should be aware.
Today, more than ever, cyber attacks are becoming more and more common place. But have you stopped to the think about the ramifications a cyber attack could have on your cannabis business?
Due to growing interest surrounding the cannabis industry and the amount of money projected to be made in coming years, it is no surprise internet hackers are looking to snag their piece of the “pot pie.”
In order to safeguard against this threat, Hardcar Next Generation Security encourages you to take a close look at the following three areas:
1. Patient and Customer Data
2. Point Of Sale (POS) and
3. Grow Operation.
Once you have done this, put a plan together to shore up all vulnerabilities you find and be ready to ward off any hostile threats you encounter.
In the face of these threats, make sure you are covered. At National Cannabis Insurance Services, we specialize in helping you purchase the right coverage for your business and minimize your risks. Don’t just sign a piece of paper without fully understanding what you are getting. The risks are too great.