If you are going into business growing cannabis or running a dispensary, one of the things you will need to figure out before you get started is insurance.
In this post, we will go over what you need to know about cannabis insurance. We will start by discussing the requirements, and then we will review some of the different types of dispensary and pot farmers’ insurance. We will also talk about factors that can affect your costs.
Finally, we will introduce you to Cannasure, our top recommended insurance carrier for cannabis cultivators and dispensaries.
Dispensary Insurance Requirements
If you operate a dispensary, whether or not you legally need insurance depends on your state.
Many states do not require cannabis dispensaries to purchase insurance, but some do. For example, if you are in Arkansas, you need $200,000 proof of assets or a $100,000 surety bond, as well as a $100,000 performance bond.
As another example, cannabis businesses in California must purchase a $2 million aggregate general liability insurance policy with coverage of $1 million per occurrence, as well as a $5,000 surety bond.
Since these are just a couple of examples, and as requirements may change, you need to look them up for your state to figure out what you need.
Cannabis Farmers’ Insurance Requirements
Some states set separate insurance requirements for cannabis farmers than they do for dispensaries.
Returning to the example of Arkansas, cultivators must purchase a $500,000 performance bond, as well as $1 million proof of assets or a surety bond.
Once again, requirements vary from state to state, and some states do not currently have requirements for insurance for cultivators. You will need to check your state’s current laws.
Even if your state does not mandate insurance for your cannabis business, you should purchase it anyway to protect your business. There are a lot of things that can go wrong in the course of cultivating or selling marijuana. For example:
- A neighboring farm could claim a pesticide you used damaged their crops, and sue you. Your insurance could help you cover your legal costs.
- Someone could break into your dispensary and steal your merchandise. Insurance would help to offset the losses.
- An unexpected weather event could kill your crop. With living plant coverage, you might receive compensation.
Types of Cannabis Business Insurance
Here are some of the different types of hemp insurance you should consider for your business.
- General liability: This is the most basic type of commercial insurance that every business owner should get, regardless of industry. General liability insurance protects your business if you damage another person or their property.
- Errors and omissions: Another basic type of commercial insurance that every business owner should consider is errors and omissions coverage. Say, for example, that you recommend a product in your dispensary to someone without realizing that for whatever reason, it is contraindicated for them. Then they sue you for negligence. That is the type of incident where errors and omissions coverage would come in handy.
- Equipment breakdown: If any of your equipment breaks down, it could lead to your stock being damaged and/or prevent you from meeting your usual productivity quotas. This type of coverage can help you pay the costs for repairs or replacement of the broken or malfunctioning equipment.
- Pesticide/fertilizer: If a pesticide or fertilizer you are using leads to damage for a third party, this type of policy will provide you with protection.
- Living plant matter: This is a specialized coverage for cultivators that can kick in if an unlikely wildfire or weather event results in losses. In order to be eligible for a payout, the event must surpass a pre-set threshold. You also may be required to set up sensors.
- Commercial property: You can use this kind of policy to cover your own commercial property. That is that is different from general liability insurance, which covers other people’s property.
- Commercial auto: If you drive a vehicle for work (for example, to transport your products), you can cover it with a commercial auto policy.
- Crime: Unfortunately, one of the risks of running a cannabis business is that you can easily become a target for crime. For that reason, insurance against theft and other crimes is essential whether you are a cultivator or you are running a dispensary.
- Cyber: If you accept online payments for your products and/or you store customer data electronically, getting a policy to protect your business against cybercrime is wise.
- Workers’ comp: Cannabis farmers and dispensaries with one or more employees need to purchase workers’ compensation. This type of coverage is legally required in every state, and pays out if your workers get sick or injured on the job.
- Bonds: If you operate a cannabis business, your state government is concerned about you obeying the law. Some states require surety bonds as guarantees that you will follow their laws. These laws might concern sales taxes, safety, etc. If your state requires you to purchase surety or performance bonds, you will need to get the type and amount they require to operate legally.
- Additional types of coverages: There are some other types of policies for cannabis businesses as well, such as builder’s risk, cargo and stock throughput, directors and officers, flood, special events, employment practices liability and more.
How Much Does Cannabis Insurance Cost?
We are not going to lie—insuring a cannabis business can be very expensive. At the lower end, a small dispensary might pay as little as $2,500 per year. At the upper end, a large-scale cultivator might pay in excess of $120,000 a year.
Here are some of the factors that may influence costs:
- Your type of business. Different types of cannabis businesses face very different risks, and also require different types of policies. A dispensary owner will not pay the same as a cultivator.
- The scale of your business. This is a huge factor in determining the costs to ensure your business. A single small dispensary is not going to pay a fraction of what a large-scale cannabis farm will need to pay.
- Your geographical location(s). Imagine you own a dispensary in an affluent part of town that is relatively crime-free. You probably will not have to pay as much as the owner of a dispensary in a crime-ridden district in the dodgy part of town. Your business simply does not face as much risk every day if you are in a relatively safe area.
- What you do to ensure legal compliance. We talked about surety bonds a bit ago, which many states require. If your business has effective practices in place to ensure you remain complaint with state laws, that may reduce your insurance costs. For example, an insurance company may quiz you about how you make sure your products do not fall into the wrong hands (like those of minors or criminals). The more satisfactory your response, the lower your costs might be.
- How you mitigate other risks. You will be asked how your business is reducing your exposure to other risks. For example, do you have a security system to help prevent theft?
- Your deductibles. Deductibles and monthly premiums for insurance plans are inversely related. By raising one, you can lower the other, and vice versa.
- Your coverage amounts. Raising your coverage amounts raises the monthly costs for your insurance policies. Lowering the amounts reduces the costs. But don’t forget that at a minimum, you must purchase the amounts that your state government mandates.
- Your types of coverages. As you have learned, there are many types of policies that you can get for a cannabis business. If you only require the basics, you will not pay as much as you would if you require or opt for more extensive coverage with a lot of specialty policies.
- Your record. The owner of a well-established cannabis business with years of experience has likely become skilled at mitigating risk. That means they will not pay as much for insurance as the owner of a newer company that may not be as good at preventing crime, illegal purchases, etc.
- Discounts. Some companies may be willing to extend you a discount for bundling certain policies or for taking certain steps to secure your premises and protect your products.
- Underwriting guidelines. Because underwriting works differently at every insurance carrier, different prices will be quoted to you even for policies that are roughly equivalent between carriers.
Where to Get Cannabis Insurance Coverage
For coverage tailored to the needs of your cannabis business, we recommend Cannasure. This company has been around since 2010. Your needs are too specific to be served by a regular commercial insurance carrier; you really need to be working with the experts.
Cannasure says, “From that first client to the hundreds of clients we serve today, we’ve dedicated our entire practice to mitigating the challenges that businesses in the legal cannabis and hemp industries face when trying to get insurance coverage. Through extensive risk management assessments of some of the leading dispensaries, cultivation facilities and infused product manufacturers, we’ve spent hundreds of hours observing and analyzing the unique risks facing the cannabis industry in order to best serve our customers.”
You can go through Cannasure’s MGA Division to access the flagship coverages available through the company’s Cannabis & Hemp Program. If you need additional specialty coverages, you can turn to their Brokerage Division.
Here is what the Cannabis & Hemp Program includes:
- $45M per location property capacity: Standard ISO-based forms and Cause of Loss for Building, business income, equipment breakdown, living plant material, pesticide/fertilizer, and options for builder’s risk and renovations, expanded property and more.
- Excess property up to $20M per location
- General liability up to $6M/$6M
- Products and completed operations up to $5M/$5M
- $5M excess casualty
For full details on everything included, you will want to visit this link.
Here are the types of specialty coverages Cannasure offers:
- Builder’s Risk
- Cargo & Stock Throughput
- Commercial Auto
- Cyber Liability
- Directors and Officers
- Employment Practices Liability
- Parametric Crop / Living Plant
- Special Events
- Workers’ Compensation
- Workers’ Compensation – California
With so many policies available, you can easily customize your coverage to fit the exact needs of your business. On top of that, Cannasure receives excellent reviews from customers, who praise the specialized policies they offer as well as the quality of their customer service and communication.
If you are ready to get the insurance you need now to protect your business and operate legally in your state, click the link below to request a quote from Cannasure.