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Product liability is one of the largest exposures the cannabis industry faces, and all businesses are at risk, no matter their place in the supply chain, according to Brian Henry, a senior vice president in HUB International’s cannabis practice.

HUB, an insurance broker that provides business and personal insurance as well as employee benefits, maintains that everything from product contamination to DUI cases can become a risk for a cannabis business. Continued monitoring of business exposures related to cultivation, production and distribution practices is needed to reduce these risks, and Henry cautions that businesses get what they pay for in terms of coverage; operators should focus on obtaining the proper policy for their business rather than finding the lowest price tag.

First and foremost, Henry says, cannabis business owners should be wary of specific product exclusions that may be lurking in their policies. Generally, an insurance policy will grant a business a broad range of coverage, which is then narrowed through exclusions. Cannabis companies should ask their insurance brokers to explain any and all exclusions in their policies, Henry says.

“I want to see every single exclusion that the underwriter is attaching to the policy,” he says. “Again, it varies by insurance company. There can be a lot of variation in the exclusions that insurance companies add to their policies. You need to work with an experienced broker who takes the time to review these insurance policies word-for-word to really understand what coverage is there, and more importantly, what coverage is not there.”

Some exclusions can bar insurance coverage on the very products that cannabis businesses produce and sell, Henry adds.

“For instance,” he says, “we saw a vape pen manufacturer that had an electronic smoking device exclusion. We also see various illegal acts exclusions, and those can be problematic at times, depending on how broadly they’re written, because obviously [cannabis is] still illegal federally. You have ingredient exclusions, and we’ve come across numerous cannabis companies that had no clue that many of the ingredients they were using in their edibles were not covered.”

Health hazard exclusions can also be problematic for cannabis businesses, Henry adds, and can include exclusions for cardiovascular disease and cancer, as well as psychoactive exclusions.

Identifying Exposures

According to Henry, every business in the cannabis supply chain has the same exposure: if an end user is injured due to the product, he or she will most likely sue every point in the supply chain.

Contracts with vendors often include language that makes the product manufacturer responsible for negligence should a product liability claim arise, Henry says. Therefore, it is important to ensure that the manufacturer has an adequate insurance policy to protect the other businesses in the supply chain.

“A lot of folks say, ‘Oh, we have insurance. We don’t need to worry about it,’” Henry says. “They may have insurance, but do we know what that insurance actually covers? You can have a manufacturer that really doesn’t have much insurance at all, so then you’re relying on those indemnification agreements within the contract, if they even exist, to protect you.”

Cannabis companies should also consider coverage for product recalls, Henry adds. If a product is recalled due to pesticides or incorrect labeling of THC content, for example, the business is required to cover any costs incurred to get the product off the shelves.

“That can be very, very expensive,” Henry says.

You Get What You Pay For

Ensuring proper product liability coverage comes down to finding the right broker and policy for your unique business, Henry says.

“I think the key here is buyer beware and you get what you pay for,” he says. “There are certain policies that are going to be out there that aren’t going to be worth the paper that they’re written on.”

Cannabis businesses should have the same product liability insurance as product manufacturers in other industries, Henry says, and cannabis operators should always pay close attention to exclusions.

“I would say exclusions are a big deal,” he says. “From our perspective … not all insurance policies are created equal, [and] certainly not all brokerages are created equal, either.”

Insurance does not exist for every risk a cannabis operator faces, so having a broker that understands the limitations of the marketplace and who is able to obtain the broadest coverages available is paramount.