Committee Blog: The New Licensee Insurance Checklist – Part 1

by NCIA’s Risk Management and Insurance Committee
David Rahn, S2S Insurance Specialists

If you have a business in the cannabis industry, especially one that’s either newly operational or still in the pre-revenue stages, these businesses should have some sort of risk management plan put in place. Insurance is the cornerstone for any risk management plan if you want your business to recover after a financial or physical loss. 

There are many types of insurance products to consider and it’s important for the business owner to have a knowledgeable Insurance broker who can help obtain tailored policies for your business. It’s important to consider the following questions below when seeking insurance for your business:

• What types of insurance do I need?
• When should I be getting insurance for my business?
• What kind of claims are common in the cannabis industry?
• What information does my insurance broker need to help me get an insurance quote?

Which types of insurance do I need?

Depending on your needs discussed with your insurance broker, all businesses should at least have some sort of property & casualty coverage. Whether the size of your business is starting in your own home, or you have a commercial or industrial space, it would be paramount to explore General Liability and Commercial property insurance, as well as Product Liability Insurance: 

• General Liability
  • A General Liability Insurance policy indemnifies against risks that nearly all business owners face. General Liability is the most critical basic coverage your business needs to protect you from a variety of claims including bodily injury, property damage, personal injury, and other situations that may arise including slander, libel, copyright infringement, and more.
    
• Commercial Property
  • Commercial Property Insurance not only protects your place of business, but also its contents, including office furniture, computers and inventory, from common perils such as fire, lightning, explosion/implosion, riots, strikes and terrorism.
    
• Product Liability 
  • Product Liability Insurance is designed to protect your cannabis company from claims that can happen anywhere along the supply chain, including product contamination, mislabeled products, false advertising or defective products.

Once you have those three policies secured, additional types of insurance would include:

• Crop Coverage
  • Crop Insurance is specifically designed to protect cannabis and hemp growers from natural disasters such as wildfires, hurricanes/heavy winds, and flooding/water damage. However, it can also cover incidents like theft, explosions, vandalism, and other unpredictable and uncontrollable events that result in an “interruption of service.”

• Cyber Liability 
  • Any business that has an online presence or stores customer data electronically needs Cyber Defense and Data Breach Insurance to protect yourself from legal liability and hefty fines. Given the vast amount of information that cannabis retailers and distributors are required by law to collect from customers, coupled with the fact that this is a rapidly growing industry with evolving regulations, the unfortunate reality is that cannabis businesses are prime targets for cybercrime.
    
• Directors & Officers Insurance 
  • Directors and Officers (D&O) Liability Insurance protects corporate directors and officers, as well as their spouses and estates, from being personally liable in the event your company is sued by investors, employees, vendors, competitors, customers, or other parties, for actual or alleged wrongful acts in managing the company.

When should I be getting insurance for my business?

It is very important to understand the right time to get your insurance. As always, it is important for you to build a good relationship with a knowledgeable insurance broker who can help you find the right time to buy insurance. 

• General Liability/Commercial Property
  • When Business owners rent or lease commercial property for their business, in the lease agreement, landlords almost always have an insurance clause stating the minimum limits the client needs to have on their GL policy in order to move in and conduct businesses. Usually around the same time you get your lease agreement is around the same time you should be considering GL and property insurance, so you know you are covered right when you move in and before your start business.
    
• Product Liability/Crop
  • If you have a product-facing business, it is important to secure these policies before your product comes off the assembly line. As for Crop insurance, make sure you get your policy before you start planting and harvesting.
    
• Cyber Liability
  • Typically before you launch your web presence and begin business transactions is the best time to secure your policy. 

As your business grows and scales while you bring on outside investment, that’s the time when you should be considering your D&O and other management liability coverages.

What information does my insurance broker need to find an insurance quote?

It is important to always be honest and upfront with your insurance broker, especially when shopping for quotes. Your underwriting information needs to be accurate for you to obtain proper insurance coverage. You do not want to be underinsured or overinsured and pay for policies that you don’t need. A good place to start is with your business plan and projected revenues because that will help the insurance broker determine what products you may need. A well thought out business plan is the first step in being prepared in finding the right insurance.