Agents & Brokers
Business Owners
Resources
About
FAQ
Call Us
1-800-888-888
Navigating the Complexities of Cannabis Insurance
The cannabis industry, just like any other industry, requires insurance coverage. Insurance is often required for plant-touching businesses such as growers, processors, and dispensaries and is well-advised for ancillary cannabis businesses, such as real estate brokerages, transportation companies, and payment processors. While the cannabis industry is rapidly making its mark on the U.S. economy as more states pass laws to legalize its use (both medicinally and recreationally), the cannabis insurance industry, by comparison, has been slow to adapt to the expanding need for cannabis insurance. As a result, cannabis businesses are oftentimes left with spotty coverage, high premiums, and more questions than answers.
Start a Quote
Cannabis Insurance by State
Each individual State governs whether cannabis is legal or illegal. States can issue operational licenses, make certain types of insurance a requirement, and choose the amount of cannabis businesses to operate in their state. Even in states where they are legal, cities and counties can prohibit cannabis businesses. They may also have their own laws and insurance requirements for the industry. It is important to note that each state has its own insurance and licensing requirements for businesses, and penalties for breaches. Check your state’s laws and requirements or view our recommended policies for cannabis businesses.
Impact of State Laws on Cannabis Insurance
Cannabis today remains illegal at the federal level. However, throughout many states in the US progress is moving forward at a state level to change laws and with that insurance practices. Most states allow medical use of cannabis, and an increasing number of states allow recreational use.
Get insurance for your Cannabis business today!
Start a Quote
Benefits of D&O Coverage for the Cannabis Industry
D&O policies are a must for those operating within the cannabis industry, offering critical protection
and supporting strategic business initiatives, including:
Protection of personal assets:
D&O coverage protects the personal assets of board members and management in the event they are sued for their management or mismanagement of the company. This is especially valuable when the company is either unwilling or unable to indemnify managers. Without a D&O policy in place, business leaders would have to fund their own defense and settlement costs, which could be substantial. This is of notable concern within the cannabis industry due to federal regulations around cannabis, which heighten legal risk. Some carriers write D&O policies with regulatory exclusions, but not all.
Derivative action, books and records demands:
As a precursor to derivative action claim, cannabis companies will often be presented with a books and records demand, which requires the business to put forth the records of all the board member meetings. This can be an incredibly time-consuming and expensive process. D&O policies recently expanded coverage to supplement books and records demands costs that businesses would historically have to fund on their own.
Reputational protection:
If a cannabis company is sued, especially in securities class action suit, it will need to perform significant damage control or risk reputational harm. Many D&O policies provide sub-limits that cover the hiring of a public relations firm and other expenses associated with mitigating reputational damage.
Bankruptcy risk mitigation:
If a cannabis company goes into bankruptcy and is presented with a derivative lawsuit, which is a non-indemnifiable loss, D&O coverage can mitigate the loss by offsetting defense costs.
Management and board member attraction:
As cannabis companies grow in size, scale and sophistication, they require a much higher level of expertise and experience from board members. To effectively attract and retain high-value board members and management, companies must have D&O policies in place. Many executives will refuse to join companies without adequate D&O policies.
Merger and acquisition support:
Not having D&O coverage could also prevent an acquisition from going through. It is one of the first things buyers look for before entering into a deal.
Additional Resources
https://www.natlawreview.com/article/safe-banking-and-claim-acts-will-transform-cannabis-insurance-industry-here-s-what
https://content.naic.org/sites/default/files/cip-23.pdf
https://www.forbes.com/advisor/business-insurance/cannabis-business-insurance/
https://www.mcglinchey.com/insights/navigating-the-complexities-of-cannabis-insurance/
https://www.rmmagazine.com/articles/article/2023/01/11/navigating-the-cannabis-d-o-insurance-market
https://www.insurance.ca.gov/01-consumers/160-cannabis/
https://www.insurancejournal.com/cannabis/
https://thecannabisindustry.org/member_news/s2s-insurance-specialists-releases-insuring-cannabis-2022-2023-report-year-end-trends-analysis-how-cannabis-businesses-should-prepare-for-2023/
Get insurance for your Cannabis business today!
Start a Quote