How Insurance is Protecting the Cannabis Industry

Hanasab Insurance Services

Risk is a factor in any business. But another way to look at risk is acknowledging you have something of value. Something worth protecting.

Meanwhile, the purpose of insurance is to mitigate risk and protect the value you stand to lose.

If you've ever operated or managed a business, you're probably familiar with the concept of Business Insurance.

Business Insurance provides coverage for liability, lost revenue, natural disasters, and a host of other potential claims.

But is this sort of coverage available to cannabis businesses? And moreover, is it really necessary for operators in this industry?

To address this question, the team at Cannawayz.com connected with Brian Kohan, an insurance agent who heads up the Cannabis Department at Hanasab Insurance. Now, the fact that an insurance agency has a dedicated cannabis department strongly indicates the need for insurance.

But to gain greater clarity, Brian agreed to chat with us in detail about insurance's role in the growing cannabis industry.

Cannawayz: Do cannabis businesses REALLY need insurance?

Brian Kohan: Absolutely!

Cannabis businesses are like any other business. Liability, loss due to theft and other unforeseen circumstances, and fires and other natural disasters are all factors that can impact any business, including cannabis businesses.

The business you've worked so hard to build can be eradicated in the blink of an eye. A slip and fall or an employee injured on the job that turns into a multi-million lawsuit can send a business careening into bankruptcy.

The same goes for a fire that burns down your crops, warehouse, or store. All that you've worked so hard for can disappear in an instant.

The purpose of insurance is to safeguard against these unfortunate circumstances.

Cannawayz: Does this need for insurance apply to all segments of the cannabis industry?

BK: Again, absolutely!

Whether we're talking about cultivators, processors and distributors, transporters, dispensaries, and even ancillary trades like cannabis delivery services – All of these businesses are at risk due to liability, loss, disasters, and other related factors.

The type of coverage, its monetary limits, and the number and scope of policies involved may vary based on the individual segment. But the need is common to all segments of the cannabis industry.

Cannawayz: That's a perfect segue into our next question! What types of coverage are available to cannabis businesses?

BK: Liability insurance ranks among the most crucial coverage for cannabis businesses. It protects against slips, falls, and other accidents resulting in personal injury. Excess liability is also available, which increases the per claim coverage.

Product liability is another option. Let's say a consumer falls ill after ingesting a cannabis product. They can potentially sue the cultivator and distributor. Product liability protects these businesses against such claims.

Workers' compensation is also available, protecting businesses against on-the-job accidents resulting in employee injuries.

Transportation insurance protects cannabis distribution trucks and other vehicles in the case of accidents. It can also insure against lost or damaged cargo, including inventory and cash.

These examples are just a basic overview of common coverage. If a business has a specific need, there's likely available coverage. Additionally, the scope of a policy and coverage limits can be tailored to an individual business's needs.

Cannawayz: What's unique about insurance for the cannabis industry?

BK: Generally speaking, business insurance is the same for a cannabis business as it is for any other business.

That said, there is one major differentiating factor. Cannabis is, for the time being, deemed illegal by the federal government. As such, cannabis businesses are considered a non-admitted use.

That means most "name brand" retail insurance companies WILL NOT insure cannabis businesses.

Alternatively, an insurance agent must turn to wholesalers that specialize in sourcing insurance for non-admitted uses, like cannabis.

Cannawayz: What are the biggest challenges in finding insurance for cannabis businesses?

BK: Great question! There are a couple of key challenges.

First, due to the ambiguous legal status of the cannabis industry, many cannabis businesses have vague operational descriptions and complicated or convoluted corporate structures.

Meanwhile, unclear business descriptions and confusing corporate structures make securing insurance that much tougher.

Secondly, the cannabis industry is still new and consequently lacks established standard practices. The insurance business relies partly on actuarial tables and risk profiles to help develop policy terms.

The absence of these elements makes the process more complicated, and it takes longer to secure a policy.

And finally, the often-lengthy timeframe involved in shopping for and finalizing a policy can frustrate cannabis business operators. That Irritation can prompt business owners to insist on the cheapest policy available. However, buying a policy based on price rather than coverage is a big mistake.

Cannawayz: What are the biggest issues cannabis business owners should be concerned with when it comes to insurance?

BK: Inadequate policies and coverage gaps.

Many existing policies have been crafted by inexperienced agents working with inexpert wholesalers. And the language in these policies, which ultimately determines coverage, has left business owners with coverage gaps and insufficient limits.

Currently, the biggest coverage gaps are related to theft, general liability, and product liability. And cannabis businesses with gaps in these areas are at tremendous risk.

Brian Kohan, Cannabis Insurance Agent

Brian Kohan is an insurance agent with Hanasab Insurance, where he leads the Cannabis Department. Brian is an acknowledged cannabis insurance expert who has secured many millions of dollars of coverage and worked with a who's who of the biggest names in the cannabis industry. For more information on cannabis business insurance, contact Brian Kohan at: 323.557.1050 | kohan@hanasabInsurance.com