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Insuring cannabis risks a lot like food, pharma

By July 21, 2020December 12th, 2023No Comments
A photo of a woman dripping CBD oil into a coffee mug.

By Michael Pearl

Cannabis-related businesses share many of the same exposures as agricultural, food & beverage and pharmaceutical manufacturers. They all require workers’ compensation, general liability and property insurance.

However, only a handful of insurers have an appetite for cannabis-related business risks. Limits are often lower than many businesses seek, and many policies include “Schedule 1, federally illegal” and “health hazard” exclusions. And when cannabis-related businesses do find and obtain coverage, most pay their premiums in cash, which presents another barrier to obtaining coverage.

Brokers with experience in the food & beverage and pharma sector can help cannabis-related businesses acquire the limits they want, with coverage terms tailored to their unique business risks.

Spurred by the state legalization of cannabis for either medicinal or recreational use, the market for cannabinoid-infused food and beverages is projected to reach $5.9 billion by 2024 across all distribution channels.

As of June 2019, 14 states and territories approved adult-use cannabis, while 33 states, the District of Columbia, Guam, Puerto Rico and the Virgin Islands approved medical marijuana/cannabis programs, according to the National Conference of State Legislatures.

While many think most legal cannabis is consumed via smoking, increasingly consumers are ingesting cannabis-infused products in the form of edibles such as gummies, chocolates, baked goods and sodas. The insurance needs for the producers and sellers of these cannabis-related products vary based on the type of operation.

For example, manufacturers of cannabis-infused edibles and topical creams and lotions require product liability coverage.

The devastating wildfires that burned through Northern California’s wine country in 2017 and also consumed numerous cannabis growing operations demonstrated the need for fire insurance. And because many property insurance policies only cover buildings that are damaged or destroyed, cannabis growers also need crop or inventory insurance to protect their harvests.

Dispensaries need theft coverage, one of the leading risks to retail cannabis operations. Because many can’t legally obtain banking services, they operate primarily in cash, making them a prime target for thieves.

Another danger most cannabis businesses face is the threat of cybercriminals hacking into their IT systems. Young, rapidly growing industries are especially vulnerable to cyber-attacks, including denial-of-service and ransomware attacks that can cripple a business. Cyber insurance will protect cannabis business operations from such risks.

Obtaining the right insurance coverage is key to ensuring the growth of cannabis businesses. But also essential is finding a broker who has expertise in food & beverage, nutraceutical and pharmaceutical risks who knows how to tailor an insurance program to address cannabis-related business risks.