The legal cannabis market is growing at a rapid rate throughout the United States, with new states decriminalizing cannabis consumption and possession on a near-annual basis. As legal cannabis use continues to grow, so do the responsibilities of business owners involved in the cannabis market. One of the most fundamental components of every cannabis business is a multifaceted insurance policy that protects the interests of the business and its operators. In particular, there exists five insurance policies that all cannabis businesses should strongly consider purchasing. They are: general liability insurance, property and casualty insurance, product liability insurance, cyber defense and data breach insurance, and directors and officers insurance. Each of these policies provide specific benefits, which when bundled together, offer maximum protection to cannabis businesses.
What are the different insurance policies for cannabis businesses?
The first and most essential insurance policy for every cannabis business is general liability insurance. A general liability policy plan serves as a businesses’ umbrella, protecting a company from a wide variety of potential claims, such as bodily injury and property damage. A cannabis-specific general liability policy provides protection and a sense of relief to business owners, given that in the event of a third-party claim, it is the insurance company rather than the owner(s) that will be tasked with paying the appropriate expenses and fees.
Every cannabis business that has significant inventory should also purchase a property and casualty (P&C) insurance policy. A P&C policy protects a business owner from incurring ruinous expenses in the event of property damage. In the case of a fire, flood, or other unexpected event that results in property loss, a comprehensive P&C policy will pay the policy holder for the damage incurred.
As opposed to a P&C policy which covers a business for damaged products, a product liability policy covers a business in the event a person is harmed by one of their products. Product liability, therefore, extends beyond the physical boundaries of a cannabis business to include damages resulting from faulty products and false advertising.
Cyber defense and data breach policies are increasing in popularity as more businesses rely on online transactions and remote servers for storing sensitive information. With cyberattacks on the rise, a cyber defense policy protects a business in the event hackers manage to infiltrate the company and obtain access to client information, such as their names, addresses, and social security numbers. Moreover, aside from the invasion of privacy resulting from such a breach, business owners may be liable were the customers to file a lawsuit against the business. In such an event, a cyber defense and data breach policy will protect the business from the associated penalties and fees.
Lastly, a directors and officers (D&O) policy is a wise decision for any cannabis business interested in securing funding from investors. A D&O policy protects a company’s directors and officers from being personally liable if the business were to be sued by investors or customers with respect to the management and operation of the business. The policy would cover the legal fees, as well as any fines and settlements resulting from the lawsuit.