The Cannabis Industry’s Massive Under Insurance Gap and Need for Core Coverages
According to a new Reuters article regarding the overwhelming need for insurance in the cannabis industry and dearth of carriers willing to write policies for businesses in the space, “the industry only wrote about $250 million in policies last year, insurance agents estimated for Reuters, with a handful of carriers offering limited property and liability coverage.”
The Reuters article highlights the often-cited exponential growth of the industry, noting legal U.S. cannabis sales will exceed $20 billion this year and more than double—to $41 billion in sales—by 2026, according to BDSA research.
While the $250 million in polices for 2020 figure may be low—experts I have spoken with estimate the cannabis industry should be covered to about $1 billion annual premiums if it was insured to levels normal for other businesses (or roughly a 5% insurance take up rate for the $18 billion in 2020 sales).
As a result, there is a massive $500 to $750 million under insurance gap among cannabis operators that is potentially threatening the financial stability of the industry, viability of cannabis businesses, safety of customers, and more.
From increased risk of fire in cultivation and extraction, to heightened financial risk of theft of product or cash, and from mitigating claims of cannabis product liability, to staying in compliance to maintain your license to operate, there are a myriad of risks your cannabis business may face.
All these risks can be financially devastating if your cannabis operation is not properly protected with effective and broad risk management solutions including, at minimum, certain core insurance coverages.
While there are varying coverages cannabis businesses should consider depending on the nature of your operations, the following coverages are crucial for most operators—and likely required to maintain a license or to otherwise operate in compliance with state laws, regulations, or other contractual requirements (e.g., leases, partnership contracts, vendor agreements, etc.).
- Commercial Property insurance protects buildings, contents, and business personal property against perils such as fire, theft, vandalism, and natural disasters. Greenhouses, indoor grows, manufacturing labs and equipment, and dispensaries are expensive investments and should be protected by a property insurance policy.
- General Liability insurance provides protection against third-party claims of injury and property damage arising out of the insured’s premises or operations. General Liability insurance is required by virtually all leases and other contractual arrangements.
- Product Liability insurance provides protection against financial loss from claims of bodily injury and property damage relating to use of a covered product—and is not for manufacturers only. Indeed, the point of sale (dispensary) is usually the first target of a claim even if you didn’t manufacture the product—and employing other risk transfer tools such as requesting an additional insured endorsement from vendors is crucial in the cannabis industry supply chain.
- Workers Compensation coverage is for an employer’s statutory liability to provide benefit payments to employees for work-related injuries or illnesses. Employers with even one employee in most states must provide workers compensation insurance.
Despite the critical and often required nature of these core insurance policies, we have witnessed multiple operators forgoing these coverages altogether for various reasons.
However, since the industry faces a unique set of challenges and exposures, it’s crucial for businesses to develop a tailored risk management plan. This includes understanding the unique insurance needs of the industry and the specific risks to your company.
If you would like to confirm whether your business has the coverage it needs without any potentially expensive gaps in coverage, please contact PurpleRisk® for a consultation.
David M. Kennedy, Esq. is the founder and CEO of PurpleRisk® Insurance Services, a NACB member. For cannabis insurance inquiries, contact David at email@example.com or visit https://purplerisk.com.
 Alwyn Scott, U.S. Cannabis Insurers Get Ready To Roll As Federal Legalization Nears, Reuters, August 19, 2021, https://www.reuters.com/business/us-cannabis-insurers-get-ready-roll-federal-legalization-nears-2021-08-19/.
 BDSA, U.S. Legal Cannabis Sales, Reuters, August 19, 2021, https://graphics.reuters.com/USA-INSURANCE/CANNABIS/lbpgnrkdrvq/.
 Robert Armstrong, U.S. Cannabis Companies Struggle To Secure Insurance, Financial Times, December 4, 2019, https://www.ft.com/content/6123ab6e-1169-11ea-a225-db2f231cfeae.