Why Your Business Insurance Policy Might Not Cover Your Marijuana Business

Rachael Z. Ardanuy, Esq.
Oct 16, 2018
3 min read

With so much red tape around licensing and taxes, you may be forgetting some of the basics for your marijuana business.

In addition to setting up your business’s legal structure and hammering out operating agreements, another order of business is to source a commercial insurance policy.

While some startups and new businesses can contact the agent who provides their home or car insurance policy to slap on a business policy, marijuana business owners will need to spend far more time and research on this important business requirement.

In addition to remaining compliant with state and local laws, ensuring that you have pertinent insurance coverage is one of the best ways to avoid legal action.

But there is more than one reason your business insurance policy might not actually provide the coverage you need. Aside from legal action, this could result in denied claim when you need to exercise your policy.

Due to the tension between state and federal laws, insurance companies seem to be caught in the middle, tentatively offering commercial policies to marijuana business that are riddled with coverage problems. With that in mind, viable policies for cannabis companies are sadly limited compared to other industries.

While California might be leading the way in mainstreaming cannabis commercial insurance, Colorado does have options when it comes to choosing an agency, agent, and policy to fit their business. In fact, many insurance agents approach the cannabis industry the same way they do the alcohol industry.

1. Read the fine print for coverage exclusions

Many commercial policies downright exclude coverage for bodily harm, personal injury, etc. for or on behalf of any cannabis or cannabis related companies. If you’re working with an agent trying to swoon you with the best deal, it’s possible they are simply leaving out coverages that you business desperately needs. Read the fine print or buyer beware!

2. Work with a commercial insurance agent who knows the cannabis industry

If you go with a mainstream commercial agent or agency, you’re likely to receive a generic commercial policy that is riddled with exclusions for federally illegal activity. Marijuana has yet to jump that federal hurdle, so be sure to work with an agent who is intimately familiar with cannabis. While insurance policies for marijuana businesses are somewhat limited, there is coverage for the major risks facing the industry.

3. Know your business needs

In order to acquire a policy that gives you coverage where your business needs it, you need to know what your business needs. Talking to a commercial insurance agent familiar with the cannabis industry can certainly help in this regard. Keep in the mind the biggest risks to the industry – products liability, loss of inventory from criminal activity, and crop failure – and consider how these risks might affect your marijuana business.

The bottom line comes down to this: know your business and and know your policy.

Of course, this is just to secure your commercial business insurance policy. In order to be fully compliant and covered, you’ll need to look into other policies like worker’s compensation, commercial auto, and employment insurance among others depending on your business needs.