At the end of March, New York State became the 15th state to legalize adult-use cannabis, with the passing of an amended version of the Marihuana Regulation and Taxation Act, SB S854A. Governor Andrew Cuomo signed the bill into law just 12 hours after the legislation was approved by New York lawmakers, and said that this bill would “right the wrongs of the past by putting an end to harsh prison sentences, [embrace] an industry that will grow with the Empire State’s economy, and [prioritize] marginalized communities so those that have suffered the most will be the first to reap the benefits.”
But if you’re a business owner or cannabis-related entrepreneur, one of the questions that will inevitably arise is, “what about insurance for my cannabis business?” Business insurance is of the utmost importance, and protecting yourself is essential, especially in the ever-changing frontier of the marijuana industry. So what do we know? What don’t we know? At Weed Ross, we like to stay informed so our clients can be in-the-know as well—we want you to “stay out of the weeds.” So we took it upon ourselves to dissect the seemingly illusive field of cannabis insurance. Plus, our name is “Weed Ross” afterall, we sort of had to cover this, didn’t we?
In this article, we will cover:
- Key Terms: Cannabis, Marijuana, Hemp, THC, and CBD
- The Legalities of the Cannabis Market
- Cannabis-Related Business Insurance
- The Current Status of Cannabis Business Insurance
Key Terms: Cannabis, Marijuana, Hemp, THC, and CBD
Firstly, in order to even cover these topics, we need to define a few key terms. Many people often confuse terms like cannabis, marijuana, hemp, THC, and CBD, so we’re here to clear the air.
Cannabis: The term cannabis is often used interchangeably with marijuana, but this is not entirely accurate. Cannabis actually refers to a group of flowering plants that have been used for centuries by people for religious, industrial, therapeutic, and recreational purposes. Both marijuana and hemp are classified under the Cannabiceae family—basically they are both types of cannabis plants.
Marijuana: The term marijuana only really started to form when smoking the cannabis plant became increasingly common. However, the Controlled Substances Act of 1970 (CSA) lumped both hemp and marijuana together and defined them as
“all parts of the plant cannabis sativa L, whether growing or not; the seeds thereof; the resin extracted from ant part of such plant; and every compound, manufacture, salt, derivative, mixture, or preparation of such plant, its seeds or resin.”
Hemp: In 2018, hemp was finally delineated from marijuana under the Agricultural Improvement Act of 2018 (the 2018 Farm Bill), in which it was legally defined as
“the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.”
Basically, hemp is any component of the cannabis plant that has less than 0.3% THC. But that begs the question: what is THC?
THC: Tetrahydrocannabinol (THC) is one of over 100 compounds, known as cannabinoids, that exist in cannabis plants. Many of these compounds are still currently being researched by industry experts, so we don’t know what all of them do just yet, individually. However, we do know that THC is one of the psychoactive cannabinoids found in cannabis plants, which means that it causes euphoric and intoxicating effects when consumed.
CBD: Cannabidiol (CBD) is an increasingly popular cannabinoid found in cannabis plants, often desired for its believed therapeutic effects. Many researches and businesses claim that CBD offers anti-inflammatory effects, as well as other positive effects on mood, anxiety, sleep, and more, and are selling it in the form of supplements, oil, edibles, and even in its pure form. Unlike THC, CBD is not psychoactive, so many consumers are intrigued by the cannabinoid, as they hope to experience the benefits of cannabis without the “high.”
The Legalities of the Cannabis Market
Legally, the cannabis market can get a little hazy. But it’s important to cover, at least briefly, because it will only make it easier to understand the nuances of cannabis-related insurance. As we stated earlier, 15 different states have legalized adult-use marijuana, but what’s interesting is that marijuana remains a federally illegal substance—it’s still a Schedule I controlled substance along with heroin, ecstasy, LSD, and others. Hemp, however, became a federally legal substance in 2018, when it was legally made distinct from marijuana (and only containing less than 0.3% THC). Additionally, this means that hemp-derived CBD (or any compound derived from hemp plants) are also lawful, federally.
The point is, it’s still up in the air. Marijuana and hemp are subject to different laws from state to state and it’s important to carefully research your state’s stance before starting any sort of business. Additionally, it’s critical that you pay attention to evolving federal regulations, and you must be cognizant of the details. When it comes to cannabis insurance, you’ll want to consult experts, like those at Weed Ross. But for now, let’s dive into what we know regarding marijuana, hemp and CBD insurance, currently.
Cannabis-Related Business Insurance
With over half of the states in the country legalizing marijuana in some form or another, either recreational or medical, the demand for cannabis is increasing dramatically. But while the discrepancy remains between federal and state regulations, cannabis-related businesses often struggle to attain inclusive, reliable, and affordable coverage, as many carriers are hesitant to provide insurance to these types of organizations until the smoke clears.
But the fact remains, that with states such as New York legalizing marijuana for adult recreational use, businesses are starting to open, and they will need coverage. These cannabis businesses face an array of liabilities, including the same general risks that conventional agricultural and manufacturing businesses are up against, and then some.
For instance, because of the legal grey areas, financial institutions are often hesitant to provide service to cannabis businesses, and it is estimated that 70% of cannabis businesses operate on a cash-only basis. This creates a large amount of liability for cannabis-related businesses, as they become increasingly susceptible to robberies and break-ins. However, in April of 2021, The Secure and Fair Enforcement (SAFE) Banking Act was reapproved by the U.S. House of Representatives and currently awaits Senate approval. This bill would provide official regulation and guidelines surrounding the concept of fair opportunity for cannabis business financing and banking.
Additionally, the popularity and demand of cannabis-infused products, such as edibles, increases the risk of product liability and safety recalls. These types of products also may be offering the psychoactive effects of THC, and are therefore more likely to be subject to mislabeling and misrepresentation claims.
For these reasons, the topic of cannabis insurance has traditionally and understandably been a difficult thing to discuss, as it requires some tip-toeing. This is why cannabis-specific language is imperative to developing adequate cannabis insurance coverage. The National Association of Insurance Commissioners (NAIC) has also developed the Cannabis Insurance Working Group, which will work to constantly assess and report the status of federal cannabis legislation and how it pertains to the insurance space. Additionally, this committee will encourage insurance carriers to issue adequate and affordable cannabis insurance coverage in states where it’s legal to do so, and serve as a resource for those carriers and agencies.
The Current Status of Cannabis Insurance
As the cannabis market is continuously evolving, more and more marijuana dispensaries and ancillary organizations are opening their doors. Not only will these be some of the first businesses of their kind, they will also be the first businesses for many of these entrepreneurs in general. As an insurance agency, Weed Ross always supports businesses with a tailored insurance package to cover the individual specifications related to the industry.
By working with numerous insurance carriers, Weed Ross can provide your cannabis business with all of the coverages you need, as we will partner with the best cannabis insurance carriers as the industry takes off. We understand the risks associated with running a business of any kind, and will continue to educate ourselves and our clients as the cannabis space burgeons. However, as a starting off point, the important coverages to illuminate include general liability coverage, product liability coverage, property coverage, workers’ compensation coverage, and a few others. But we know that there won’t be a one-size-fits-all plan, especially when it comes to an industry as nebulous as the cannabis industry.
General liability coverage is extremely for cannabis businesses and marijuana dispensaries, as owners will likely need to provide proof of general liability insurance in order to open the business in the first place. You will also typically need general liability insurance to occupy a brick and mortar location and receive a license.
Product liability coverage will also most certainly come into play, but may be a surprise to many business owners. Cannabis-related businesses may not realize that they could be held responsible for the growing, manufacturing, or labeling mishaps that could occur in the process of distributing marijuana products. If products such as these are defective, mislabeled, contaminated, or misrepresented, the dispensary could be deemed liable. Adequate product liability coverage can often protect you in the event that someone sues you for these types of negative scenarios.
Property coverage can help protect the marijuana-related business in the event of several different commercial situations. By having adequate property coverage in your business insurance policy, you’re protected from direct losses that result from stolen, damaged, or destroyed property.
Workers’ compensation coverage is also essential for cannabis-related businesses. This type of coverage protects your marijuana business from things like medical costs and lost wages due to injuries or sickness. Workers’ compensation provides for payment for medical benefits, income benefits, rehabilitation benefits, and death benefits.
Weed Ross is a local insurance agency dedicated to providing the absolute best coverages and packages that the insurance industry has to offer. We work with dozens of carriers, so you don’t have to call them all and figure it out for yourself. Our expertise expands from home insurance, to business insurance, to brewery insurance, to renters insurance, and even to cannabis business insurance. We basically do it all. We’re here to make the insurance process as seamless and as simple as possible. If you still have questions regarding insurance for your cannabis business, give us a shout—we’d be happy to help!