If you’re a marijuana grower or owner of a marijuana dispensary, it’s important to understand the unique risks you face and the types of available insurance coverage so you can select ones that are right for you.
There are currently 20 states that allow the use of medical marijuana and two of those stated, Colorado and Washington, have legalized marijuana for recreational use. However, since the cannabis industry is relatively new, it can be difficult for a new business owner to obtain the right insurance coverage for their marijuana business.
“There are only a handful of insurance carriers willing to offer this type of coverage,” says J.B. Woods, owner of Greenpoint Insurance Advisors in Parker, CO. Woods, who specializes in marijuana insurance, believes this is because the marijuana insurance industry still has a lot of unknowns for insurance carriers.
As the industry continues to evolve, so will your insurance options. Stay up to date on the changing marijuana insurance industry so you can learn:
- The type of business insurance currently available for marijuana businesses.
- The unique aspects of your business that require special coverage.
- How much marijuana business insurance may cost.
Types of insurance available for marijuana businesses
Unlike typical business insurance policies, where a business owner’s policy (BOP) would be mostly all-inclusive, insurance for a marijuana business is available a la carte.
Here are three types of available coverage.
1. General liability insurance.
This coverage pays for any damages that you may be found liable for.
For example, if you own a marijuana retail store and someone slips and falls while shopping, general liability insurance would cover the customer’s medical costs. General liability insurance also covers the cost of your legal fees and any settlement or award if someone wins a lawsuit against your business.
When it comes to the recommended liability limit, most insurance agents recommend you carry a limit between $1 million and $2 million. Speak to an experienced agent to decide how much coverage is right for you and your situation.
2. Product liability insurance.
Product liability insurance is designed to protect against lawsuits related to things like unexpected medical reactions or false claims about products like marijuana edibles.
Whether the suit is legitimate or not, the high costs of court and legal fees can add up quickly. Product liability insurance would cover any fines incurred from a lawsuit and the cost to defend the lawsuit.
3. Commercial property insurance.
It’s important to also insure the investment you have in your business property.
“The amount of commercial property insurance a marijuana business needs depends on the type of business they’re engaged in,” Woods says. “If you own a retail operation, then you’ll need coverage for your finished product as well as any improvements you make to the building. But if you’re a grower then you’ll need insurance on the plants and all your equipment.”
The covered perils included on a marijuana business insurance policy are similar to the perils on most business policies (such as fire and theft). So, like a typical business insurance policy, flood damage wouldn’t be covered. And according to the National Flood Insurance Program (NFIP), marijuana is considered a legal substance under federal law so no marijuana business can be covered under an NFIP flood insurance policy.
It’s also important to note that at the federal level, marijuana is still classified as a Schedule I controlled substance and is illegal to distribute or sell. So even though several states have legalized marijuana, the laws in those states are in conflict with federal law.
This means the feds could raid a marijuana dispensary or farm and there would be no coverage for any product that was seized since insurance carriers cannot cover “federal raid.”
However, Brian Simpson, owner of Insurance West in Kent, WA said, “We have not heard of any of our clients being involved in any federal raids so far.”
How much does marijuana business insurance cost?
The cost for marijuana business insurance depends on several factors including the amount of risk you’re exposed to and how much property you need to insure.
Woods says, “You can expect to pay between $2,000 and $5,000 a year for the various coverages.” Of course the cost will vary depending on a variety of factors. “(The cost) depends if you’re an indoor grow, an outdoor grow or a retail operation,” Simpson says. “Policies for indoor and retail are usually around $5,000 or more while outdoor grows can be significantly more because everything is literally out in the open.”
Questions an insurance agent may ask you
Now that you have a better understanding of the coverages available to you as a marijuana business owner, the next step is to get a quote and speak with an agent who specializes in this coverage. Be prepared to answer the following questions in order to get your quote processed as quickly as possible.
- What’s your business model?
- What’s your forecasted revenue?
- What type of business do you have (such as LLC or S-corp)?
- Do you own or rent your building?
- Do you have sprinklers installed?
- What’s the year of construction of your building?
- If there were major improvements to the building, when did those occur?
- Does the building have a wood frame or is it made of brick?
- Do you have a security system installed?