Insurance for Marijuana Dispensaries

October 15, 2019

Insurance for Marijuana Dispensaries and Marijuana Delivery in Massachusetts


At last count, Massachusetts is home to nearly 60 marijuana dispensaries—either medicinal, recreational, or dual-purposed. With experts predicting a massive uptick in adult use sales (up to $66 billion by 2025), there’s no doubt more cannabis-related businesses are on the way.

Whether you’re applying for a registered marijuana dispensary (RMD) in Massachusetts; cultivating hemp; processing cannabis flowers, leaves or stalks; here’s the scoop on how insurance issues might affect your business plans…

What kind of insurance does a marijuana dispensary need?

Like any business, legalized marijuana businesses—including cultivators, product manufacturers, hydroponic shops, testing facilities, etc.—need general liability coverage, commercial property insurance, business interruption insurance, and workers’ compensation. These are coverages that address (in brief summary): customer slips and falls, damage from fires/storms, loss of income following a shutdown, and worker injuries.

In addition, marijuana business owners may wish to purchase supplemental coverages to address the specific risks and challenges they tend to encounter. For example:

  • Cannabis Product Liability Coverage/Product Recall Coverage

Cannabis and hemp are like other consumer-based products—say, food or beer. Because people consume marijuana, vendors are always at risk that their products might cause an injury, make someone sick, or worse. Product liability coverage (and prod

uct recall coverage, where applicable) exist to protect marijuana business owners against any claims of a defective or harmful product.

  • Professional Liability Coverage (especially for dispensaries and labs)

Like other types of professionals, cannabis professionals—especially those who work in dispensaries and labs—are often called on to provide expert advice or recommendations. If this advice leads to a negative outcome, the marijuana business owner and/or the employee involved may be held liable for professional negligence or faulty guidance. Professional liability coverage—also known as Errors & Omissions coverage—exists to protect you and your team from this type of exposure.

  • Cyber Coverage

Cyber attacks were up 424% in 2018—and small businesses are an increasingly popular target. What’s more, the average cyber attack now costs nearly $3 million, according to 2018 State of Cybersecurity report for SMBs. Cyber coverage can help you protect—among other things—sensitive employee data, product data, and client data, which is especially important if you have access to clients’ medical records, per HIPPA.

  • Cargo Coverage

Your cannabis inventory is incredibly valuable. It’s important to protect your crop and finished products while they’re being loaded, unloaded, and transported through the supply chain. Ask about cargo coverage that protects company-owned vehicles/drivers as well as outsourced transportation providers (if necessary).

  • Courier/Delivery Insurance

As you may have heard, the Massachusetts Cannabis Control Commission will now allow at-home deliveries of pot and edibles. This creates a new exposure, since drivers could be involved in collisions that result in injury or product loss. Drivers—carrying large sums of cash—are also at risk for robbery.

We’ve discussed delivery insurance as it relates to the restaurant industry, but marijuana businesses need to be careful in how they source and insure their delivery drivers. Not all marijuana dispensary insurance programs will cover delivery drivers. What’s more, if coverage were available, freelancers from places like UberEats would not have the same protections as in-house employee drivers.

I’m a landlord, renting space to a marijuana dispensary. What kind of insurance do I need?

Commercial property landlords often find themselves in a challenging spot, when it comes to cannabis industry tenants. It’s important to alert insurance carriers upfront about the nature of the business occupying the space. Some carriers may not have the appetite for a dispensary or hydroponic shop—along with the attendant risks of theft, vandalism, fire—but some do. Here at C&S, in fact, we work with several insurance carriers who will happily write coverage for dispensary landlords.

Which companies offer insurance for marijuana dispensaries/cannabis businesses?

Many carrier names could be on this list, but it’s important to remember that few are offering comprehensive insurance plans that will address all the types of coverage mentioned above. In most cases, cannabis businesses still need to piece together a program from a variety of carriers—with the help of an independent agent, who specializes in insurance for marijuana dispensaries etc.

Why is marijuana insurance so complicated/expensive in Massachusetts?

Insurance companies are still trying to get their arms around the risks associated with insuring marijuana businesses. In states like Massachusetts, the industry is still very new. And while it’s relatively easy to obtain coverage for general liability and commercial property, some of the ancillary coverage needs—product liability, professional liability, marijuana delivery insurance—are often excluded.

You may also encounter very low limits on coverage for burglary/theft, since marijuana is a cash business and crime—unfortunately—is a prominent risk. Some dispensary owners accept potential property loss as a given cost of doing business, and are essentially “self-insured” against burglaries. Installing advanced security systems and documenting careful loss prevention policies may help your business when shopping for theft loss coverage.

Where can dispensaries get these important coverages then?

And at present, much of this supplemental marijuana insurance comes via wholesale brokers: companies that are willing to take on greater risks. These brokers have access to out-of-state “markets,” i.e. insurance providers that aren’t admitted in Massachusetts, but can still be accessed by paying extra taxes and fees. Hence, these necessary extras are often more expensive.

Why is insurance for marijuana dispensaries still such a tricky issue?

Although RMD marijuana sales are now legal in Massachusetts (and many other states), marijuana is still illegal from a federal government standpoint. This means cannabis businesses typically cannot gain access to banking services (apart from certain credit unions), as most banks are regulated by federal authorities. Major insurance carriers are similarly tethered to banks and federal regulators.

Getting mainstream carriers on board with marijuana dispensary insurance will require “safe harbor” laws that reconcile the industry’s legalized state status with its prohibited federal status. Luckily, there’s good reason to think such laws are on the way…

In September 2019, the U.S. House of Representatives passed a piece of legislation designed to protect banks, insurance companies and insurance agents who are prepared to offer financial services to marijuana dispensaries et al. The Safe Banking ACT (a.k.a. the Secure and Fair Enforcement Banking Act) will now move onto the Senate for approval. According to the Independent Insurance Agents and Brokers of America, this legislation—if passed—will “prevent criminal prosecution and civil liability against agents and brokers who choose to engage with cannabis-related legitimate businesses.”

Whether you run an existing dispensary or you’re in the planning stages, our team is happy to help walk you through the industry’s exposures and insurance options. Call us at 508.339.2951 or email info@candsins.com.