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For Cannabis-Related Businesses in the Bay State and Throughout New England
Cannabis insurance is (or should be) as nuanced as the different strains of marijuana itself. Ideally, cannabis-related businesses (CRBs) seek coverage from a partner who has the experience and the market access to deliver a truly customized program. In Massachusetts and New England, C&S Insurance is one of those partners.
Whether you’re applying for a registered marijuana dispensary (RMD) in Massachusetts; selling wholesale, cultivating hemp, processing cannabis flowers, leaves or stalks, this page will provide everything you need to know about Massachusetts cannabis insurance, including the most frequently asked questions we receive on the topic.
The Advantage of Working with a Local Insurance Agent for a Massachusetts-Based Cannabis Business
We know several national insurance companies say they specialize in marijuana insurance for all states where marijuana is legal. So what’s the advantage of working with a local agent?
One of the largest hurdles in establishing a cannabis operation is dealing with the local approval process. Each state maintains different rules and regulations when it comes to the sale and distribution of cannabis. As a local firm we understand, for example, the differing complexities and requirements that exist in Massachusetts, as compared to what’s required by Rhode Island’s Office of Cannabis Regulation. This gives us — and our clients — an advantage over the national agencies. Knowing New England’s systems, especially the Massachusetts Cannabis Control Commission, makes us an invaluable resource for anyone entering the cannabis industry.
The Types of Insurance Different Cannabis-Related Businesses Need
Primary coverages needed to fulfill the MA Cannabis Commission’s requirements are general liability, product liability, and workers compensation. Beyond that, in an effort to protect business owners’ insurable interests, we would also recommend commercial umbrella coverage, commercial property coverage, professional liability, and hired non-owned auto coverage.
There are also a handful of coverages that might make sense as a marijuana business starts to grow. See the chart below for a full list of insurance coverages that are applicable to different cannabis operations.
Blue = required marijuana business insurance (in MA); light blue = highly recommended; gold = good options to explore with a local cannabis insurance agent
- Marijuana dispensaries sell marijuana for recreational or medicinal use, facing many of today’s typical business risks, such as burglary, vandalism, theft, and fire.
- Marijuana cultivators grow marijuana to sell recreationally or medicinally. Risks include those similar to marijuana dispensaries, in addition to issues with equipment and product liability.
- Cannabis product manufacturers/extractors/processing plants have to deal with product liability and product recalls, and must adhere to many regulatory requirements of consumer-based products.
- Cannabis testing labs need general and professional liability insurance.
- Landlords refer to anyone leasing cannabis facilities, including warehouses, greenhouses, retail office space, and more.
- Wholesalers distribute cannabis to retail facilities.
For those who aren’t familiar with the coverage terms listed above, here’s a closer look at some of the recommended policies.
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 product recall coverage, where applicable) exists to protect marijuana business owners against any claims of a defective or harmful product.
Professional Liability Coverage (especially for physicians, dispensaries and labs)
Like other types of professionals, cannabis professionals — especially those who work in healthcare, 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. For physicians, professional liability coverage related to marijuana recommendations is often excluded from the average medical malpractice policy, and must be purchased as standalone coverage.
Massachusetts workers’ comp is a state-required insurance coverage that every business owner must carry. In Massachusetts, a workers’ compensation system exists to ensure that all workers are protected in case they are injured at their workplace or suffer a job-related illness.
Commercial Umbrella Coverage
This coverage is for those exposures that go beyond the realm of the coverages above. Umbrella coverage is particularly important to address the significant auto exposures that come with product delivery.
Commercial Property Insurance
Commercial property insurance is just one facet of a comprehensive business insurance plan. While it can be purchased on its own, most often this type of coverage is bundled into a broader program, including general liability coverage for any bodily injury or damage to the property of others. This type of coverage comes with significant variables, such as policy limits, named and excluded perils, claims made versus occurrence, and more.
This type of coverage is intended to pay for losses involving cars, trucks, vans, and other vehicles that operate in the course of doing business. In Massachusetts, as in most states, this type of insurance is required if you have a business vehicle or use your vehicle for business. You cannot drive your business vehicle (or get it registered) without the required levels of protection. .
Business Interruption/Business Income Insurance
Though these terms are sometimes used interchangeably, business interruption and business income insurance are not the same form of coverage, especially within the cannabis sector.
The first is designed to pay for expenses during a temporary shutdown.
The second, as its name would suggest, kicks in to cover lost earnings if a business is forced to close (due to a covered peril). Every carrier is different, and in some cases business income coverage isn’t available (as the valuing of cannabis inventory has been a problematic factor). Either way, it’s important to discuss coverage options, terms, and exclusions associated with the unforeseen interruption of your operations.
The FBI reports that there are as many as4,000 cyber attacks per day, and 67% of small businesses with fewer than 1,000 employees report having been the victim of a cyber attack. What’s more, the average cyber-attack now costs nearly $3 million, according to a 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.
Frequently Asked Questions
Q: How are marijuana business insurance policies usually structured? Do owners buy the coverages a la carte (via “monoline” policies), or do most carriers bundle the necessary coverages together?
A: The bundle approach is preferable to start. Depending on the business’ insurable values, there may eventually be a “layering” of carriers, in order to achieve certain coverage limits. However, for a less-established cannabis business (i.e., in their first 5 years of operation) a bundled program will work for 9 out of 10 companies.
Q: What are some common insurance gaps (or missed coverages) that marijuana business owners may not be aware of?
A: Product liability is a common one. (See more on product liability below.) Unless specifically requested, it is not included in a general liability policy. Also, Tenants Improvements & Betterments (TIB) are often overlooked. This coverage is for the money invested to build out the physical location; it is NOT building coverage. Building coverage protects the landlord; TIB protects the tenant and the money they invest into building out the location. This includes anything attached to the building. Because this coverage is often self-funded by the owner, an experienced cannabis insurance partner will recommend covering this investment up to 100%, until revenue starts coming in.
Q: What’s the difference between professional liability and product liability insurance for marijuana businesses? Who needs these coverages?
A: Professional liability coverage deals with what the company or employee recommends/suggests to a customer (e.g., a specific product that will work well or solve a problem) either in person or as advertised on a website. In the event that a customer experiences a negative result based on said recommendation, a professional liability claim could arise.
Product liability, on the other hand, deals with the actual product’s failure to deliver the expected result (as identified on in its description or label). We recommend that any cannabis-related business carry both coverages.
Q: What’s the difference between product recall and product withdrawal insurance for marijuana businesses?
A: These coverages would be most applicable to cannabis cultivators in Massachusetts and New England. Product recall deals with tainted product that needs to be pulled from circulation due to mold, yeast, or bacteria that prevents the plant from yielding a quality product. Affected products would not pass the required testing process in Massachusetts. If the problem is determined to be specific to the crop and not a specific batch, the entire product could be withdrawn. If this is necessary, the Product Withdrawal/Recall coverage would provide coverage to protect the financial interest of the organization.
Q: When delivering cannabis to consumers, what type of coverage is needed to protect cargo on board?
A: As the state of Massachusetts inches toward approving wholesale marijuana delivery (currently only available for medicinal buyers), this is an important question. The answer is still evolving. For now, depending on the carrier, it does seem that commercial auto coverage will offer some amount of “goods in transit” coverage, which would address instances of theft on the road. However, every situation is unique, which is why we emphasize the need to connect with a licensed agent in your area.
Q: What does marijuana business insurance cost?
A: No two businesses will have the same rates. But there are ways to estimate what your premiums might cost, even as a cannabis startup.
Annual revenue and crop valuation are the key drivers of premium. The cost of your general liability policy, for example, is based on expected revenue during the policy year, using a rate of $X/$1,000 in revenue. Product liability policies are also based on expected revenue: $Y/$1,000 in revenue. When it comes to property coverage (for your building, contents, and crop, as well as business interruption), premium is based on the total insurable value of those four highlighted components. You might use a rate of $Z/$100 of the insurable values.
Workers’ compensation pricing is defined by multiple class codes, depending on the different job duties of the people you employ. For a ballpark figure, you could use the industry-specific class code (0035, for marijuana growing, processing, and counter sales). In Massachusetts this code currently has a rate of $1.64 per $100 in payroll.
If you want to better understand workers comp class codes or the actual dollar amounts we recommend for X, Y, and Z, give us a call!
Q: Will some companies consider lower insurance rates for owners/budtenders who have completed marijuana certification programs?
A: If a business elects to purchase professional liability, then yes, training and education can certainly help impact rates in a positive way. Knowing the products and how they might affect an individual is a significant exposure. The more knowledgeable the employee is, the better.
Q: Which companies offer insurance for marijuana businesses?
A: There are a handful of companies who can provide coverage for the entire spectrum of cannabis-based businesses (in Massachusetts and throughout New England). While many carriers can provide coverage for one specific line of coverage, it is in the businessowner’s best interest to bundle everything into one program, to achieve economies of scale. We have access to all those companies who are capable of bundling required and recommended coverages, which means we can often create a competitive bidding scenario between several options to achieve the best pricing for our clients.
Q: What information do marijuana business owners need to provide in order to get an insurance quote?
A: Our agents can generate quotes based on a completed application and a 30-minute call to discuss the operations/timeline/deliverables. It’s a very simple process, and we’re happy to walk anyone through it. Just call our team at 508-339-2951.