Last week we covered the basics of buying insurance for a marijuana business in Massachusetts. This week, we’ll take a deeper dive into some of the risks we think you should be concerned about in your medical or recreational cannabis operation.
Let’s start with a review of the marketplace as a whole. As long as Marijuana remains a Schedule I drug and federally illegal, the admitted insurance marketplace will not provide coverage for cannabis businesses or cannabis related entities. That means the brands that we are familiar with are not going to be writing any insurance in the Marijuana space. We are all left to work with surplus and excess insurance companies.
What does that mean for you, cannabis entrepreneur? You’ll be paying a 4% surplus lines tax on your policies. You will not be covered by the Massachusetts Insolvency Fund in the event your insurance company goes bankrupt and cannot respond to your claim. There is less regulation and oversight for the policy language in excess and surplus policies. In short, it’s a bit more Wild Wild West than your traditional insurance marketplace. You need to work with someone who is familiar with the endorsements and exclusions on these policies as they can have a significant impact on your business.
It’s time to review a few additional cannabis coverages that were not addressed in our last blog.
Employment Practices Liability Insurance:
Think Harvey Weinstein! This is coverage to protect you as an employer against claims related to hiring, firing, harassment, etc. Once thought to be a supplemental coverage, EPLI is one of the most important coverages to be purchased by any business today due to the level of claim activity related to employment practices.
Directors and Officers Liability: You have a board and/or an executive team. They need coverage for the leadership decisions they make. Think breach of duty of care, loyalty to the company, unfair business practice, and securities regulation. This is a must if you have a board. One can argue it’s a must even if you don’t have a board.
Cyber Security and Liability: Just pick up a newspaper and you are likely to find an article related to a cyber breach somewhere in the country. Hackers, cyber extortion, viruses, personally identifiable information, phishing, data breaches, DDoS, and the list goes on and on. We need to be thinking about insurance in this space and our requirements under the Massachusetts Privacy Law. We all have standards we must adhere to in Massachusetts.
Crop Insurance: I did not cover this in our last blog, but it should be noted that if you are growing marijuana this will be a very important coverage in your insurance arsenal. Your property insurance most likely will not provide coverage for your cannabis inventory that is not finished stock. You need coverage that appropriately values your product throughout the growing life cycle.
Health Insurance and Other Benefits: We value our people. Our human capital is often our greatest asset. A competitive benefits package is an investment in human capital that will yield a return for years to come. Whether providing basic health insurance, or a full suite of benefits including life, dental, disability, long term care, and voluntary benefits, we need to consider how we want to invest in our teams.
There are seemingly endless lines of coverage that can and should be discussed with an insurance professional familiar with the cannabis industry. This series of blogs is a great start, but a more comprehensive analysis is recommended for anyone doing business in the Massachusetts marijuana space.
The insurance marketplace is limited, but changing rapidly. We encourage you to work with an agency who is in tune with the cannabis industry and dynamic insurance environment. In addition, your relationship should not end with the placement and reactive service of your insurance products.
Stay tuned for Part III of How to Buy Massachusetts Cannabis Insurance where we will explore risk management strategies and cost controlling strategies to make sure you are getting the most from your cannabis insurance program and a return on your insurance investment.
Interested in learning more about FBinsure’s Cannabis Business Insurance options or speaking to a Risk Advisor about your business today? Click Here!