Cannabis, Property Coverage, & Proper Risk Management

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For most cannabis businesses, obtaining property coverage is a challenge.

Due to the inherent high hazards involved in manufacturing and selling cannabis, property coverage can cost as much as seven to 10 times what traditional manufacturing and retail outlets experience.

For landlords and building owners, taking in a cannabis tenant can be tricky as well. Because of the higher theft and manufacturing risks, many underwriters are unwilling to offer coverage. Failure by a landlord to disclose a cannabis tenant may result in a denied claim. Moreover, some cannabis businesses might not maintain occurrence-based liability coverage, often required by landlords and building owners. An occurrence-based liability policy is one that covers the renter for an accident occurring during the policy period, regardless of when a claim is made. Cannabis’ high risks have led some insurance companies to typically only cover them with a claims-made policy, or one in which claims must be made during the policy period. Occurrence policies are available, but your broker must be able to bifurcate your premises liability and products liability.

Landlords may include their requirement for an occurrence-based policy in their lease. Cannabis businesses that only have a claims-made policy could be in violation of their lease, often unknowingly.

These issues and others have allowed landlords to command premium rent from cannabis businesses owners who find obtaining the right property coverage difficult.

To calm the rising tide of rent and property coverage costs, cannabis business owners and operators can engage the following insurance and risk management considerations.

Insurance Considerations

1. Consult your insurance broker. If you’re a landlord and you want to rent to a cannabis tenant, have a conversation with your insurance carrier at least 30 days before the lease begins. There’s a good chance that they will issue a notice of cancellation (NOC). If you don’t disclose the new tenant and their high risk, when a claim is filed, it will be denied, and the non-disclosure could cost you your policy.
2. Work with a broker/carrier that specializes in cannabis. Because the market is so volatile, you’ll want to work with someone that specializes in cannabis. This will ensure that hidden exclusions are removed, you are able to procure the best policy for your organization, and that you receive the best pricing possible.
3. Tell your insurance story. Let the carrier get to know you by telling them your business’ “story.” Tell them what your business does well, including current risk management practices and how you’ve been able to reduce claims. This will go a long way toward potentially minimizing premium costs and exclusions and obtaining broader coverage.
4. Get another set of eyes. Most carriers will require a lengthy application from cannabis businesses. On the application, the carrier may require the business to comply with certain requirements like hiring an armed guard. Your business will be held to the requirements stipulated in the application should you sign and submit it. Ask your broker or a reliable attorney to review the contract for anything you may have missed. Some carriers will incorporate the submitted application into the policy. Any changes between policy inception and a claim could cause coverage issues.

Risk Management Considerations

Carriers are more likely to provide a policy to cannabis businesses that are doing what they can to minimize risks. Engaging in the following risk management practices will help reduce costs, minimize exclusions and obtain broader property coverage.

1. If you are a retailer, have a plan to prevent or respond in the event of a robbery.
2. Know how to use vaults and safes properly.
3. Install alarms, cameras, and other safeguards. Have them tied to your phone for easy access.
4. Depending on the nature of the business, consider installing and test fire sprinklers on site to make sure they are in working order.
5. Consider hiring a 3rd party, properly insured, armed guard to safeguard your storefront.
6. Institute best practices for high-risk manufacturing processes, like oil extraction.