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Insurance. For many cannabis business owners, that word evokes memories of coverage rejections, outlandish premiums and uninsured losses. But as the cannabis industry has flourished, dispensary insurance options have grown. These 17 tips from experienced cannabis insurance advisors can help you obtain coverage to protect your dispensary.

Michael Aberle

Senior Vice President, CannGen Insurance Services

1. Obtain product liability coverage that covers your products. Aberle describes dispensaries as the “end of the river,” where everything, including potential liability for product issues, flows. “All retail stores should have product liability because you can’t control what the manufacturer, the grower, the distributor or the warehouse did,” he explains. “A lot of people will say, ‘That’s not my fault.’ You forget, the lawyer is going to name you in a lawsuit.”

Watch for policy provisions that restrict or remove coverage for products you sell. “Before you sign the contract, ask if your policy has any exclusions for cannabis, hemp, CBD, Schedule I, health hazards, whatever,” he says. “Make sure you put it in writing and then require that [the insurance carrier] respond in writing. Every single time.”

2. Protect against risk associated with labeling. As cannabis labeling requirements become stricter, Aberle recommends personal advertisement injury coverage to protect against claims of misleading or incomplete label statements. Fluctuating state labeling regulations do not alleviate you of responsibility or potential liability.

For example, Aberle points to labels that suggest a product will make you happy: “What if I’m not? … You might say this product may make you happy, but to pinpoint that it will make you happy? That’s where the plaintiff attorneys are going to eat this stuff up.”

3. Understand your workers’ compensation requirements. Aberle warns that trying to avoid workers’ comp premiums by claiming your regular employees are “1099” self-employed contractors won’t fly. “You need to understand what the labor laws are in your state and what it means across state lines as well,” he says. “When you send someone to a trade show, what does that mean [for workers’ comp]?”

Employee classifications impact costs significantly. Premiums for clerical workers are a fraction of the cost for other classifications, but Aberle says guidelines are strict. “[Most states] are not allowing the 8810 clerical classification unless [the employees] sit in a room and don’t touch the weed, don’t touch the money, don’t [do anything but] straight clerical [work].”

4. Don’t count on standard personal or commercial auto insurance. Auto accidents, whether on deliveries or supply runs, can translate to major losses without transparency and cannabis auto coverage. “People say, ‘I have personal insurance,’ or, ‘I have commercial insurance.’ But did you put it in writing that you’re a cannabis business? Just because you have personal auto doesn’t mean that if you were found with any business cannabis in [the vehicle] that they can’t decline that coverage,” Aberle says. “It’s so important that you put this in writing to your carrier.”

5. Have general counsel or an insurance lawyer review every insurance policy. “The insurance is a legal document, that’s all it is. I strongly recommend that every insurance policy be reviewed and signed off by general counsel or an insurance lawyer,” Aberle says. “Most businesses pay all this money to have [attorneys] read the city and state guidelines, but they won’t have them look at their insurance.”

Mike Bush

Partner, National Cannabis Insurance Services, LLC

6. Request that vendors name your dispensary as an Additional Insured party on their policy. “When there are issues with product, the person who bought that product can pull in anyone in the chain, from manufacturer all the way to sale, whether negligent or not. In the case of faulty product or faulty labeling, your dispensary could be liable,” Bush says. “Defense costs can be very expensive even against what could be a bogus claim. By taking this step, the dispensary has access to the coverage and defense provided by the vendor.”

7. Go above and beyond compliance requirements for coverage. “You can make a choice to be compliant and just meet the necessary limits and coverage as required by the municipality, county or state, or you can choose to be protected,” Bush explains. “The difference is compliance might only require you to have certain limits and coverages that may not cover the full magnitude or scope of your real [risk] exposure. Compliance doesn’t always mean that you’re protected.”

8. Protect against employment-related claims such as discrimination, harassment and wrongful termination. “If you were to terminate somebody or there was an issue of alleged harassment in the workplace, Employee Practices Liability Coverage steps in to provide defense and pay out money if it’s identified that you were negligent,” Bush advises. “Age discrimination, gender discrimination, sexual discrimination—any of those things can be claimed, whether they’re bogus or not. You want to have this coverage in place so it’s not an out-of-pocket expense for you to have the services of a lawyer defending you against these claims.”

For more information on wrongful termination, see HRHQ.

9. Consider cyber liability coverage to protect against expenses related to data breaches. “As a dispensary, you’re taking in a lot of personal information,” Bush warns. “If you’re warehousing that information in a computer system and you’re hacked, you are responsible: No. 1, to notify all those people that their information was compromised; No. 2, if bank account information was provided, [you might have] to provide them credit-monitoring services; and, No. 3, you as a dispensary are also responsible for forensic analysis of how that breach occurred. It’s a very, very real exposure for dispensaries.”

Patrick McManamon

CEO, Cannasure Insurance Services

10. Obtain proof of insurance and proof of testing from your suppliers. “As a dispensary, you may not have made the products you sell, but that doesn’t guarantee you wouldn’t get pulled into a lawsuit. Make sure that your suppliers have their insurance in order. Obtain proof of insurance from them as well as proof of testing, even when it is not required by the state,” McManamon advises.

“Don’t get complacent. Make sure you’re always verifying [proof of insurance and testing] and not just taking it for granted. If you stop asking, you don’t know if they stopped testing or they have lower [coverage] limits than you are comfortable with or they’ve dropped their coverage completely.”

11. Purchase product withdrawal expense coverage. “Product withdrawal expense coverage is readily available, rarely purchased, but very necessary. If you are subject to a product recall, there’s going to be expense associated with notifying the public, pulling that product off the market and managing that process. Even if you are just a dispensary selling the product and you aren’t the manufacturer, you will probably still have some expense associated with it,” McManamon says.

“Product withdrawal expense covers that expense associated with getting the word out, collecting that inventory, bringing that all back in. For a relatively inexpensive premium, it’s a pretty good coverage that hopefully you never have to use. But if you do, it will be worthwhile.”

12. Thoroughly understand the warranties you are agreeing to in your policy. “Warranties are those things that the insured [party] is guaranteeing they’ll do in order for coverage to apply in the event of a loss,” McManamon explains. For example, you warrant on your coverage application that you’ll keep inventory in a locked vault during non-business hours. If cameras show otherwise and a robbery occurs, coverage will be denied.

“Warranties are going to show up at the time you get your quote,” he says. “Your signature literally is at the bottom of a document that has these bullets points of X, Y and Z. Review each one with your agent to avoid any potential issues or delays in claim payment when you file a claim.”

13. Pay attention to basic retail safety and security. “Dispensaries are high-volume retail places. Make sure that your facility, inside and out, is safe and secure. Make sure there aren’t trip hazards in the parking lot or that kind of thing,” McManamon says. “The No. 1 claim we’re going to see, outside of theft, is trips and falls because the parking lot or the sidewalks weren’t maintained.”

JB Woods

President and Owner, Greenpoint Insurance Advisors

14. Have plans and controls in place to limit risk of internal theft and external robberies. “The chances are going to be relatively high that there’s going to be some sort of internal theft [of money and cannabis] by employees, and then external robberies where criminals are coming in and stealing money and product,” Woods says. He recommends role-playing robbery scenarios with employees. “How do you react if somebody comes in with a gun and requests money and product? What do you do? Those are really important questions to ask,” he says.

“For internal employee controls, we suggest what we call ‘dual control’ or ‘dual custody.’ As an example, when counting money, have two people count together so both must sign off,” Woods adds. Limiting your risks for theft with measures such as these may ultimately have a beneficial effect on your insurance coverage.

15. Prohibit budtenders from recommending specific products to treat specific medical conditions. A recent Denver Health study found that a majority of budtenders surveyed recommended cannabis products to treat morning sickness in pregnant women. “That’s a problem,” Woods warns. “Budtenders who recommend particular products to treat specific medical conditions could result in some sort of litigation or claim.”

For more on budtender recommendations, read “No Comment” in Cannabis Dispensary’s August 2018 issue.

“If a budtender is aware that they shouldn’t be making these kinds of recommendations and then they intentionally are making those recommendations, the carrier could opt out of coverage,” Woods says. “Not only the employee is going to get named, but the employer absolutely will get named.”

16. Establish and maintain good relationships with your landlords. “Dispensaries must establish good relationships with their landlords, and they do this by meeting all of the lease terms and obligations. Over the years, I’ve seen incidents, claims and, ultimately, lawsuits where tenants aren’t meeting those terms and conditions and then landlords say, ‘You’re in breach of contract,’ and they’re going to evict you,” Woods explains.

“There’s always going to be an insurance provision inside of those contracts. Making a good faith effort to meet those obligations becomes really important. When it comes to some sort of accident or negligence, you can get coverage for that. There is no coverage for breach of contract.”

17. Understand your product liability risks in selling cannabis product manufactured by another company. “If there’s some sort of issue related to product liability with a product your store sold to the public, it’s really important for the store to understand who is responsible,” Woods says. Two components in that determination are 1) the state laws and 2) the contractual relationship between the retailer and the manufacturer. “The third component is going to be if the retailer and the manufacturer are collaborating in some way with that product,” Woods says. “For example, the labeling or the product is being changed, particularly by the retailer. That retailer’s liability most likely just went up. Now they’re acting in a kind of joint capacity.”

For more information on dispensary insurance, read “Covered?” in Cannabis Dispensary’s November 2017 issue.