🔒How to navigate federal and state laws to insure a cannabis business

While the cannabis business may be booming in Maine, with differences in federal versus state laws it remains a challenging industry to navigate.

Much attention is paid to issues related to banking, but insurance is another highly regulated space that poses unique complications.

Here are several key considerations when insuring your cannabis business.

Choose the right provider

Not all insurance agencies are willing to entertain the risk of covering a cannabis business. There are a number of insurance carriers who focus exclusively on cannabis operators, and finding an agent who has relationships with those carriers is critical.

A prudent first question would be to ask an agent which carrier they intend to place you with, and about that carrier’s appetite for cannabis operators.

Evaluate coverage

At a minimum, every cannabis operator should carry general liability, product liability and commercial property coverage. If the operator has employees, worker’s compensation should be included as well.

Landlords often require minimum general liability limits and to be listed as additional insured on the tenant’s policy. Many lease agreements obligate the tenant to insure the building on their commercial property policy in addition to their own contents.

The hazards posed by cannabis cultivation and extraction result in increased commercial property premiums that building owners do not want to be responsible for. Transferring risk to the tenant is a priority for landlords.

Protect your leadership team

Directors-and-officers liability insurance, called D&O coverage, is an increasingly sought-after line of coverage. However, once the minimum coverages are secured, cannabis operators are often left with limited funds to purchase more insurance.

As your business grows, you will likely welcome directors and officers into the fold, making strong D&O coverage essential. Directors-and-officers coverage protects the individual assets of a business’ directors and officers if they are personally sued for actual or alleged wrongful acts in managing the business. To obtain and retain top talent for the company’s board and C-suite positions, cannabis operators need to have coverage in place so that candidates know their personal assets are protected.

As the cannabis market in Maine and nationwide continues to mature, economic forces will make it more challenging to stay competitive. Perhaps the endgame for some cannabis operators is not to become the next big player, but to be acquired by another entity. Any time there is M&A activity, there is always a risk that directors or officers may be sued for financially misrepresenting the company’s assets.

Almost every cannabis operator is exposed to some type of D&O risk. With higher premiums than non-cannabis businesses, it is important to make sure you purchase a quality policy. Some insurance carriers willing to write D&O coverage for cannabis businesses will include exclusionary language in their policies which substantially limits the scope of coverage.

This being the case, it is important to consult with a knowledgeable agent who understands the risks faced by cannabis companies and how policy language will or will not transfer those risks away from the company.

Tom Quentin is a licensed property and casualty insurance agent and Certified Insurance Counselor at Paquin & Carroll Insurance in Biddeford.