Cannabis Insurance: Cost & Coverage
Nathan Weller is an Insurance Expert focusing on insurance for small business. He has 15 years experience in insurance operations, FNOL, and claims handling.
Cannabis insurance is a policy or combination of policies that protect marijuana businesses against their associated risks. Dispensaries, cultivators, and testing labs need different levels of coverage—but all need at least a general liability policy.
Cannabis insurance costs are higher than in other industries because of the risks associated with the product and its status as a schedule one controlled substance. A liability policy, for instance, can range from $975 to $3,300 annually. There are multiple types to consider—each with its own coverage and cost—which are dependent on your unique situation and business model.
Embroker is an easy and quick way for business owners to get insurance. Its online application is easy and takes less than 10 minutes to complete, matching you with multiple carriers that fit your needs. After applying, you can manage your quotes and policies online for free.
Marijuana Insurance Costs & Deductibles by Policy
Insurance Type | Premium Cost | Coverage Amount | Deductible |
|---|---|---|---|
General Liability | $975 to $3,300 | $1 million per occurrence/$2 million aggregate | $0 |
Commercial Property | $350 to $700 | $20,000 to $100,000 | $1,000 |
Commercial Auto Liability Insurance | $1,200 to $3,500 | $300,000 combined single limit | 0 |
Crop Insurance | $625 to $7,500 | $50,000 to $250,000 | $1,000 |
Altogether, if you operate a dispensary, costs can be around $2,500 to $7,500 per year—these numbers are for a smaller-scale operation. Businesses with additional operations, such as cultivating or lab testing, will pay more. For example, when researching for this article, we received a quote of $125,000 for a marijuana cultivation business with $1.5 million in annual revenue and $250,000 in marijuana crop coverage.
The quoting process is much more in-depth than for other retail businesses. When you apply for a quote, be prepared to answer questions such as:
- How do you prevent selling to minors?
- What do you do to ensure your product doesn’t reach criminal enterprises?
- How do you prevent the product from entering a state where it’s illegal?
- What security measures are in place to prevent theft after hours or by employees?
- Do you provide any products to employees?
- What training do your employees have in the event of a robbery?
Having answers ready to those and similar questions will make the quoting process quicker. It also shows the provider that to mitigate risk, you have a plan in place.
Cannabis Insurance Policies Coverage
There are multiple policies to consider; policies like general liability should be an immediate choice, no matter the type of business. Others, such as crop insurance, are only necessary if your business is engaged in the business of cultivation.
Most Common Types of Marijuana Insurance
Type of Insurance | What it Covers |
|---|---|
General Liability | Third-party claims for bodily injury, property damage, and reputational harm |
Commercial Property | Damage to business-owned property |
Professional Liability | Third-party accusations of negligence and mistakes |
Workers’ Compensation | Employees’ medical bills and lost wages from a work-related illness or injury |
Employees’ Medical Bills and Lost Wages From a Work-related Illness or Injury | Costs from accidents involving vehicles used or owned by business |
Inland Marine | Damage or theft of business-owned property in transit |
Crop | Costs from damage to seeds, seedlings, or plants |
General Liability
General liability or CGL, protects against third-party claims of bodily injury or property damage by covering associated costs. It also protects claims of reputational harm. Costs include medical bills, expenses, repairs, and legal fees if anyone sues you. Working with a reputable CGL provider can be helpful to provide financial protection for your business.
Commercial Property
This insurance covers business-owned property typically damaged by fire, vandalism, hail, wind, and theft. Unlike CGL, this coverage carries a deductible, which is your financial responsibility for the loss. Hemp business owners can choose to insure their property on an actual cash value or a full replacement basis.
Another option, depending upon the provider, is a business owner’s policy (BOP) which is a policy that combines property and liability. An advantage of the BOP is it sometimes results in a reduced premium.
Professional Liability
Also called errors and omissions (E&O) insurance, professional liability insurance providers can cover your defense costs when a third party accuses your business of making a mistake that resulted in a financial loss. Typically, attorney’s fees, court costs, settlements, and judgments are covered by insurers.
This insurance type is a good choice if you operate a medical marijuana dispensary. For example, if the patient has a reaction to the medical marijuana or it doesn’t perform as intended, the business may be sued.
Workers’ Compensation
Required in nearly every state, workers’ comp is a policy that protects employees who become injured or ill due to work done on the job. Such policies usually pay injured employees’ medical bills, wages, and, when necessary, death benefits to the families.
Commercial Auto
Commercial auto insurance provides coverage for first- and third-party damage due to using a vehicle for business purposes. Most states require you to carry minimum liability on your vehicle. Any other coverage, such as collision or comprehensive, is optional. However, the bank may require first-party coverage if you don’t own the vehicle.
Inland Marine
Property insurance is usually limited to a listed location—but inland marine insurance moves with the items it insures. If your cannabis business transports products to different places, you may need inland marine insurance if those items are stolen, lost, or destroyed.
Crop
Property insurance usually doesn’t cover crops. Marijuana cultivators will need crop insurance to cover costs when the crop, at any stage, is damaged or destroyed. However, some policies limit coverage to crops grown in a greenhouse, so review the terms carefully.
How To Purchase Insurance for Dispensaries
Due to the combination of state regulations, federal illegality, and the overlapping nature of a dispensary being for medicine or personal use, navigating marijuana insurance can be tricky.
Begin by researching the local and state regulations for the business to find out what’s allowed and required. Next, do some research on potential providers to determine their reliability. Many providers are new or non-admitted, so they don’t have government backing if the company fails. You’ll want to ensure that the provider’s financial ratings show that it’s financially stable. Finally, consider working with a broker who can provide you with multiple quotes to help save costs.
Many insurers are subject to the same regulations as banks and cannot insure cannabis operations. These providers also prefer having years of loss data on the industry, especially risky ones, before determining if there’s any insurable interest. The result is fewer insurance options, which drives up the cost. For this reason, relying on a business insurance broker is a wise decision when searching for hemp insurance.
Frequently Asked Questions (FAQs)
Do I need insurance for my cannabis business?
Getting insurance for your business is always a wise decision. The bank usually requires insurance to protect its interest if your company has a loan. The state where you operate may also require either insurance or a surety bond. Besides, if you have hundreds of thousands invested in a crop, is it worth the risk to not insure it?
What type of insurance is right for my business?
It depends on your operation. At the least, you should consider getting a general liability policy. If you have a lot of property or a loan, then you’ll also want to consider one for commercial property. On top of that, you may be required by law to have workers’ compensation, particularly if you have employees.
Review your cannabis business with your agent or broker to determine which coverage is best and which ones are required.
Will my personal auto insurance cover deliveries?
Most personal auto policies have exclusions in place for business use. This means that if at the time of the loss, the purpose of use for your vehicle is business, there won’t be coverage afforded under your personal auto policy.
For this reason, you’ll want to consider a commercial auto policy if you regularly transport or deliver marijuana.
Does my homeowner’s insurance cover my greenhouse?
Most homeowners’ policies have an exclusion for commercial activities on the premises. As such, if you cultivate marijuana in a greenhouse on your personal property, your homeowners’ insurance will likely not cover any business-related losses.
Bottom Line
When it comes to your budding business, you don’t want to overlook the importance of cannabis insurance. Because of its complicated relationship with the federal government and state regulations, working with a broker is a good idea when purchasing dispensary insurance.
Embroker is a great broker that can connect you to multiple carriers for marijuana insurance, after asking questions specific to your business. Visit Embroker today to start protecting your business.
