• LinkedIn
  • Facebook
  • Twitter

CPAs & Advisors to the Cannabis Industry Since 2009 Schedule An Appointment

Bridge West LLC
  • About Us
    • Firm Overview
    • Leadership
    • Our Companies
    • Industry Affiliates
    • International Affiliations
  • Services
    • 280E Mitigation
    • IRS and State Audit Assistance
    • Advisory Services
    • License Application Advisory Services
    • Business Valuation
    • Financial Statement Audit and Other Attest Services
    • Tax Compliance
    • Outsourced Accounting Services
    • Investment Advisory
    • Technology Services
  • Industries
    • Cultivator
    • Processor
    • Dispensary
    • Vertical
    • Hemp
    • CBD Retail and E-commerce Operators
  • Events
  • Cannabis News
    • CannaBlog
    • Podcast
    • Webinar
    • Videos
  • Client Access
  • Careers
  • Contact
  • Menu Menu

Insurance and Risk Management Challenges for Cannabis Business Owners

CannaBlog Written by Cory Parnell, CPA, Chief Operating Officer

Bridge West CPAs & Advisors to the Cannabis Industry

Veteran cannabis business owners can attest that among the many hurdles to running a successful cannabis company, business insurance, and risk management services have proven costly, when available. Insurance providers experience similar challenges as other financial service providers when it comes to doing business with the cannabis industry. Any business conducted with cannabis companies in state-legal markets poses the risk of fines and other punitive actions from the federal government. This is due in large part to cannabis being classified as a schedule one drug according to the Controlled Substances Act. This designation has a wide range of ramifications, including issues with standard business deductions, banking, insurance, and even paying taxes.

Cost and Availability

In a Reuters interview cited earlier this year, cannabis businesses reported paying 20-30% more for insurance services, when the services were available at all. Many cannabis businesses reported being underinsured either because the insurance provider could not offer them more coverage or because the businesses could not afford it. The availability of coverage is often tied to the maturity of the market as well. In more mature cannabis markets, it is easier to determine the risk of claims and lawsuits based on the historical data available for businesses that have been operating longer. This data makes it easier for insurance providers to more accurately predict the impact of certain risk factors.

Risks Involved in Operating a Cannabis Business and the Probability Scale

All companies have risks in their operations and some cannabis companies can obtain limited business insurance. However, these policies can either prove costly or lack coverage due to budgetary concerns. Below are some examples of operational risks that cannabis businesses should keep in mind when seeking business insurance. These risks are typically ranked according to the likeliness of occurrence from very likely to very little chance. As with any goods or services, it is important to meet with an experienced cannabis industry professional who can help identify the potential risks and determine how to best address them.

Physical Risks

Cannabis business owners should keep physical and building-related risks in mind. These include events such as fires, floods from broken pipes or water lines, and explosions. This also includes hazardous material risks from gas leaks, toxic fumes, poisonous liquids, or waste. The location of a cannabis business can also pose risks. These risks could come from the environment like natural disasters or storm damage, or due to the location within a given municipality like a potential for break-in or robbery. Human risks posed to a cannabis business can take the form of employees that abuse substances, theft or embezzlement, diversion of product, and illness or injury.

Technology Risks

Cannabis companies are heavily reliant upon technology for their daily operations and compliance. Risks to this digital infrastructure can impact many areas within a cannabis business’ operations. In a recent interview with Max Meade, an Insurance Advisor with Brown & Brown Insurance, [link to blog post] this area of risk was highlighted, and recommendations were offered to address it.

When developing a risk management plan and identifying necessary insurance coverage, cannabis business owners should also consider less advanced technical risks such as power and communications failures.

Product and Crop Risks

Depending on the type of cannabis company in operation, additional insurance may be needed. For example, crops and unfinished flower products or extracted materials, and finished manufactured products are insurance and risk considerations. A crop failure or contaminated batch of infused products can be very costly and detrimental to a cannabis company. It is essential to identify an experienced industry service provider to address these potential issues.

Potential Resolution

While finding business insurance providers has been a challenge, especially in newer markets, a resolution to this hurdle has been proposed. In March 2021, the Clarifying Law Around Insurance of Marijuana or CLAIM Act was introduced to both the U.S. House of Representatives and the Senate. Its intention was to accomplish for the insurance sector what the SAFE Banking Act intends to do for financial services. Unlike the SAFE Banking Act, this bill has yet to leave the committee or reach a vote. However, its introduction signals a growing desire to remove obstacles from the compliant and efficient operations of state-legal cannabis companies. This is as the federal government considers any shift in its official position on cannabis.

The importance of a cannabis-focused ancillary firm to identify insurance and risk management issues cannot be understated. For entrepreneurs entering the legal cannabis industry, the task of securing business insurance can be daunting. For experienced cannabis business owners, identifying insurance providers with significant industry-specific experience can be challenging. The key is to maximize coverage in a budget-friendly manner to increase profitability or allocate financial resources to be invested in other areas to help the business grow and thrive. Reach out to our team with any questions and look for an invitation to our upcoming webinar about insurance and risk management in the cannabis industry coming soon.

Cory Parnell, CPA, is the Chief Operating Officer of Bridge West LLC, CPAs & Advisors to the cannabis industry. For more information about insurance and risk management in the cannabis industry or to schedule a confidential consultation, contact Cory at cparnell@bridgewestcpas.com or 651-287-6327.

Newsletter Registration

Recent Posts

  • Minnesota Cannabis Updates 2023: Current License Holders
  • Why You Should Outsource Accounting for Your Cannabis Business
  • Updated Cannabis Industry Events
  • The Cannabis Industry and Tax Implications of Entity Structure: Issues to Consider for Cannabis Operators
  • What is Form 1099: Key Details You Need to Know

Services

280E Mitigation

IRS and State Audit Assistance

Cannabis and Hemp Advisory Services

Cannabis License Application Advisory

Business Valuation

Audit and Assurance

Tax

Outsourced Accounting Services

Investment Advisory

Technology Services

Resources

Contact

Events

CannaBlog

Leadership

Client Access

Serving all cannabis legal states

Headquarters:
7900 International Drive, Suite 800
Bloomington, MN 55425
(303) 651-0304
View Map >

© Bridge West LLC™ 2023 Privacy Policy
  • LinkedIn
  • Facebook
  • Twitter
Inside Cannabis Social Equity in Colorado ZoomBlack Cannabis Equity Initiative LogoUndercover Billionaire
Scroll to top

This site uses cookies. By continuing to browse the site, you are agreeing to our use of cookies.

OKLearn more

Cookie and Privacy Settings



How we use cookies

We may request cookies to be set on your device. We use cookies to let us know when you visit our websites, how you interact with us, to enrich your user experience, and to customize your relationship with our website.

Click on the different category headings to find out more. You can also change some of your preferences. Note that blocking some types of cookies may impact your experience on our websites and the services we are able to offer.

Essential Website Cookies

These cookies are strictly necessary to provide you with services available through our website and to use some of its features.

Because these cookies are strictly necessary to deliver the website, refusing them will have impact how our site functions. You always can block or delete cookies by changing your browser settings and force blocking all cookies on this website. But this will always prompt you to accept/refuse cookies when revisiting our site.

We fully respect if you want to refuse cookies but to avoid asking you again and again kindly allow us to store a cookie for that. You are free to opt out any time or opt in for other cookies to get a better experience. If you refuse cookies we will remove all set cookies in our domain.

We provide you with a list of stored cookies on your computer in our domain so you can check what we stored. Due to security reasons we are not able to show or modify cookies from other domains. You can check these in your browser security settings.

Other external services

We also use different external services like Google Webfonts, Google Maps, and external Video providers. Since these providers may collect personal data like your IP address we allow you to block them here. Please be aware that this might heavily reduce the functionality and appearance of our site. Changes will take effect once you reload the page.

Google Webfont Settings:

Google Map Settings:

Google reCaptcha Settings:

Vimeo and Youtube video embeds:

Privacy Policy

You can read about our cookies and privacy settings in detail on our Privacy Policy Page.

Privacy Policy
Accept settingsHide notification only