Cannabis Business Liability Insurance: Top 4 Risk Categories

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Photo: Portrait Image Asia / Shutterstock

The U.S. cannabis industry hit a record $24 billion in sales in 2021. With legalization becoming more common, the industry is poised for another year of huge growth in 2022. The enterprises set to benefit most from the anticipated boom are those best positioned to manage risk.

Due to its federally outlawed status and the dangers of extraction and production, cannabis business liability insurance risks always have outpaced the availability of insurance, and what insurance is available is expensive. Most cannabis businesses—including dispensaries and cultivators—need at least general liability, which can range from $700 to $3,000 annually for small businesses. Companies must pay even more for additional coverage, including executive liability policies such as employment practices liability and directors and officers coverage, costs for which are expected to increase 10 to 20 percent in 2022.


As the industry booms and more states legalize both medical and recreational use, cannabis businesses are taking on risks similar to those in other agricultural industries. On the upside, the additional risks and higher insurance premiums won’t inhibit industry growth; however, they will require businesses to invest in risk-management resources to maintain a competitive advantage.

A rise in weather-related disasters, federal and financial obstacles to growth, increasing manufacturing risk, and the ever-present threat of cybercrime all influence the industry’s “more” syndrome. To channel “more” into positive growth in 2022, strong risk-management across all cannabis businesses will be key.

Here are four risk trends expected to impact the industry this year.

Risk 1: more mergers and acquisitions

Merger and acquisition (M&A) activity, which ramped up this year, is projected to be even more intense in 2022.

In the United States, smaller cannabis companies await passage of the Secure and Fair Enforcement (SAFE) Banking Act and the Clarifying Law Around Insurance of Marijuana (CLAIM) Act to allow easier access to traditional banking, financial, and insurance services. In the meantime, access to capital remains perhaps the biggest obstacle for small cannabis companies, as lending institutions have limited lending ability in the industry due to federal restrictions. For now, large cannabis enterprises with non-cannabis subsidiaries, which typically have more access to capital and an easier time obtaining private-equity investments, have the means to acquire smaller competitors.

At the same time, less risky markets like Canada, where cannabis and insurance companies are unburdened by federal restrictions, are able to increase their cross-border M&As.

Risk 2: more catastrophic risk

Securing crop insurance always has been difficult for cannabis growers. Add persistent severe weather, and it’s the perfect storm for crop risk.

Policies that transfer wind and hurricane damage risk in Florida or wildfire and smoke taint in California are virtually nonexistent for cannabis—and for outdoor growers, a single weather event can wipe out an entire crop with no recourse. One possible solution: parametric insurance, which pays out in full when a weather element reaches a certain threshold, regardless of the actual damage.

Growers with indoor operations may have to cope with costly energy conservation initiatives, which could present a direct threat to the viability of small operations.

This makes it important for cannabis producers to institute conservation and risk-mitigation measures like improved safety protocols at indoor growing facilities ahead of 2022 policy renewals.

Risk 3: more attention to R&D

Many in the industry are working to reduce their use of dangerous chemicals, while THC variants like Delta-8, which may or may not be federally legal, will continue to gain traction into 2022 in states where cannabis remains illegal.

Current lack of testing and oversight pose a threat to legitimate businesses as it equates to higher risk in the industry and therefore higher insurance premiums.

To reduce risk and ensure coverage, cannabis extractors and processors should aim for transparency, hiring third-party testing companies to certify their products and giving underwriters insight into their research-and-development and extraction processes.

Risk 4: more cyber threats

When JBS Foods was hit with a ransomware attack in 2021, it raised a major red flag for all food production companies, including those in cannabis. 

For instance, consider the liability if a cyberattack affected product labeling: The consequences of a 20mg product advertised as 10mg could be severe and far-reaching. When it comes to extraction, numerous irregular risks exist as well. If a hacker cuts off air conditioning in a grow and the plants develop mold, would this be covered under a cyber policy, property-casualty policy, or neither?

Cyber-coverage costs are expected to rise by as much as 30 percent this year. But cannabis businesses cannot rely solely on insurance to cover their cyber vulnerabilities. Nearly 60 percent of cannabis businesses say they haven’t taken steps to prevent a cyberattack, yet risk management and a strong information technology infrastructure are crucial layers of security, especially when cyber insurance availability is limited. 

Jay Virdi Hub International mg Magazine mgretailer

Jay Virdi is chief sales officer for Hub International’s cannabis insurance and risk services in the United States and Canada. He focuses on developing Hub’s expertise and resources to serve the cannabis industry across the two countries. Hub comprises a network of risk, insurance, employee benefits, retirement, and wealth management specialists.