Navigating 2025: Strategies for Thriving Amidst Risk and Competition in Cannabis

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Illustration: KurArt / Shutterstock

The cannabis sector is navigating heightened risks, with economic pressures, inflation and regulatory uncertainties straining operations. A reactive, “set-it-and-forget-it” mindset no longer will work to manage risks. Instead, cannabis companies must proactively address potential issues before they grow out of control.

Alternative risk transfer solutions, such as captive and parametric insurance, are emerging as viable options, but for now, risk mitigation and continuous vigilance remain the most effective strategies.

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Here are some of the challenges businesses may face this year and how to address them.

Climate

Climate change presents significant challenges for the industry, with extreme weather events increasingly disrupting operations. Outdoor growers face risks from droughts and wildfires, while hurricanes and floods threaten supply chains. The urgency for resilience measures became clear in 2023, when Hurricane Hilary — Los Angeles’s first tropical storm in more than fifty years — shattered historical patterns, underscoring the critical need for proactive climate-risk planning.

Companies that invest in climate-risk mitigation strategies, such as catastrophe modeling and infrastructure improvements, will be better equipped to withstand extreme weather. Alternative insurance solutions, including parametric coverage and other non-traditional policies, can offer a safety net for businesses unable to secure traditional insurance.

Research and development

Research and development (R&D) in the sector are paving the way for new product lines and revenue streams, from cannabigerol (CBG) products to THC-infused beverages. However, innovations often bring unique regulatory and liability risks. For instance, while beverages infused with hemp-derived THC have entered the market through a federal loophole, insurers are hesitant to cover the products due to liability and compliance concerns.

Companies engaged in R&D must assess the risks associated with launching new products, carefully and continually. From product liability to potential recalls, businesses need to safeguard their R&D operations with comprehensive risk coverage.

Mergers and acquisitions

The erratic pricing of cannabis products has been a persistent challenge, impacting businesses’ ability to remain solvent. As competition intensifies and the market reaches saturation, mergers and acquisitions are becoming crucial strategies for growth. Cannabis companies are acquiring distressed competitors, but they must proceed cautiously to avoid taking on unnecessary liabilities. Collaborating with experienced insurance advisors can help ensure that both parties in these transactions secure proper insurance coverage, such as directors-and-officers (D&O) and runoff policies.

In this environment, strong risk-management practices are essential. For cannabis entities, a single disruptive event — whether a natural disaster, supply chain issue, or cyberattack — can be financially devastating. Implementing a robust business continuity plan can help pressure-test loss scenarios and strengthen organizational resilience. Companies with comprehensive risk-management strategies will be better equipped to navigate 2025’s challenges and emerge resilient.

Employee benefits

As the cannabis industry matures, employee benefits are becoming a vital factor in workforce retention and satisfaction. High turnover rates and rising unionization have led many companies to prioritize the development of attractive benefits packages. Nearly 300 dispensaries and 36 cultivation facilities are now unionized. While many union shops, like those represented by the United Food and Commercial Workers Union (UFCW), benefit from programs like 401(k) plans and healthcare for workers, retirement plans remain a critical area for improvement.

To attract and retain top talent, cannabis companies should consider data-driven, personalized benefits programs that resonate with employees. Analyzing workforce data enables organizations to develop benefits that improve the overall quality employee experience and differentiate them from competitors. Working with a knowledgeable benefits advisor can help companies implement multi-year plans and maximize offerings without incurring excessive costs. Captive insurance solutions also may offer a way to enhance benefit programs while controlling expenses.

Key strategies for 2025

To thrive in the competitive and risk-laden 2025 market, cannabis businesses should consider the following actions.

  • Strategically finance risk. With increasing weather-related disruptions and economic pressures, many companies struggle to afford adequate insurance. Conduct a thorough analysis of risk exposures and develop a tailored strategy that builds financial resilience.
  • Exercise caution with expansion. Expanding into new product categories can be lucrative but also risky. Carefully evaluate regulatory and liability factors before launching new products.
  • Enhance employee benefits. A well-designed, data-driven benefits package can set a company apart in a competitive labor market.
  • Maintain transparent communication. Proactive communication with insurance and benefits brokers can help cannabis businesses identify emerging risks and prepare for policy renewals. Reviewing insurance needs well in advance ensures optimal coverage and minimizes unexpected costs.

With robust risk management, employee-centered benefits, and strategic resilience planning, cannabis businesses can navigate the industry’s evolving challenges and capitalize on opportunities in 2025.


Jay-Virdi-hi-res-2021
Jay Virdi

As chief sales officer for specialty practices at global insurance brokerage Hub International, Jay Virdi connects clients with a team of experts to achieve their goals while reducing risks in a highly scrutinized industry. He is a Chartered Insurance Professional under the Insurance Institute of Canada.

 

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