The cannabis industry is growing and changing at an unprecedented pace, creating immense profit potential and putting a spotlight on the array of risks for those in the arena.
Companies absolutely must understand current and emerging trends if they intend to manage risk effectively while maximizing profitability. Taking a proactive risk-management approach is essential to help mitigate potential losses and safeguard people, property, and profitability. Here are three steps to do just that.
Step one: Attract and retain the right talent
Attracting and retaining top talent in any industry has become more challenging. Employees now wield significant power and often are regarded as the new customers. One of the enduring effects of the COVID-19 pandemic is that they crave more flexibility in work arrangements and have reevaluated their benefit expectations.
To address these challenges, businesses should consider doing the following:
- Compare current benefit offerings with those in industries that compete for the same workers.
- Present unique and appealing options to attract and retain talent.
- Maintain effective communication to ensure employees are aware of the benefits offered.
- Leverage industry expertise to guarantee the long-term sustainability of your benefits program.
A multiyear strategy should include policies and procedures that consider cost management, human resources (HR) advocacy, health, and performance for employees, as well as leverage HR-benefits technology to engage everything. Employee communication is key to attaining buy-in from teammates.
Step two: Protect your property
To protect your place of business, implement a multifaceted risk-management approach by establishing physical, administrative, and compliance controls.
Physical controls include investment in security technology (including cybersecurity), locks, gates, lighting, cameras, access controls, guards, and patrols to safeguard your building and inventory.
Administrative controls center around the development of security policies, procedures, staff awareness training, de-escalation techniques, threat reporting, and conflict-management programs to help safeguard your team.
Compliance controls involve thedevelopment of a system to stay organized, updated, and in compliance with state-specific regulations and licensing, including environmental considerations for cultivation and pollution concerns.
Step three: Consider your insurance coverage
In the United States, twenty-four states have legalized adult-use cannabis; thirty-eight states and the District of Columbia have approved marijuana for medical purposes. Though legal access to cannabis is on the rise across the country, many carriers still do not provide the coverage the industry needs because federal law maintains the use, manufacture, distribution, and sale of the substance is illegal.
A lack of experienced professionals to underwrite the risks associated with the industry is another issue. While many carriers do not underwrite in this space due to legal and reputational risks, Business Insurance magazine recently reported “commercial insurance for cannabis operators is finally becoming easier to obtain and afford as more insurers move into the sector.” According to the publication, the supply of insurance available to the industry grows at a rate of 80–100 percent annually.
When working with one of the carriers that do write insurance for this industry, there’s a host of losses and exclusions that must be considered prior to purchasing coverage. Common losses include fire and employee theft, water damage or pollution from operations, and product contamination recall. Common exclusions include criminal acts and health hazards; more specifically, this includes onsite consumption, vape, and “general” cannabis exclusions.
All operators should consider obtaining coverage to offload risk via the following policies:
- Commercial general liability.
- Management liability.
- Product liability and recall.
- Property and crop insurance.
- Equipment breakdown insurance.
- Business auto insurance.
- Care, custody, and control coverage for distributors.
- Workers’ compensation.
The industry is rapidly evolving, and with that come both opportunities and risks. To achieve profitability and minimize potential risk exposures, adopt a proactive risk-management approach that addresses the needs of your employees, protects your property, and enhances profitability. Executives also should develop a robust business continuity plan to ensure their operations can withstand unforeseen disruptions, such as product safety lawsuits and mergers or acquisitions.
Understanding the common risks and insurance coverage exclusions, as well as staying informed about emerging trends and regulatory changes, is vital for success in this dynamic sector. By combining strategic risk management with the right insurance coverage, your cannabis business can thrive in a growing and competitive market.
Jay Virdi is the Chief Sales Officer for Specialty Practices at global Top 5 insurance brokerage Hub International. He is responsible for the growth of Hub’s Cannabis specialty practice, with the goal of becoming the premier broker in one of the fastest-growing industries across the United States and Canada.
