Cannabis Business Readiness Guide: 7. Business Insurance
Business insurance protects your investment by minimizing financial risks associated with unexpected events such as a death of a partner, an injured employee, a lawsuit, or a natural disaster.
Running a small business involves a significant investment. Business insurance protects your investment by minimizing financial risks associated with unexpected events such as a death of a partner, an injured employee, a lawsuit, or a natural disaster. Unless you are an employer, business insurance is generally not required by law, however, it is common practice to purchase enough insurance to cover your assets. If your business is an LLC or a corporation, your personal assets are generally protected from business liabilities; however, neither business structure is a substitute for liability insurance, which covers your business from losses.
While it is possible to get the above policies, some insurers worry that if they cover a loss, they will be financially supporting a federally illegal activity. This is similar to why many financial institutions are reluctant to open accounts for marijuana-related businesses. Because of the conflict between federal and state law, and because the industry is relatively new, there is a lot of uncertainty. Although your standard insurance company may refuse to sell you a policy because of the nature of your business, there are “surplus lines” companies that sell specialized types of coverage specific for marijuana-related companies.
With regard to business liability and business property coverage, your insurance company may cover some interests, but exclude marijuana products. For example: Your insurer may provide liability coverage for someone tripping or falling in your store, but it may exclude the products you sell. A business property policy may choose to cover some items such as your building structure, computers, shelving, and furniture, but exclude the actual marijuana products. If you want to be sure something is covered, specifically ask for it. Ask your agent to show you in the contract specifically where that coverage is found. If your policy contains a general “public policy” exclusion or exclusion for illegal activity, ask your agent to amend the policy to explicitly clarify whether marijuana is covered.
Keep your insurance company informed of your activities and maintain proper coverage to insure that activity. If the company knows you grow marijuana, and issues you a policy, and accepts premium for that policy, then it must honor that policy. The insurer would not be able to refuse coverage because of illegal or dishonest activities.
For more information about business insurance, visit the California Department of Insurance.