Cannabis companies may have gotten a boost when numerous states declared it an essential business that could remain open during the coronavirus (COVID-19) pandemic. However, businesses operating in the medical and recreational marijuana industry face numerous risks during these unprecedented times. Please take a moment to learn about some of the more common risks currently facing your company and please reach out to S2S Insurance Specialists with any questions.
It goes without saying that cannabis companies need to be extra careful about sanitation, safety, compliance and risk management – including having adequate insurance – during this public health crisis, and going forward. There will be lawsuits by consumers given the nature of how COVID-19 spreads and if your business allegedly fails to sanitize the premise, abide by social distancing rules or otherwise prevent the spread of COVID-19, your company may be at risk.
Also, consumption habits are changing how cannabis products are consumed. The highly publicized dangers associated with vaping, coupled with the current pandemic – both in terms of the damage COVID-19 causes to the lungs and the need for social distancing – are shifting demand from smokable products to more edibles and tinctures. Edibles are particularly vulnerable to product liability claims for various reasons. Product Liability Insurance must be a top priority for any cannabis related business. Furthermore, to minimize risk, your business should demand certificates of insurance (and, ideally the full policy) from vendors to confirm protection in the event of a claim arising from another company’s product that you may sell to consumers.
Directors and Officers (D&O) Insurance may offer protection if executive-level business personnel are targeted in a civil lawsuit over claims they made or actions they took. For example, if a dispensary were to stay open against the state mandate or if it violates the state mandate on the number of people allowed in an establishment, and then is accused by a consumer to be the source of contracting the highly contagious disease, D&O insurance may protect the directors or officers of the company if the company is sued because of its actions. You should reach out to your insurance provider to better understand this type of coverage, how it can protect your company’s executives, and if it can apply to the current crisis.
Cyber Threats & Data Breaches
As the pandemic continues, more employees are working from home, even in the cannabis industry and particularly among administrative staff. This leads to a heightened risk for network vulnerability and data breaches. If your company stores private information about your employees or customers on a computer or server, you are legally liable for protection of this personal information. To help mitigate risk, it is strongly recommended that you have Cyber Defense & Data Breach Insurance to protect you from costly legal claims.
Multiple states, including New Jersey, New York, Massachusetts, and Ohio, have proposed legislation that would mandate business interruption coverage for alleged COVID-19-related losses even where policies have explicit bacteria/virus exclusions.
Business interruption coverage is commonly sold as a component of commercial property insurance policies to provide relief to an insured for lost profit and extra expenses when its business operations are disrupted by “direct physical loss or damage” to insured property. However, closing a business due to a threat of exposure or spread of COVID-19 is not “direct physical loss or damage” to insured property. It will be important to discuss your particular coverage with your insurance provider to understand your level of protection and if you meet your state’s requirements, should the legislation pass. If your cannabis business is disrupted, keep meticulous records of lost business income and other expenses in case of the need to file an insurance claim—and contact your insurance specialist for guidance.
In summary, the COVID-19 public health crisis has spurred all sorts of unexpected events and changes in the way business is conducted and how you are protected. We understand that insurance may not be at the top of your mind, but nonetheless, taking steps to minimize your risk now will protect you and your company down the road. It is important to note that the insurance landscape for the cannabis industry is ever-changing, especially during these unprecedented times. Please contact us so we may examine your current policies, help you understand what is and is not covered, and adjust your policy, as needed.
IF you have questions about your current policy, need help securing coverage for your business, or have any questions, please contact us by visiting us at our website,or schedule a call with an experienced broker.