Cannabis entrepreneurs in New York and New Jersey have much to gain with the legalization of adult use marijuana, and they also have a lot to lose. While New York legalized the sale and use of recreational marijuana in the spring of 2021, there’s been a slew of regulatory affairs to get in order. Here we are, a year-and-a-half later, and window has finally closed on the initial application phase. Now, the newly established New York Office of Cannabis Management has the Herculean task of weeding through nearly 1,000 applications to award only 150 licenses in the first round statewide.
The Garden State began accepting cannabis license retail applications on March 15, 2022, and so far, 81 new licenses have been awarded for cultivation, manufacturing and retail. Competition is fierce. Smaller dispensaries and cultivators will be competing with many large MSOs that are expected to flood the market, creating one barrier to entry. Another barrier to entry that many cannabis entrepreneurs are facing is access to affordable insurance coverage.
During the lull before the next round of licenses are available, hopeful New York and New Jersey cannabis entrepreneurs should use the time effectively to prepare and protect their significant investments. With great opportunity comes numerous risks. Securing the right insurance policies is critical for those entering the market. Below are the top five insurances that should be part of your policy to protect your budding business:
1. General Liability Insurance
General Liability is the most essential coverage your cannabis business needs for protection against a from a variety of claims, including personal injury, bodily harm, property damage, and other situations that may arise including slander, libel, copyright infringement, and more. Since General Liability is not always required to obtain a cannabis license, many businesses are tempted to forgo the expense. This is one of the biggest mistakes you can make as one single lawsuit has the potential to cripple your company. With a comprehensive, cannabis-specific General Liability insurance policy in place, the insurance company, not you, will pay medical expenses and property damage claims from third parties, in addition to hefty legal fees and fines.
2. Workers' Compensation Insurance
Practically all employers in New York and New Jersey must provide workers' compensation coverage for their employees. This includes corporations, partnerships/LLC’s and sole proprietors, so long as any one or more individuals performs services for the business for prior, current or anticipated financial consideration. Workers' Compensation insurance is designed to protect the employer in instances where an employee gets hurt on the job. If this coverage were not mandated or not available to employers, businesses would be at risk of a lawsuit with every employee that walked through their door.
3. Property & Casualty (P&C) Insurance
If you own a dispensary, grow operation, warehouse, testing facility or any other type of cannabis business with inventory, you need to protect your assets from potential loss or damage. P&C insurance safeguards your business against common and costly perils such as a fire, lightning, explosion/implosion, and even less common - but still possible – risks like riots, strikes and terrorism. Your policy should not only pay for property damages, but it should cover contents such as office furniture, computers and inventory. Certain policies will also provide funds to keep your business afloat until the damages are repaired and you can resume operations. Any cannabis business with a physical property and location(s) should have a comprehensive P&C insurance policy in place.
4. Product Liability/Product Recall Insurance
Product Liability insurance is designed to protect your cannabis company from claims that can happen anywhere along the supply chain, including product contamination, mislabeled products, false advertising or defective products. With proper coverage, your insurance company will pay for damages and legal expenses if you are sued, up to your policy limits. Your Product Liability policy will also cover any medical expenses for those who are harmed by your business. Product Liability insurance is often overlooked, especially by small to mid-size businesses. However, your cannabis business needs this type of coverage if you sell any goods or products that end up in the hands of the public. In fact, your business may be contractually obligated to have Product Liability insurance.
5. Cargo/Thruput Insurance
Even though recreational marijuana is now technically legal in New York and New Jersey, the illicit market is booming and cargo theft is one of the main ways criminals infiltrate the supply chain. Everything from growing supplies, to technology, to raw and finished products are in high demand. It is common knowledge that cannabis related products are often untraceable and can be easily intercepted during shipping, repackaged and then sold in a short turnaround time. Having a cargo insurance policy is a necessity for cannabis business owners that rely on any form of shipping. Unfortunately, many business owners and distributors are not insured because they mistakenly thought they’d be covered by their commercial auto insurance, which does not cover the contents within the vehicle.
Summary
2023 promises to be a tempestuous year for those who get in on New York and New Jersey’s cannabis ground floor. When it comes to mitigating risk in this business, the stakes are sky high. NOW is the time for cannabis entrepreneurs in New York and New Jersey to prepare and protect their investment. If you have not incorporated risk management into your business/operational plans, you will need to in 2023. It all boils down to the THREE P’s: being “Proactive, Prepared and Protected.”
S2S Insurance Specialists is here to guide you through the intricacies of insuring your cannabis business. Our job is to analyze your operations, expose and explain your potential risks – real risks you may never have even thought about – and develop a customized, cost-effective plan that offers you full protection and peace of mind. To learn more, contact Eric Rahn at eric@s2sinsurance.com or click here to schedule a free 15-minute consultation.