Florida is on the brink of a watershed moment, poised to become the 25th state in the U.S. where recreational marijuana is legal. If passed by a 60% majority, Amendment 3 would allow Adults 21 and older to buy and possess up to three (3) ounces of marijuana. And if it fails at the state-level, reform at the federal level is continuing to gain momentum. The DEA has scheduled a December 2, 2024, hearing to review expert opinions on the proposed rescheduling of cannabis to a Schedule III drug. Legalizing cannabis beyond medical use unlocks a significant new sector within the economy and tremendous opportunity for industry stakeholders.
David Rahn of S2S Insurance Specialists, an independent insurance broker focused exclusively on the cannabis industry since 2016, discusses actions both established cannabis businesses and budding entrepreneurs should take NOW to prepare and protect their investment. Amendment 3 is exciting but, like a hurricane, it has the potential to wreak havoc, which is why insurance needs to be top of mind. Cannabis businesses should also attend the CLAB 7th Annual Conference on October 14-15, 2024 in Hollywood, Florida, which is poised to be a landmark event for the cannabis industry in Florida.
What’s at Stake for Florida’s Medical Market?
While the Sunshine State boasts the largest medical marijuana program in the country with nearly
900,000 registered patients, growth peaked in 2023 and is now stagnate. According to a Tampa Bay Times analysis of data through early May 2024, the registry grew by 19,000 new patients since January 2024, which is a record-low of 9% growth, marking a 50% decline in growth versus the prior year.[i] Consequently, sales have also slowed since peaking to $660 million last spring, according to Florida’s Office of Medical Marijuana Use.[ii]
Essentially, market research shows a concerning trend that Florida’s pool of marijuana customers is drying up. Without recreational marijuana, medical dispensaries are limited in selling to only residents who have been vetted by a doctor and approved for a medical marijuana card. Furthermore, Florida’s current medical marijuana program is not capitalizing on the immense tourism industry as it has no reciprocity for visiting patients, meaning tourists cannot use their resident state’s medical marijuana issued card. That can all change if Amendment 3 passes this November.
What Cannabis Businesses Have to Gain:
Given that Florida is the third most populated state with more than 140 million annual tourists, Adult Use could propel the state to be one of the biggest and most lucrative cannabis markets in the U.S. In fact, an analyst with BDSA predicts that by 2028, Florida will be the second-largest cannabis market in the U.S., just behind California.[i]
Allowing recreational use in the Sunshine State would blow the doors wide open for explosive growth of the cannabis industry and the $4.5 billion in revenue it is estimated to generate, according to BDSA. Floridians will benefit from the estimated $200 million in tax revenue that is earmarked for education, agriculture, infrastructure, services, University research and reducing patient ID cards costs.[ii]
Not all cannabis investors, entrepreneurs, and industry stakeholders will be prepared to capitalize on the new and expansive customer base and skyrocketing demand. Resourceful companies who invest in product innovation, marketing/advertising/events, growing their footprint, and most importantly, ensuring they have comprehensive risk management program with the right business liability insurance coverages in place, will be the clear winners.
What Cannabis Businesses Have to Lose:
Opportunity and risk come in pairs. While Florida’s cannabis stakeholders have much to gain with legalization, and they also have a lot to lose. If Amendment 3 passes, dispensaries and ancillary businesses will have to meet a surge in demand, which could significantly impact their insurance coverage and rates. It is likely that legislative reform will also include provisions and stringent requirements for licensing, advertising and product safety standards, among others. Securing the right insurance coverages and policy limits is critical to protect your investment. Below is an overview of essential policies and what they cover:
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. As we’ve seen in other states that have legalized marijuana for Adult Use, liability exposure is heightened. Since General Liability is not always required to obtain a cannabis license, many businesses are tempted to forgo the expense. Or, they outperform their current policy terms and neglect to increase their policy limits. This is one of the biggest mistakes you can make as one single lawsuit has the potential to cripple your company. Now is the time to review your current policy or ensure your business has a comprehensive, cannabis-specific General Liability insurance policy in place. That way, the insurance company, not you, pays for medical expenses and property damage claims from third parties, in addition to hefty legal fees and fines.
As the industry expands, so does the workforce. Often times, due to the non-stop pace of growing a business, important protocols and human resource functions are not adhered to, all of which results in more cannabis companies increasing their exposure to employee-related claims. EPLI protects companies against claims of sexual harassment; discrimination; wrongful discipline or termination, breach of employment contract; failure to employ or promote; wrongful infliction of emotional distress and mismanagement of employee benefit plans. With this coverage in place, your insurance company will cover the cost of claims, settlements and government fines.
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 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.
As mentioned above, each state has their own cannabis control regulations which typically include product safety and advertising requirements. Many things can happen to a cannabis crop, ranging from pesticides to spoilage to equipment malfunctions, all of which pose a significant risk. Product manufacturers and retailers face their own unique and significant risks. There is no doubt that legalization results in tidal wave of new products that flood the market. Many are legit and adhere to the regulations, but many do not.
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) Commercial Auto & Cargo Throughput Insurance
To satisfy the increase in demand for legalized marijuana and ancillary products, the volume of inventory that is moved from cultivators to manufacturers to dispensaries across the state will explode. Any businesses that transports goods, whether it be business-to-business or directly to the consumer, will have greater liability exposure. It is imperative to review your commercial auto insurance to determine if and how your vehicles are covered.
Having a cargo insurance policy is a necessity for cannabis business owners that rely on any form of shipping. If Florida legalizes recreational marijuana, criminals will find ways to replace their illicit sales. Cargo theft is one of the main ways thieves infiltrate the supply chain. Everything from growing supplies, to raw and finished products are in high demand. 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.
In Summary
When it comes to mitigating risk in this business, the stakes are sky high. NOW is the time for cannabis businesses and entrepreneurs to review their current insurance policies and prepare, just like Floridians do every hurricane season. Even if Amendment 3 fails at the polls, cannabis has the best chance its ever had to be ‘re-scheduled’ by the feds, especially if the headlines are correct that Kamala Harris, if elected president this November, will “be ready to sign” marijuana reform bills into law. The bottom line is if you have not incorporated risk management into your business/operational plans, you will need to in 2025. 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, visit us at Booth #30 during the CLAB Conference or contact David Rahn at david@s2sinsure.com or click here schedule a free 15-minute consultation.
[iii] https://www.tampabay.com/news/florida-politics/2024/05/14/why-florida-medical-marijuana-companies-are-pushing-so-hard-recreational-pot/
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