Running a dispensary in the rapidly growing cannabis industry presents unique challenges, particularly when it comes to securing the right insurance coverage. Many dispensaries, eager to get their business off the ground, make easily avoidable mistakes during the insurance purchasing process. But that’s where an expert agent like you comes in. When you understand the common pitfalls dispensaries encounter, you can guide your clients in the right direction.
Cannabis and Its Upward Trajectory
Unless you’ve been in isolation, you’re probably well aware of the explosive growth within the cannabis market — if only from the fact that it seems to be everywhere these days. Cannabis is now legal for recreational use in 24 states, with medical use approved in 37 states and the District of Columbia. Support for legalization is at an all-time high, with 68% of Americans in favor of such a move. The legalization wave presents opportunities for new startups and investments in cannabis cultivation, retail, and product innovation. Just take a look at the numbers:
- The U.S. cannabis market is projected to reach $40 billion in 2024, with the global market size expected to exceed $75 billion by 2025.
- The cannabis industry currently employs over 400,000 workers with a 75% increase in employment over the past two years.
- The industry is anticipated to contribute $115.2 billion to the U.S. economy in 2024, surpassing tax revenues from alcohol in several states.
Proper insurance coverage is a must-have for the sustained growth and stability of the cannabis industry. Dispensaries aren’t like regular retail stores. They face unique risks including regulatory compliance issues, product liability, and security concerns. Because of the explosive growth, those entering the market may not be aware of their unique exposures.
Top 8 Mistakes Dispensaries Make When Buying Insurance
- Neglecting Professional Liability Coverage
One of the most overlooked coverages for dispensaries is professional liability insurance for budtenders. Budtenders are like bartenders, but instead of serving drinks, they help customers pick out cannabis products and often give medical advice. Because they’re making recommendations, budtenders are susceptible to professional liability claims. Still, many dispensary owners fail to ask for this coverage and rely on their Commercial General Liability (CGL) policies. Without professional liability coverage, dispensaries risk significant financial losses if a claim arises from advice given by their staff.
- Ignoring Assault and Battery Exclusions
No one wants to think of worst-case scenarios, but assault and battery incidents can occur in dispensaries, particularly during robberies or altercations. Many standard insurance policies have coverage exclusions for assault and battery, leaving the business vulnerable. Failing to inquire about buy-back options for assault and battery coverage can result in substantial out-of-pocket expenses. You can help clients negotiate coverage that includes these must-have protections.
- Insufficient Excess Liability Coverage
Dispensaries often underestimate the potential for large liability claims and opt for lower primary limits on their general liability policies. Not purchasing excess liability or higher primary limits can expose dispensaries to costly litigation. Higher coverage limits provide a more robust financial safety net, ensuring dispensaries can withstand major claims without jeopardizing their business operations.
- Misestimating Sales on Auditable Policies
Insurance premiums for dispensaries are based on estimated sales figures, which makes these policies auditable. Overestimating sales can lead to overpaying premiums without the possibility of a return if actual sales fall short. To avoid this, it’s important to provide accurate sales estimates and understand the policy’s terms regarding minimum and deposit premiums. Regularly reviewing and adjusting sales estimates can help manage insurance costs more effectively.
- Overlooking Business Income Coverage Options
Cannabis sales can fluctuate significantly month-to-month and year-to-year. Many dispensaries fail to consider a monthly limitation on business income coverage, opting instead for a coinsurance model, which can be problematic due to the ups and downs of sales. A monthly limitation offers more flexibility and better aligns with the financial realities of running a dispensary so that clients have adequate coverage during slumps.
- Not Reviewing Product Liability Forms
Product liability is a critical concern for dispensaries, especially with the growing popularity of vape products for which some insurance policies have exclusions or sublimits for battery-related claims. Again, it’s imperative to carefully review product liability forms and ensure that all products sold are adequately covered while understanding the exposures from those that may be excluded. Working with a specialist insurance broker with a network of carriers experienced in cannabis products can help you ensure your clients avoid this issue.
- Using Employees for Security
It can be tempting for dispensaries to save money by using their employees as security guards. This is not a good idea, as liability exposure goes up. Professional third-party security guards are trained to handle precarious situations more effectively and should carry their own liability insurance. Going the professional route reduces the risk of large losses, especially with armed guards, and provides an added layer of protection for both customers and the business.
- Misunderstanding Policy Protective Safeguards
Dispensary insurance often includes specific requirements for safeguarding cannabis finished stock and inventory, which may involve using vault rooms or safes that meet particular standards. Failing to comply with these requirements can invalidate coverage. As an agent, it helps to understand the protective safeguards needed so that you can guide clients to the right policies to ensure their facilities meet the minimum standards and cover any blind spots
High Stakes Require the Right Partner
As an agent, you don’t need to know the difference between indica and sativa or THC and CBD. What matters is understanding the unique cannabis insurance needs of your clients — and you don’t have to go it alone. Jencap has the expertise and industry knowledge to help you guide your clients through the maze of cannabis insurance. Whether you’re working with established dispensaries or clients looking to enter the cannabis space, partnering with Jencap ensures that you have a reliable ally who understands the ins and outs of this budding industry, with exclusive programs and over 50 cannabis markets. Contact Jencap today to learn how we can support your clients and grow your business with the best brokerage partners in the cannabis industry.
