When it comes to insurance, many cannabis operators take a “check the box” approach. If the state says they need $1 million in product liability coverage, that’s what they get — and not a penny more. But that strategy? It’s dangerously short-sighted.
“Far too many operators think they’re covered when, in reality, they’re one claim away from serious financial repercussions,” says Lee Woodruff, Vice President of Jencap’s Cannabis Insurance Practice. “They either opt for the bare minimum or buy policies riddled with exclusions. Both can be catastrophic.”
Let’s break down what’s at stake and what too many businesses are getting wrong.
The Bare Minimum Isn’t Built to Protect You
Regulators don’t design insurance requirements to protect businesses. They exist to protect consumers. That’s an important distinction, one that Lee sees overlooked again and again. “Operators assume state-mandated limits are enough, but underinsurance is a big issue. Those limits don’t take into account the realities of a lawsuit, a recall, or a health-related claim,” Lee explains. “They’re a starting point, not a safety net.”
For example:
- Underinsurance is a hidden threat, as a $1M per-claim policy can be exhausted quickly by legal defense fees, settlements, or medical damages.
- Recalls and reputational damage can incur steep, ongoing costs that aren’t covered under minimum-limit policies.
- Compliance ≠ coverage: Just because you’re compliant doesn’t mean you’re protected.
The Silent Threat: Common Insurance Exclusions That Leave You Exposed
Even operators who think they’re insured often find themselves blindsided when it matters most. Why? Because many cannabis product liability policies include common but devastating exclusions. According to Lee, “Some policies are so stripped down, they only look like product liability coverage on the surface. The fine print tells a different story.”
Here are the most common insurance exclusions to watch for:
- Vape Product Exclusions
With the rise in vape-related claims like lung injuries, battery fires, and more, many insurers won’t touch vape products, or they cap coverage so low it’s essentially unusable. “If your business sells vape cartridges or pens and your policy excludes them, you’ve got a massive coverage gap. One you might not find out about until it’s too late,” Lee warns.
- Battery-Related Claims
Lithium-ion batteries are a known hazard. Some policies exclude any claims tied to battery malfunction, despite their widespread use in cannabis devices.
- Broad Health Hazard Exclusions
These sweeping clauses deny coverage for any claim involving adverse health effects from cannabis products. Think: allergic reactions, contamination illnesses, or long-term usage claims. “This exclusion can gut your policy,” Lee says. “It essentially tells you, ‘We’ll cover you, unless someone actually gets hurt.’”
- Pesticides, Mold, and Heavy Metal Contamination
Even if your product passes lab testing, a single contamination scare or failed batch can trigger lawsuits, recalls, or both.
- Recall Exclusions
Many policies exclude voluntary recalls, and even some mandatory ones. Without recall coverage, you’re footing the bill for disposal, customer notification, product replacement, and more.
The Real Costs: One Claim Can Shutter a Business
Think a claim won’t happen to you? Think again. Cannabis operators face increasing litigation as the industry matures, and the dollar amounts are only getting higher. Six- and seven-figure settlements are becoming more common, and legal defense alone can cost hundreds of thousands, even if you win. Plus, public trust and brand damage can linger for years after a claim. And if your policy is full of exclusions? You’re paying all of that out of pocket.
Cannabis product liability insurance isn’t a formality. It’s not a line item. It’s the difference between staying in business and shutting your doors. “Operators need to stop asking, ‘What’s the cheapest policy I can get?’ and start asking, ‘What coverage will actually protect me if things go wrong?’” Lee advises.
Start by working with brokers who specialize in cannabis and understand the nuances of product liability. Experts like Jencap will know to review every policy for critical exclusions, especially for vapes, batteries, health claims, and recalls. They’ll choose appropriate policy limits based on your real-world risk exposure, not just state mandates.
With deep industry knowledge and access to a wide range of specialty carriers, our team works closely with operators to build tailored insurance programs that actually stand up when it counts. “At the end of the day, you’re not buying a piece of paper. You’re buying peace of mind,” Lee says. “Make sure you’re getting the right kind.”
Partner with Jencap to offer smarter, stronger cannabis insurance solutions. Contact us today!
