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Insurance Coverage: Find the Right Coverage for Your Dispensary

Opening a dispensary is an exciting, turbulent event. Entering the cannabis industry is not for the faint of heart, and the businesses that set themselves up for success plan for the rainy days from the get-go. If you don’t know where to begin getting the right dispensary insurance, here’s what you’ll need. 

Understanding Risks Your Dispensary Will Face 

Businesses in every industry face risks. Dispensaries face standard business risks, like employee issues and “slip and fall” situations. However, they also face heightened risks in the cannabis industry, like theft and product liability. Aside from common dispensary growing pains, the following are some threats dispensaries face regularly:

  • General liability issues, like “slip-and-fall” situations when a customer takes a tumble on a step or doesn’t notice a wet floor sign and loses their footing. 
  • Employee-related issues, such as wage theft and termination disputes. Even the best business owners have to deal with employee issues at some point. 
  • Theft. While all businesses face the risk of theft, dispensaries have a heightened risk of theft, both by external criminals (like burglars) or internal criminals (like employees). 
  • Cybersecurity risks, especially surrounding POS systems. Cyber risks are increasing in every industry, but dispensaries, particularly medical dispensaries, deal with sensitive and private information that must be protected.  
  • Property damage is always a threat, whether from storms or vandalism. 
  • Management liability lawsuits. Shareholder and mismanagement disputes are not unique to cannabis but are still a considerable exposure. 

Creating a Solid Risk Management Plan 

Creating a solid risk management plan is fundamental to business success. But a lot goes into making one of these plans, and getting started can feel overwhelming. There are five simple steps to get you started with a risk management plan:

  1. Risk identification. You can’t cover your exposures if you don’t know where they are. This step is first because you must understand the specific vulnerabilities in your business. This task is simple yet significant because there is a broad definition of risk. Start with small risks, and work your way up to big ones. Throw them all down on paper — there are no wrong answers here. Use a risk model analysis or software to help you identify any gaps left.  
  1. Risk analysis. Now that you know where you’re exposed, what would happen if you were hit there? How likely is it to happen? Play it out — what would be the financial damage? Would it affect employees, or would it hurt your reputation? It may feel pessimistic to explore worst-case scenarios, but it’s critical to understand where your business is vulnerable and how vulnerable it is. 
  1. Risk evaluation. The first two steps are heavy, but this one is easier. In risk evaluation, you ask a simple question — is this risk acceptable to my business? Now that you know how likely a risk is to occur and the consequences if it does, you can decide whether this exposure needs to be covered, or if you could weather the storm. What it means to cover the risk is up to you — it could be purchasing a cannabis insurance policy or developing an internal plan to deal with the risk if it happens.
  1. Risk tracking. Things happen in every business, and it’s only a matter of time before one of your exposures becomes a reality. But you can make this work to your advantage by tracking it. Monitoring specific risks, analyzing the damage, and charting the recovery can tell you a lot about your organization. You can’t fix what you don’t know about, so tracking your risks helps you see gaps in your existing risk management plans.
  1. Risk treatment. Breathe easy — this is the step that establishes the safety net. Risk treatment is how you decide to deal with your risks. It may be a specialized cannabis insurance policy or changing an internal process. You may feel the risk around certain products is too significant and stop selling them entirely— it’s up to you. 

But dealing with your exposures doesn’t start and end with a risk management plan (although it is a living document that you should regularly update). There are steps you can take on a daily, weekly, or monthly basis to manage your risk. 

For example, many cannabis companies have adopted the following steps to manage various threats and concerns:

  • Have updated software and multi-factor authentication to dissuade potential threats. 
  • Adopt a zero-tolerance policy. If anything raises a red flag, check and double-check it. Feeling slightly paranoid is okay — too much paranoia paralyzes, but a small amount keeps you sharp. 
  • Foster a healthy employee culture. This approach means creating a culture where employees can bring any problems or suspicions to you and know they’re serious. 
  • Following standard theft provisions. Lock up all cash and valuables at the end of the night instead of leaving them out, keep video recording on at all times, use the best safes, and protect your building. 
  • Insurance plays a prominent role in managing your risk — but it isn’t enough to have a few policies in place. You need to understand your responsibilities in each policy and ensure compliance. You’ll also want to understand standard insurance terms like premiums, deductibles, and limits. Don’t forget about endorsements and exclusions, too!

Finding the Right Coverage for Your Dispensary

There is no “one-size-fits-all” solution when it comes to getting the right insurance for your dispensary. Every business is unique, and your risk management plan must cover that uniqueness and address your state’s requirements. But you can find an excellent place to start with some general best practices and policies that cover your base and you can expand on to customize to your needs. General recommended cannabis insurance for dispensaries in every state includes: 

General liability

Also known as “slip and fall” insurance. This policy provides cannabis companies, including dispensaries, protection against basic business risks. General liability protects against personal or property damage and bodily injury occurring on the business premises.

Product liability

A product liability policy is crucial for a cannabis company that offers physical products or tangible services because it protects your business against claims of injury or damage due to harmful products. This policy covers defense fees and settlements for lawsuits, even for ungrounded claims. Since testing and manufacturing aren’t regulated at the federal level, this policy is fundamental to cover your bases. 

Crime

You don’t need us to tell you about the crime risks that dispensaries face — but are you insured to deal with them? A crime policy guards your business against damages caused by crimes like robbery and wire fraud. 

Cyber liability

This policy is a must in our digital age. IBM estimates an astounding 83% of businesses will face a data breach at some point — making a cyber attack more a matter of when not if. Cyber liability protects you from third-party lawsuits relating to cyber attacks and offers recovery benefits like supporting data restoration and reimbursement for income lost and payroll spent.

Directors and officers

You may need directors and officers (D&O) insurance if you have a significant dispensary with multiple people in the C-Suite. This policy protects directors’ and officers’ personal and professional assets if they are sued.  

Workers’ compensation

If you have employees, you need worker’s comp coverage. This policy covers expenses surrounding work-related injuries, including medical costs and lost wages, so you can take care of your employees while keeping your business running. 

Employment practices liability 

Even the best employer can face a disgruntled employee from time to time, and when you do, you need employment practices liability. This policy provides coverage to protect businesses from employment-related lawsuits, like wage and termination disputes. 

Finding the right insurance for your dispensary is possible — and it can be stress-free with the right team on your side. Partnering with a trusted commercial insurance broker who specializes in cannabis is the best way to ensure that you’re insured in every way needed.

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