Selecting Coverage For Your Cannabis Manufacturing & Processing Insurance Program

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Manufacturing and processing is the second part of the cannabis supply chain. The manufacturing and processing of cannabis is taking plant material and processing it into a more concentrated form mixed with other ingredients or consumed directly and would encompass concentrates, extracts, edibles, oils, tinctures, topicals and other products.

Each state that has legalized medicinal and recreational use of cannabis will have its own manufacturing and processing regulations. The regulations adopted by each state are done to protect public health. The framework of these protections include warning labels, restricting packaging, prohibiting addictive chemicals, and controlling potency.

Before you just purchase insurance it’s important you do your due diligence and have your insurance program designed for your company’s specific needs. But, how do you get started? The answer to that question is fairly simple - consider your answers to the following questions that will aid with the development of your insurance program.
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  1. Do you want to have protection in place in case someone gets injured due to a slip and fall injury on the premises?
  2. Do you want to have protection in place in case someone brings a suit against the business due to bodily injury or property damage that takes place from consumption of  a product such as an edible, concentrate or other product that you manufacture?
  3. Do you want to have protection in place for the building or costs of tenants improvements and betterments that were made to the premises?
  4. Do you want to have protection in place for furniture, fixtures, computers, and other equipment?
  5. Do you want to have protection in place for the product inventory that is on the premises?
  6. Do you want to have protection in place for loss of business income in case the operation is closed due to a covered loss?
  7. If you offer delivery do you need coverage for vehicles that you own and operate or need protection if employees use their vehicles for delivery?
  8. Do you have employees? If so you will need Workers Compensation coverage that will provide them protection in case they are injured on the job.

Cannabis Manufacturing & Processing Underwriting

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Insurance underwriting is important for insurance companies. Each cannabis extraction process comes with it’s own assortment of hazards and risks. Because of this insurance company underwriters will want to know specific details about the location of the extraction facility, what type of extraction process is taking place on the premises, the amount and quantity of hazardous contents, and the standard operating procedures that are in place. Through this role of underwriting the determines the risk of a potential loss.
 
If an insurance company feels comfortable with the responses to those questions they will offer insurance to cover the exposures that you’ve requested. The following are specific areas of questions that are asked about cannabis manufacturing and processing operations to help underwriters get a good understanding of your business. An underwriter will then assess your answers and decide whether or not to offer an insurance policy for your operations.

Cannabis Extraction Methods

Insurance underwriters will want to know your method of extraction for stripping the oils holding these chemicals from plant clippings for your cannabis and hemp products. What’s your method of cannabis and hemp extraction? 
  • Butane Extraction
  • Hexane Extraction
  • Heat Press
  • Alcohol Distillation/ Heated Evaporation
  • Supercritical CO2
  • Dry Ice
  • Open Blasting
  • Propane​

Cannabis Extraction Dangers & Risks


  1. Are all utensils used in the extraction process non-sparking?
  2. Describe the emergency plan and emergency evacuation procedures. 
  3. Date of fire inspection and name/municipality of fire inspection official:
  4. What level of experience do you have with extraction equipment and explosive solvents.
  5. Confirm all employees using extraction equipment have been thoroughly trained and have been provided with details about the training program.
  6. Confirm all equipment is under a routine maintenance program.​
If you want to have insurance coverage in place for your Cannabis Business Property used in the manufacturing and processing process which includes buildings, equipment, and tools, insurance underwriters will want to have general safety details about your extraction and processing operation. They'll underwrite your operation based on the electrical load and equipment that you have on the premises. 

Electrical Load

  1. ​Was a load analysis performed prior to occupancy to ensure electrical service is of capacity for the current operation and any anticipated future additions?
  2. Have the electrical systems been inspected and tested by a qualified electrician experienced with industrial systems, and are they compliant with the most recent NFPA 70 code?
  3. Has all temporary wiring been replaced with permanent wiring fully compliant with NFPA 70?
  4. Are all electrical components for processing and flammable liquid/gas storage areas rated for Class 1 Division 1? 
  5. Was the system built by one manufacturer? If yes, what is the make, model and name of the certified extraction equipment? 
  6. Is the extraction system you’re using built to your specifications with components produced by multiple manufacturers? If yes, provide the certificate received from a licensed engineer. 
  7. Has the processing equipment been certified by an independent testing lab or engineer familiar with the process?
  8. Does a factory-trained technician install, service, and repair equipment?
  9. Is there a formal checklist to ensure equipment is operating within strict accordance with the manufacturer’s specifications?
  10. Is all processing equipment grounded and bonded?
  11. Is there a backup system for the electrical supply?

If your electrical system is not properly designed it can cause overloaded circuits and wiring can spark fires.  

Compressed Gases

If your operation(s) utilizes compressed or flammable gas extraction systems you will need to answer the following questions:​

  1. Are the high-pressure extraction systems installed in a separate area, segregated from the rest of the operation, with damage limiting construction to mitigate loss in the event of an accidental pressure release?
  2. Are extraction operations isolated or located in a partitioned area of the building?
  3. Is all extraction work carried out in Class 1 D1 room?
  4. Does the extraction room have:
    1. a gas leak alarm?
    2. a sprinkler system?
    3. a spark proof electrical system?
    4. an emergency ventilation system?
  5. Provide details of any other safety features and/or any emergency/detection systems in place. ​
  6. Are bottle fill limits at ⅔ volume capacity?
  7. Are all flammables stored in a UL listed cabinet in approved cages on an external wall?
  8. Are bottles (including empty bottles) chained in an upright position?
  9. Is the storage area clearly marked as a no-smoking area?
  10. Are protective caps in place at all times when the bottle is not in use?

In June of 2018 the National Fire Protection Association (NFPA) revised its code requiring any hazardous hash-oil extraction process to be performed in a non-combustible room, in a building that contains no child or health care facilities. Staff must be trained on safe operation of the extraction equipment, and the extraction room must be equipped with a gas detection system and multiple fire extinguishing systems.

Commercial Kitchens

If you have a commercial kitchen for the manufacturing of any products you will need to answer the following underwriting questions:
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  1. Does the kitchen have a UL 300 Compliant, wet chemical fire suppression system with nozzles covering all cooking surfaces?
  2. Are all open flame cooking and or frying operations conducted under a non-combustible powered ventilation hood?
  3. Does the cooking/frying equipment have an automatic fuel supply cut off?
  4. How often is the fire suppression system serviced?
  5. How often are the hoods and ducts cleaned?

Risks Associated with Consumption of Finished Products

The exposure of someone bringing a lawsuit against your company due to bodily injury as a result of consumption of a cannabis edible or cannabis extract is significant. Insurance underwriters will ask the following specific questions to underwrite your operations to qualify for product liability insurance:

  1. Do you maintain daily written records of all Cannabis, Hemp, and CBD and inventory of non-cannabis products, including the purchase date, type of product, purchase price, and who it was purchased from?
  2. Do you have a quality assurance plan in place?
  3. Do you have a product recall plan?
  4. Do you test 100% of Cannabis, CBD and Hemp products prior to distribution? 
  5. Do you use software to track sales and pertinent transaction data such as who, when and what was purchased? 
  6. Will you follow to the best of your abilities all Consumer Product Safety Commission regulations as it would pertain to the withdrawal and/or recall of defective products?
  7. Do you have a communication and complaint handling procedure?
  8. Do you follow all laws, regulations and ordinances pertaining to the storage, use and disposal of any gases used in your operations?
  9. Do you test 100% all products manufactured for any level of gas residue?
  10. Do all of your labels meet your state product labelling requirements?

Core Cannabis Manufacturing & Processing Insurance Protections Offered:

Providing Cannabis Manufacturing & Processing Insurance

Reach out to me when you’re considering Cannabis Manufacturing & Processing Insurance. I will discuss coverage with you, how each coverage works and assess how it fits into your risk management needs. I will provide you with comparative Cannabis Manufacturing & Processing Insurance quotes from multiple insurance carriers so you can get the best possible rate.

As an insurance broker I help cannabis businesses manage risk through insurance.​