Selecting Coverage For Your Cannabis Wholesaler & Distribution Insurance Program

Owners and operators of cannabis wholesaler & distribution operations have a unique set of exposures stemming from the activities that are part of your daily operations, the premises on which the operations are performed, and handling/distributing the products being distributed. 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 cannabis flower, edibles, concentrates or use of an accessory?
  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 cannabis stock/inventory and accessories that are on the premises?
  6. Do you want to have protection in place for loss of business income in case the store 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 Wholesaler & Distribution Underwriting

Insurance underwriting is important for insurance companies. The role of underwriting is for an insurance company to understand and determine the associated hazards and risks of your cannabis business, how you manage those hazards and risks, and determine the risk of a potential loss. Because stuff happens insurance companies use a series of questions to determine how you're managing your hazards. 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 questions that are asked about cannabis wholesale & distribution 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.

Fire Prevention

If a fire does start your cannabis stock will quickly be destroyed due to the fire, heat, smoke and water from any sprinkler system that’s in place or from the responding fire department. The main causes of warehouse fires includes the following:
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  • Electrical-related causes
  • Lighting
  • Smoking

Electrical Load

You need to make certain that wiring is well maintained and up to code for the occupancy of your operations. Insurance underwriters are going to want answers to the following questions with regards to your electrical load & lighting.
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  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. 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.  

Smoking

To manage smoking on the warehouse premises:

  • Do not allow smoking in the warehouse.
  • Ensure that outside smoking is in a designated area away from flammable materials. 
  • Specifically designate a place for cigarettes, matches and other smoking materials to be disposed of safely and away from other combustible rubbish.

You also want to make certain that the following best practices are in place to avoid a potential loss due to fire. Recommended best practices for the safety of your warehouse include:

  • Aisles and passageways must be clean and orderly. There should never be anything stored in aisles or passageways as not only does it create a trip hazard but it will be that much harder for firefighters to respond and contain any fire. 
  • All cannabis goods should be shelved and/or palletized properly. This means that loads are stacked evenly and straight. Heavy loads should be on the lower or middle of your shelving.  
  • Prohibit smoking on the premises as this creates a fire hazard. Make certain that fire extinguishers are available and fully charged. 
  • If a sprinkler system is in place heads must be located high enough not to be in contact with shelving, pallets, and accidental contact with any forklifts.

Lastly you will want to make certain you have the following fire safeguards in place:

  • Fire Alarm: Fire alarms are essential for altering your employees in case of an emergency. Ensure your system is well maintained so employees can count on getting to safety if a fire ignites.
  • Fire Alarm Monitoring: Having your warehouse monitored will provide peace of mind knowing if a fire ignites on the premises during the middle of the night. 
  • Fire Extinguishers: Distribute fire extinguishers around your warehouse. ABC fire extinguishers are the most versatile because they can put out fires caused by flammable liquids, electronic equipment, and burning paper or plastic.

Crime

The potential of a loss due to crime is significant. You want to make certain that your warehouse is properly secured to protect it against theft whether this is an employee stealing, or even more significant and expected, such as a burglary. To have protection for your cannabis stock/inventory and cash from the perils of fire or theft, you will want to make sure you have the following protections and safeguards in place for your cannabis warehouse:
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  1. Video Surveillance System: The video surveillance system must be recording and backing up for 14 days before the loss.
  2. ​Central Station Alarm: The central station alarm system must be active during non-business hours (Connect all doors and windows to the central station alarm system).
  3. Safe: Safes must be at a minimum 800 lbs. with a 1-hour fire rating. Bolt safes are under 2,000 pounds to the ground.
  4. ​Vaults: Vault rooms must be fire-rated/certified for a minimum of 1 hour. If the room is not fire-rated or certified, then the building will need to have 100% fire sprinklers or a fire suppression system for the peril of fire to be covered. Vaults should have the following characteristics:​
    1. Concrete, masonry, or cinder block walls with steel rebar                    
    2. Concrete, masonry, or cinder block ceiling with steel rebar
    3. Concrete, masonry, or cinder block floor with steel rebar
    4. Concrete, masonry, or cinder block walls, including the ceiling of the vault room, are lined with steel plates.
    5. Vault room doors are made of steel.               
    6. Locate Video surveillance in the interior and exterior of the vault room, and back up all video recordings for 14 days

In addition to the above you want to make certain your employee selection process includes background checks on all employees. In addition you want to make certain that regular physical audits are performed on a semi-annual basis of your cannabis product inventory. 

Commercial Auto/Delivery Exposure

You have a significant automobile exposure if you offer delivery of products to cannabis dispensaries. You want to make certain you have written policies in place with regards to personal and permissive use of any company owned vehicle that’s provided to employees. All drivers should be trained and have valid drivers licenses and motor vehicle reports (MVRs) should be run on a regular basis. Insurance underwriters will want answers to the following risk management procedures:
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  1. Do vehicles that transport property and/or money and securities from the warehouse have an active alarm system? If yes does it include Low Jack or some other similar tracking device?
  2. Are drivers allowed to make personal stops when transporting goods?
  3. Are drivers allowed to take any cannabis inventory and/or money home?
  4. Do you collect MVR records from all drivers prior to employment?
  5. Do you allow any firearms or weapons in the vehicles?
  6. Do you have a lock box that is bolted to the vehicle?
  7. Do you provide lifts, rideshare or other livery type of operations?

Cannabis Product Liability

You want to make certain that you have Cannabis Product Liability Insurance in place. This will provide protection in case of an alleged suit due to bodily injury due to cannabis product consumption or use of a cannabis accessory. In addition to having Product Liability Insurance in place you should also develop proper indemnification and insurance requirements in the contracts of the suppliers that you work with. The reasons for including a strong indemnification clause and insurance requirements in your contracts include:
  • Your entity can be held liable for damages caused by your suppliers
  • You should be able to rely on the supplier’s expertise to provide safe products and ingredients, if it doesn’t, it should pay for the consequences
  • Responsibility encourages safety on the part of your supplier
  • Risk is placed upon those best able to control the work
  • You have a source for payment of claims that are made against your business
  • Maintaining your own good loss history and lower insurance costs

You should request two documents verifying Cannabis Business Insurance:
  1. A Certificate of Insurance and;
  2. An Additional Insured (AI) Endorsement (or a copy of the applicable policy language confirming your AI status by written contract). 

When added as an additional insured to the insurance policy of your supplier you will be protected against liability for injury or damage caused by the products of that supplier. The policy will defend you as an insured and pay the amount of any settlement or judgment, up to its policy limits.
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Review the forms to be sure they are completed fully, that they have been signed by an appropriate party, and that no items have been crossed out or altered. Note the expiration date of the policies. If any policies expire during the term of the contract or project, you should set up a suspense file for forty-five (45) days before the expiration of the insurance. At that time, if you have not received proof of renewal or replacement of coverage, you should send a letter (including the current forms) to the other party stating that your business requires receipt of a new set of forms before expiration of the existing coverage.

Core Cannabis Wholesaler & Distributor Insurance Protections Offered:

Providing Cannabis Wholesaler & Distributor Insurance Protection

Reach out to me when you’re considering cannabis wholesaler & distributor insurance. I will discuss coverage’s with you, how each coverage works and assess how it fits into your risk management needs. I will provide you with comparative cannabis wholesaler & distributor 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.​