Cannabis insurance is a specialized business insurance policy that protects marijuana businesses from the common risks of liability or damage to their property. Its costs are higher than in other industries because of the risks associated with the product and its status as a Schedule I controlled substance. The United States Drug Enforcement Administration (DEA) defines a Schedule I controlled substance as a drug with no currently accepted medical use and a high potential for abuse. A liability policy, for instance, can range from $1,000 to $3,800 annually. However, this is a rough estimate and on the low end.
Dispensaries, cultivators, and testing labs need different levels of coverage, but all need at least a general liability policy, product liability, and, depending on the state, workers’ compensation. Depending on the type of business—medical vs recreational dispensary, for example—a business owner may have to contend with an annual premium of six figures.
AlphaRoot is a full-service insurance broker focusing exclusively on cannabis, hemp, holistic medicine, and psychedelics. Working with top-rated carriers, the company can find the cannabis insurance you need at an affordable price.
Marijuana Insurance Costs & Deductibles by Policy
Workers’ compensation is another common policy. However, workers’ compensation’s cost is calculated using a formula that includes your industry, claims history, and the number of employees. As such, the cost can vary significantly even within the same industry.
If you operate a dispensary, your total marijuana insurance cost can be around $2,500 to $7,500 per year—these numbers are for a smaller-scale operation. Businesses with additional operations, such as cultivating or lab testing, will pay more. For example, when researching for this article, we received a quote of $125,000 for a marijuana cultivation business with $1.5 million in annual revenue and $250,000 in marijuana crop coverage.
The quoting process for cannabis insurance is much more in-depth than for other retail businesses. When you apply for a quote, be prepared to answer questions such as the following:
- How do you prevent selling to minors?
- What do you do to ensure your product does not reach criminal enterprises?
- How do you prevent the product from entering a state where it is illegal?
- What security measures are in place to prevent theft after hours or by employees?
- Do you provide any products to employees?
- What training do your employees have in the event of a robbery?
Having answers ready for those and similar questions will make the quoting process quicker. It also shows the provider that to mitigate risk, you have a plan in place.
There are multiple policies to consider; policies like general liability should be an immediate choice, no matter the type of business. Others, such as crop insurance, are only necessary if your business is engaged in the business of cultivation.
General liability insurance (CGL) protects against third-party claims of bodily injury or property damage by covering associated costs. Most policies also include protection for claims of reputational harm. Costs include medical bills, expenses, repairs, and legal fees if anyone sues you. Working with one of the leading CGL companies can be helpful in providing financial protection for your business.
Commercial property insurance covers business-owned property typically damaged by fire, vandalism, hail, wind, and theft. Unlike CGL, this coverage carries a deductible, which is your financial responsibility for the loss. Hemp business owners can choose to insure their property on an actual cash value or a full replacement basis.
Another option, depending upon the provider, is a business owner’s policy (BOP), which is a policy that combines property and liability. An advantage of the BOP is that it sometimes results in a reduced premium.
Also called errors and omissions insurance, professional liability insurance can cover your defense costs when a third party accuses your business of making a mistake that resulted in a financial loss. Typically, attorney’s fees, court costs, settlements, and judgments are covered by insurers.
This insurance type is a good choice if you operate a medical marijuana dispensary. For example, if the patient has a reaction to the medical marijuana or it doesn’t perform as intended, the business may be sued. Our roundup of the best professional liability insurance companies can help you find an insurer that fits the bill.
Required in nearly every state, workers’ compensation insurance is a policy that protects employees who become injured or ill due to work done on the job. Such policies usually pay injured employees’ medical bills, wages, and, when necessary, death benefits to the families. If you need recommendations, see our evaluation of the best workers’ compensation insurance companies.
Commercial auto insurance provides coverage for first- and third-party damage due to using a vehicle for business purposes. Most states require you to carry minimum liability on your vehicle. Any other coverage, like collision or comprehensive, is optional. However, the bank may require first-party coverage if you do not own the vehicle. Our list of the best commercial auto insurers will help you find a company that fits the bill.
Property insurance is usually limited to a listed location—but inland marine insurance moves with the items it insures. If your cannabis business transports products to different places, you may need inland marine insurance if those items are stolen, lost, or destroyed.
Property insurance usually does not cover crops. Marijuana cultivators will need crop insurance to cover costs when the plant, at any stage, is damaged or destroyed. However, some policies limit coverage to crops grown in a greenhouse, so review the terms carefully.
The Current Status of Cannabis in America
Since the last update to this article, much has changed for cannabis in America, while at its core, much remains the same. A brief overview of the legalities and how the federal government classifies cannabis can help you better understand the cost and difficulty of finding cannabis insurance.
As of April 2024, recreational weed is now legal in 24 states. Alaska, Arizona, California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Jersey, New Mexico, New York, Ohio, Oregon, Rhode Island, Vermont, Virginia, and Washington Some of the larger states where it is legal are California, New York, and Ohio. When you factor in states where medicinal marijuana is now permitted, there are only six states where it is fully illegal—both recreational and medicinal. These are South Carolina, North Carolina, Kansas, Nebraska, Wyoming, and Idaho.
In May 2024, the Department of Justice made a recommendation to reclassify marijuana from a Schedule I substance to a Schedule III substance. This move would mean that cannabis remains a controlled substance but one that is viewed as other Schedule III substances, like Tylenol with codeine.
This reclassification has not been finalized. Nor have the SAFE and CLAIM Acts—which would make it easier for cannabis companies to obtain proper financing from banks—passed. However, there is a movement within the federal government that could potentially result in a more open market for cannabis companies trying to find insurance and, hopefully, lower premiums.
How to Purchase Insurance for Dispensaries
Because of the combination of state regulations, federal illegality, and the overlapping nature of a dispensary being for medicine or personal use, navigating marijuana insurance can be tricky.
- Step 1: Research the local and state regulations for the business to find out what is allowed and required.
- Step 2: Find potential insurers to determine their reliability. Many are new or non-admitted, so they do not have government backing if the company fails. You will want to ensure that the company’s financial ratings show that it is financially stable. For our recommendations, check out our list of the leading cannabis insurance companies.
- Step 3: Consider working with a broker who can provide you with multiple quotes to help save costs. Many insurers are subject to the same regulations as banks and cannot insure cannabis operations. These companies also prefer having years of loss data on the industry, especially risky ones, before determining if there is any insurable interest. The result is fewer insurance options, which drives up the cost. For this reason, relying on one of the top business insurance brokers, like AlphaRoot, is a wise decision when searching for hemp insurance.
Frequently Asked Questions (FAQs)
Getting insurance for your business is always a wise decision. A bank usually requires insurance to protect its interest if your company has a loan, or a landlord will want to see proof of insurance before renting space to your business. The state where you operate may also require either insurance or a surety bond. Besides, if you have hundreds of thousands invested in a crop, is it worth the risk to not insure it?
It depends on your operation. At the least, you should consider getting a general liability policy. If you have a lot of property or a loan, then you will also want to consider commercial property. On top of that, you may be required by law to have workers’ compensation. Review your cannabis business with your agent or broker to determine which coverage is best and which ones are required.
Most personal auto policies have exclusions in place for business use. This means that if, at the time of the loss, the purpose of use for your vehicle is business, there will not be coverage afforded under your personal auto policy. For this reason, you will want to consider a commercial auto policy if you regularly transport or deliver marijuana.
Most homeowners’ policies have an exclusion for commercial activities on the premises. As such, if you cultivate marijuana in a greenhouse on your personal property, your homeowners’ insurance will likely not cover any business-related losses.
Bottom Line
When it comes to your budding business, you don’t want to overlook the importance of cannabis insurance. Because of its complicated relationship with the federal government and state regulations, working with a broker is a good idea when purchasing dispensary insurance.
AlphaRoot is a great broker that can connect you to multiple carriers for marijuana insurance, after asking questions specific to your business. It also offers risk services and a claims team to help you navigate the claim process.
