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May 23, 2023

Crime Insurance for Cannabis Companies

Although marijuana is no longer illegal in most states, crime is a significant risk for companies involved in marijuana and hemp production, manufacture, and sale. Crime insurance provides important coverage for cannabis companies. Unfortunately, marijuana falls into a legal gray area, which can make securing crime insurance for cannabis companies a challenge. 

The Ongoing Conflict Between State and Federal Law 

The NAIC says some form of medical marijuana is legal in 38 states and the District of Columbia. However, federal law still classifies marijuana as an illegal Schedule 1 drug. This may change in the near future, as President Biden has called for the scheduling to be reevaluated. In the meantime, though, the legal situation makes it difficult for cannabis companies to secure robust insurance coverage. 

Many carriers don’t want to touch marijuana. Those that do offer coverage often have restrictive terms and expensive rates. As MoCannTrade (the Missouri Cannabis Trade Association) explains, the least expensive policies may not be a good deal because carriers may refuse claims and may raise rates at the first renewal, regardless of claims history. 

Insurance (Including Crime Insurance) Is Still Necessary 

Securing insurance coverage may be more difficult for cannabis companies, but this doesn’t mean you should abandon all hope of securing solid coverage. In addition to insurance staples such as property insurance, general liability insurance, and workers’ compensation insurance, you need crime insurance. 

Crime insurance covers claims related to various types of fraud and theft. Many policies provide coverage for crimes committed by employees and by third parties with no connection to the business.  

The Risk of an All-Cash Business 

Investopedia says business crime insurance is especially important for companies that deal exclusively in cash or online payments. Since these companies are particularly vulnerable to theft, fraud, and embezzlement, crime insurance provides useful coverage.  

Cannabis companies certainly fall into this category. Just like insurance providers, many financial institutions avoid working with cannabis companies. As a result, cannabis companies have historically operated on a cash-only basis. 

The SAFE Banking Act would make it easier for cannabis companies to access financial services. Many people had been hoping to see the SAFE Banking Act pass in 2022, possibly as part of the massive spending bill. However, as The Hill reports, the SAFE Act was not included in the $1.7 trillion omnibus spending bill unveiled in December 2022 and its fate remains unclear. 

There have been other attempts to circumvent banking issues for cannabis companies. The Seattle Times says some were using cashless ATMs that enabled people to use a bank card to buy cannabis. However, some of the largest processors recently shut down this service, forcing dispensaries to return to cash. 

For now at least, cash is king in the cannabis industry, which increases the need for crime insurance.  

Robberies Often Target Dispensaries 

Cash isn’t the only reason criminals may target dispensaries: thieves may also go after a store’s cannabis products. 

Dispensaries in St. Louis, Missouri, suffered a string of robberies in 2022. According to the St. Louis Post-Dispatch, criminals rammed cars, used crowbars and threw concrete blocks at storefronts, causing thousands of dollars in property damage but failing to nab much in the way of money or marijuana. 

MJBizDaily has been reporting on the series of armed robberies that have plagued Washington cannabis companies. In one area, five stores were all robbed within the span of a week. Many in the industry believe the dispensaries are being targeted because they operate on a cash-only basis. Even when thieves fail to find much of value on the premises, they can cause extensive property damage. Many thieves have gained access to dispensaries by ramming stolen cars through the front of the store.  

These robberies can also put workers in danger. According to The Seattle Times, a dispensary employee was killed during a robbery in March 2022. It was the third fatality related to a dispensary robbery in just four days. 

Employee Crime 

Cannabis company employees can be the victims of crime, but they can also be the perpetrators. Employees may also share information with criminals to facilitate theft from stores or vehicles. Once again, the fact dispensaries use cash and have tempting products can make them targets. For example, WFTV says two workers at a dispensary in Florida have been accused of stealing nearly $50,000 worth of marijuana over several months.  

Standard insurance packages typically exclude employee theft. Some carriers will add some crime coverage as part of an enhancement, and cannabis companies could secure limits of around $5,000 to $100,000 for employee dishonesty this way, while money and securities coverage might top out at $25,000. These limits may not be sufficient, but a separate crime policy can provide the needed coverage, with limits up to $1 million.  

Cannabis Crime Coverage Restrictions 

The types of crime insurance covers will depend on the policy, with some policies offering broader coverage than others. They do not typically cover losses caused by other factors (such as mistakes). Coverage may also exclude crimes committed by certain individuals, such as the policyholder or an employee with a known criminal record. 

Businesses in any industry are subject to standard limits and exclusions, but cannabis companies may face additional requirements and restrictions. For example, there may be additional requirements for security, including how stock on display is locked during business hours and after hours. To prevent break-ins, companies may be required to have a secondary barrier on entrances, such as a bar under the doorknob, as well as a dual-lock system on the vault. A camera system should be running 24/7, with two cameras on all products, and the footage should go to a central station. In addition to security requirements, coverage limits may be lower for display stock. 

It’s important to read policy terms carefully to ensure compliance and avoid rejected claims. It’s also important to work with brokers who will find you the best coverage available.  

Heffernan Insurance Brokers offers insurance that caters to all kinds of companies in the cannabis industry, from production to retail. Learn more. 

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