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January 31, 2023

Mitigating the Cannabis Product Recall Risk

Product recalls are a risk for any business involved in manufacturing, distribution, or retail sales. As marijuana sales grow, so do cannabis product recall risks, which is creating a need for good risk management practices and robust insurance coverage.

U.S. Cannabis Sales

Although marijuana remains illegal at the federal level, cannabis sales are flourishing in the many states that allow regulated sales. According to the National Conference of State Legislatures, medical marijuana is allowed in 37 states, three territories, and the District of Columbia, whereas non-medical adult-use marijuana is allowed in 21 states, two territories, and the District of Columbia. Several jurisdictions have passed legislation that allows cannabis sales as recently as 2021 and 2022.

As a result of these legal changes, cannabis sales are booming. MJBizDaily estimates that U.S. medical and recreational cannabis sales reached around $33 billion by the end of 2022. The market could reach $52.6 billion by 2026, including $15.6 billion in medical cannabis sales and $37 billion in adult-use recreational sales.

Although this is an exciting opportunity for businesses in the cannabis sector, as this is a developing industry facing significant scrutiny, there are also many risks involved. Some of these risks involve product recalls.

Contamination Concerns Spark Recalls

Some recalls are due to contamination concerns. When cannabis products become contaminated with mold, bacteria or pesticides, consumption can lead to adverse health effects.

For example, the California Department of Cannabis Control issued a mandatory recall for a batch of cannabis flower contaminated with Aspergillus niger, a type of mold the CDC says may cause allergic reactions and lung infections, especially in people with weakened immune systems or lung disease.

In another case, KOIN says the Oregon Liquor and Cannabis Commission issued a mandatory recall due to potential pesticide contamination. The recall impacted 9,300 products that were on sale at the time and 13,600 products that had already been purchased.

Packaging and Labeling Issues Also Prompt Recalls

Other cannabis recalls are the result of packaging and labeling issues. According to the Cannabis Industry Journal, these are the most common cause of cannabis recalls in Canada, accounting for 73.2% of recalls in one year. The most common labeling and packaging issues involved inaccurate cannabinoid information. In one case, a misplaced decimal point meant a product had 10 times the amount of THC and CBD as stated on the label.

Packaging and labeling issues have also been a problem in the U.S. The Oregon Liquor and Cannabis Commission issued a recall for a mislabeled batch of Select CBD Drops containing high levels of THC. Syracuse.com says recalls also occurred in New York over cannabis tinctures that were labeled as having a 1:1 ratio of THC to CBD but actually had a ratio of 20:1.

The Impact of Recalls

Recalls are always expensive. Companies may spend millions of dollars disposing of products and dealing with public outreach. They may also face fines from regulatory bodies. Costs can increase considerably if the recall involves consumers who were harmed, since there may be lawsuits as well as lost revenue due to consumer mistrust.

Cannabis recalls can be especially serious due to the nature of the product. As Insider reports, medical cannabis users who purchase cannabis for health conditions are especially vulnerable to adverse consequences from contaminated products. In one case, 18 people reported becoming sick after consuming contaminated cannabis.

Labeling mistakes can also be serious. Accurate dosage information is important on cannabis extracts and edibles. If products are less potent than expected, medical users may not receive the full benefits. Even more concerning, if products are more potent, users may be unexpectedly impaired. For example, people who think they’re ingesting CBD but actually ingest THC could end up causing a car crash.

According to The Oregonian, Curaleaf agreed to a $130,000 fine and a 23-day suspension over CBD drops that contained a large amount of THC. Curaleaf has also faced lawsuits from consumers who were impacted by the mix up, including a wrongful death case and two personal injury cases.

Mitigating Cannabis Product Recall Risks

As the cannabis industry continues to grow, companies need to take steps to contain their cannabis product recall risks.

  • Follow industry best practices. Regulations vary from state to state and are still evolving. In addition to compliance with state regulations, cannabis companies should also follow industry best practices for testing and safety to avoid contamination and labeling incidents.
  • Build business relationships carefully. Make sure your vendors and partners adhere to the same safety standards as you. It’s also important to address liability assignment and insurance requirements in contracts.
  • Maintain adequate insurance. Securing robust insurance can be especially challenging for the cannabis industry, but – due to the risks – coverage is critical. In addition to general liability insurance, you may need product liability and recall insurance.

Are you doing everything you can to mitigate your cannabis recall risks? Heffernan Insurance Brokers can help you review your cannabis insurance coverage and fill in any gaps. Learn more.

Tags:  cannabis

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