Insurance for your cannabis startup should be seen as more of an investment than another expense but given the hectic lives of many founders, it sometimes becomes another tick-the-box activity.  

But when used properly, cannabis businesses can obtain value from their policies well beyond that “set it and forget it” approach.

Here are a few pointers to help you optimize your insurance policies and get the most bang for your buck.

 

1. Communicate clearly

Your broker will generally stay in contact throughout the year (as well as the time period before renewals) in order to keep track of any pertinent changes in your cannabis business.  

But when big changes occur, it’s critical to be proactive and make sure your broker understands what’s going on.  

Here are some examples of when you should reach out to your broker:

  • Location changes (adding retail locations, moving offices, new warehousing partnerships, etc.)
  • New equipment purchases/business personal property
  • Change in the ownership of the company (generally anything greater than a 50% change)
  • A pivot or change in operations – this is key especially around the ever changing state laws
  • Creation or acquisition of new subsidiaries
  • The launch of a new product line

If your company undergoes any of these changes, it’s important to communicate openly with your broker so that he or she can make sure your policies still effectively mitigate these new risk exposures.  The broker is on your team, not the carriers! 

Your broker will also want to make sure your policy limits are properly adjusted and any coverage enhancements are correctly put into place.

 

2. Avoid gaps

Newer cannabis business founders seem to often believe that insurance can simply be turned on and off when needed. This is a commonly held and potentially costly misconception. While it’s technically possible, repeatedly canceling and re-purchasing policies can cause considerable harm to the cannabis company in the long run.  

Why? This lightswitch practice burns bridges with insurance carriers. Most will not want to offer you another policy when the previous one was canceled after only a short time.

It also creates dreaded gaps in your coverage that can potentially do a lot more harm than you’d imagine. A lapse can tamper with the retroactive dates on professional and management liability policies like D & O, EPLI, E & O, and cyber liability policies.

 

3. Keep in touch with your market

Most cannabis startups are skilled at competitive analysis and connected to their community and competitors. A smart founder will study other companies in order to differentiate their model and gather a competitive advantage.  

It’s equally critical that cannabis companies keep their finger on the pulse of the litigation faced by their competitors. Have competitors been sued by their customers or by regulatory bodies? What about investors? If so, for what?

Monitoring legal risks has become an increasingly important prong of competitive analysis, given the complex and rapidly evolving cannabis-law passed federally and on a state level. When you help your broker stay on top of these current changes, it greatly benefits your cannabis company over the long haul.  

There are some more obscure insurance products (such as patent insurance or on-demand company insurance) that your broker can explore if the timing is right.

Simply put: don’t miss an opportunity to get a competitive edge on the insurance front! As your cannabis business grows, it’s imperative to communicate with your broker so you can have the best and most consistent coverage possible.

Open communications will foster the best risk mitigation policies and practices, help ensure the longevity of your company…and reduce a lot of stress!

 

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