The Arena

To say the enterprise/SaaS startup industry is hot right now would be a serious understatement. Cannabis companies that specialize in making tech for work and business use is a big market and growing fast. Hence the need for the right kind of insurance. 

At our core, AlphaRoot is a technology business and the same is true for many of our clients. We actually got started in the cannabis space working with companies that build seed to sale softwaremarketplacesdispensary data & analytics, and grow automation (to name a few). 

 

The Risks

Although these companies have varied sales cycles, target markets and so on, their risk profiles are similar from an insurance carrier’s perspective. This is based on:

1. Product usage

Almost all products in the cannabis-related SaaS and enterprise arena share a common function: data collection and storage. And most of the time, that data is either sensitive or confidential.

What kind of stored data are we talking about? Personal identification information (PII), credit card numbers, medical records and purchase history to name a few.

Collecting, recording or storing this type of information exposes a cannabis-related SaaS & enterprise company to lawsuits because of data breaches (more on that topic) which are often expensive and happen much more frequently than you’d imagine.

This type of real-world vulnerability for SaaS & enterprise businesses makes a cyber liability policy an obvious solution. A robust cyber liability policy will cover the cost associated with lawsuits related to any type of data breach, whether created by hackers, employee negligence and denial-of-service attacks, to name a few.

A cyber liability insurance policy for a SaaS or enterprise startup in the cannabis arena can also cover the costs of business interruption incurred by a data breach as well as compensate for the theft or loss of intangible electronic property.

2. Customer reliance

Figure it this way: customers rely heavily on their enterprise or SaaS product. In turn, these companies want nothing more than to foster this reliance. Most of the money made in the SaaS & enterprise industry comes from recurring revenues generated by existing clients. (The SaaS realm in particular runs primarily on renewals).

So of course, whenever a cannabis SaaS and enterprise company encourages that kind of reliance, any downtime is brutal. So if your platform goes down for any reason, your customers can lose money. (And you can guess who they’ll blame.) MJ Freeway is the unfortunate poster child when it comes to an outage that has detrimental effects on clients.

In addition, even if your product is working but not up to certain customers’ standard, they still might sue you (for negligence, failure to perform or misrepresentation).

A sturdy errors and omissions (E&O) insurance policy will cover your cannabis company for losses related to product failures, malfunctions and customer satisfaction-related lawsuits.

E&O insurance will also compensate your cannabis company for legal fees, damages, settlements and any financial loss you suffer in dealing with the claims.

 

In a nutshell

You can have the best SaaS or enterprise product on the cannabis market, but that doesn’t stop over-demanding customers from tossing lawsuits your way. E&O insurance will mitigate these costs and protect your cannabis company from real damage.

Even though enterprise/SaaS companies in the cannabis industry specialize in a wide variety of applications, their risk exposure remains somewhat the same. A “high tech” suite of insurance products with cyber liability and errors and omissions insurance policies can provide your startup a new level of security.

 

Remember: insurance for your cannabis startup should be seen as more of an investment than another expense! 

 

Want to know more? Talk to us! We’re here to help. You can also check out our other blog posts for more info.

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