Usually included in a general liability policy (though sometimes offered by itself), cannabis product liability insurance protects your cannabis startup from lawsuits related to property damage or bodily damage caused by product defects.
Regardless of whether you’re brick-and-mortar or e-commerce, in-house manufacturing or outsourced, there are some important reasons to think about cannabis-related products liability insurance early on.
1. The high possibility of claims
An unspoken motto for many lawyers? Sue everyone involved. For a cannabis product liability lawsuit, this could mean everyone considered in the “chain of distribution.”
That could include: the distributor, the cannabis product manufacturer, the retailer, shipping and freight companies…as well as anyone else who had contact with the product on its way to the home of the consumer.
That’s not to imply that all of the parties named in the suit will be held liable. But the courts work in a manner that once named, all parties have to duke it out and see who remains a defendant. Why? Because the entire process boosts legal costs across the board. More defendants = more money. That’s why a good cannabis product liability insurance policy will go far.
2. It doesn’t matter if you outsource.
Mainly based on the reasons just outlined, outsourcing your cannabis manufacturing efforts doesn’t make a difference in the level of accountability.
Again, as long as you’re a “link” in the chain of distribution, there’s a high probability you’ll wind up a named defendant.
And its even worse for cannabis startups outsourcing to foreign manufacturers (which is common among startups). Chances are, if you work with a manufacturer based in Korea, you’ll be considered the “de facto” manufacturer, for the purpose of that particular cannabis products liability lawsuit.
And ready for some more bad news? Even if you outsource locally (like within the United States), the same rules will apply, as long as your name and/or label appears on that product. (The only difference in this case: you may be able to share some of the legal weight with the actual manufacturer.)
3. The frequency and size of the claims
If you Google “cannabis product liability settlement amounts,” the first batch of results will highlight law firms boasting about their fattest wins for cannabis product liability lawsuits and class actions. Why? Because this is an legal arena packed with attorneys looking to make a name and a buck.
Most lawyers will go after about five times whatever the actual (or hard) costs of the injury…but some could climb as high as 100x!
That’s because they’ll include: lost wages, hospital and home care bills, out-of-pocket expenses, as well as pain and suffering, in addition to that base number.
It’s easy enough to see how these types of settlements can tally up quickly. And to make matters worse: the size of product liability settlements overall has trended upward since 2014.
This kind of brutal payout can be a permanent blow to a cannabis startup, but a solid cannabis product liability insurance policy can generally cover the cost of a settlement.