Let’s talk a little bit about why cannabis startups need insurance, shall we? Here are just a few of the main reasons you should seriously consider getting insurance, wherever you are in the life cycle of your company.

 

1. To provide stability

The last thing you’d ever call a startup? Risk aversive. By their very nature, they embrace risk. And that’s a good thing. Its what keeps the cannabis startup world thriving. Take PayPal. During its early years, it broke something like 40 state and federal laws! But it’s that exact kind of risk-taking that recreated the way we exchange money online today.

Your cannabis start-up may seem like a far cry from the likes of PayPal, but guess what? You can be sued just like they were (and continue to be). When you’re shaking up the norm in the cannabis industry, things can go awry and you can be caught on the wrong end of a court verdict.

And even if you’re found innocent in the end, you can still be stuck in a pit of swarming lawyers, time-hogging paperwork and endless legal fees, sometimes for years.

Simply put: one small legal issue can cause your cannabis business to fail. Many a startup has folded due to a lawsuit hitting them during a weak spot in their funding cycle. Even if the claim is unfounded, lawyers, court costs and time away from the business can shut down the strongest of startups. The beauty of cannabis start-up insurance? These legal fees (and most other related expenses) are covered. A good policy adds a level of stability needed for most adventurous cannabis startups and helps the company withstand hardships.

 

2. To attract new investors

Even though institutional investors understand the importance of risk, it doesn’t mean they don’t want it mitigated as much as possible. The more secure you are, the more willing they are to take a chance. One trait that appeals to the wise cannabis business investor? The ability of a company that recognizes the necessity of risk management. When an investor sees a founder who thinks far enough ahead to purchase insurance, it displays a certain level of sophistication in planning.

 

3. To appeal to current investors

Don’t become overly focused on that “winning idea” of yours. Seasoned investors are looking for more than that, namely stability and risk management. One way investors do this is by requiring companies to procure certain types of insurance coverage.

In fact, a representation requiring directors and officers insurance is basically a boilerplate term for institutional rounds since it directly protects the VC. (Depending on the type of cannabis-related company, you may also be required to have errors and omissions, property and general liability coverage as well.)

 

4. To keep customers happy

Are you in the B2B arena? If so, your investors aren’t the only ones demanding proof of insurance. Many customers will expect it too. Whether you’re selling software to universities or providing expertise to marketing firms, more often than not, your customers want some kind of liability coverage in place. (And don’t forget landlords when you score that new office space; they expect to see it as well.)

 

5. Its a legal requirement

Okay, not entirely true. Though it definitely is true when it comes to worker’s compensation coverage. One of the most common misconceptions when it comes to insurance in the startup world? That you don’t need worker’s comp coverage until you have “employees.” Before you say, “But I don’t have any employees!” remember: you’re an employee. A general rule is that if anyone is receiving salary, you need workers’ comp!

Beyond workers’ comp, there are other requirements around general liability and product liability that vary by state.  Be sure to talk to us to understand the specifics.

 

Wrapping it up

We get it: cannabis business insurance is the last thing most founders want to consider. It seems like a needless detail when there are so many bigger fish to fry. But understand this: if your company does succeed, you are more likely to get sued. Why? Because you’re dealing with more customers, more orders, more investors and more money, which means a higher likelihood that that things will occasionally go wrong. In order to stay in compliance with ever-changing state and federal laws, a little protection goes a long way!

 

Leave a Reply

Your email address will not be published. Required fields are marked *