Download our coverage overview for Cannabis, CBD and Hemp Cultivation here

This is where it all starts! The growers are a vital part of the industry and provide the cannabis product for their own use or other enterprises. Growers need to procure and maintain a license issued by a state where cannabis, CBD or hemp is legal to grow. They have similar exposures to any farm or agricultural risk, however the nuance of cannabis certainly limits market capacity. It’s important to understand what type of product is being grown and what is the SOV

  

Risks that Cannabis, Hemp & CBD Cultivation Companies Face

Regulations & Legal Uncertainty

Hemp DEA Ruling (2020)

This is more applicable to those concerned with the Hemp CBD space.  As we’re sure you’ve read by now, the DEA released their interim rule which seemed to muddy the CBD waters even more.  The piece unclear for extraction companies is that the DEA neglected to comment on whether product testing at over 0.3% THC during any point of the extraction process is deemed illegal.  Given the uncertainty associated with this ruling, this is both a risk and an uncertainty that the industry faces. 

(https://www.natlawreview.com/article/new-dea-rule-creates-more-uncertainty-legality-cbd-extracts). 

 

Damage or Destruction of Crops

Whether you watch the news or not, you know and see that the environment around us in many of the grower’s states is in turmoil.  Outside of the vast forest fire that decimated acres upon acres of land in 2020, everyone’s worst fear in California has to do with rain normally, aka toad stranglers.  I think everyone would rather have that these days. With the climate and atmosphere always changing, protecting the plants, buildings, and general land where you produce is more important than ever.

 

Processor Mistreatment 

It’s important to partner with processors in the space who you trust.  There are countless suits that farmers bring against their processors for “ruining” their plants.  Take one of the more recent examples in South Carolina and Alabama for example where farmers claim that a processor ruined 5 harvests worth of hemp due to negligence in the extraction process. (https://hempindustrydaily.com/hemp-farmers-sue-south-carolina-processor-allege-crops-were-ruined/). 

 

What Insurance do Cultivation Operations Need?

 

Premise General Liability

What does it cover?

Premises General Liability is a third party liability coverage that is intended to protect a company for incidents that occur on their property

 

Why do you need it?

For a grow operation, this coverage is important should someone who is not a member of the operation come to the facility and hurt themselves.

 

Example: ‘SLIP AN FALL’ CLAIMS: a vendor visits your office in your coworking space, trips on a power cord and hits his head.

Products Liability (covering the use of your plant)

What does it cover?

Product liability, like general liability, is a third party liability coverage. The difference stems from the covered incidents. Product liability coverage is specifically created to provide coverage for bodily injury due to the use of your product. 

 

Why do you need it?

For a grow operation, even if it is not your brand, you may be tied into a lawsuit should someone get hurt or sick and you would want this coverage in place. 

 

Crop Coverage

What does it cover?

Crop coverage is a first-party coverage that is intended to insure against the damage to your crop due to covered losses. These policies are specifically written to cover the entire lifespan of a plant, from seed all the way to finished stock. 

 

Example: Lightning strikes your crop and sets it on fire, destroying your crop. 

 

Property Coverage (Equipment and Buildings)

What does it cover?

Property coverage is another first-party insurance policy that is intended to make a company whole again should they experience a covered loss. For a cultivation operation, this policy would look to cover the equipment and buildings that are used throughout the growing process. 

 

Example: Your equipment gets damaged in a flood. 

Workers Compensation – Farmhands / Employees (even 1099s)

What does it cover?

Workers’ Compensation and Employers Liability (a portion of the WC cover) are both intended to cover injuries that employees sustain during the course of their work and are typically required by state law. 

 

Why do you need it?

Even if your farm hands are 1099s, unless they have their own workers comp, you will be required to provide this coverage for them.. 

 

Example: One of your employees hurts themself operating your machinery. 

 

Employment Practices Liability 

What does it cover?

Also referred to as  EPL insurance is a labor law coverage which responds to claims arising from invasion of privacy, wrongful termination, sexual harassment, etc.  

 

Why do you need it?

In the current legal landscape we recommend it as a standard coverage for companies with any number of employees.  For a grow operation, it is important to make sure that there is a wage and hour sublimit as a majority of your employees will be hourly. 

 

Example: One of your employees files a wrongful termination suit against you. 

Directors & Officers 

What does it cover?

Directors & Officers insurance or D&O insurance as it’s commonly referred to as is intended to cover the directors and officers from investor lawsuits involving mismanagement of company funds, misrepresentation,

 

Why do you need it?

For any company who has taken outside investment, this coverage is important and in many cases required by your board of directors.

 

Example: An investor files a lawsuit because they feel you breached your fiduciary duty.

 

AlphaRoot is a full-service insurance brokerage completely dedicated to strengthening and supporting the cannabis industry. If you’d like to learn about building a risk management program for your cultivation operation, reach out to us at info@alpharoot.co 

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