Whether you’re a new cannabis dispensary purchasing your first business insurance policies or a dispensary entering your second year, it’s essential to understand the factors affecting cannabis dispensary insurance costs and coverage changes for the upcoming year.
This guide primarily applies to medical dispensary insurance, though many of these points are relevant for all cannabis businesses, including recreational dispensaries, cultivation facilities, and delivery services.
Key Cannabis Dispensary Insurance Costs
There are three essential types of cannabis insurance coverage every dispensary owner should have:
- Workers’ compensation insurance
- General liability insurance and product liability insurance
- Property insurance
While additional coverages may be necessary, these three are the most common.
Workers’ Compensation Insurance Costs Increase With Payroll
Your workers’ compensation premiums are directly tied to payroll. At the end of each policy year, the insurance carrier will audit your business and issue a credit or debit based on your projected vs. actual payroll.
- If your payroll increases, expect higher insurance premiums.
- If you’ve already increased payroll mid-policy, notify your insurance broker to spread the additional premium over the remaining months.
Liability Insurance Costs: The Biggest Surprise for Dispensary Owners
Cannabis dispensary liability insurance is primarily rated based on your annual revenue. The average rate for medical dispensary general liability and product liability coverage is around $3.50 per $1,000 of revenue (some insurers may charge more or less).
To estimate your liability insurance cost:
- Multiply your revenue by 0.0035 for a rough premium estimate.
- If revenues increased significantly, expect a higher renewal premium.
- This cost increase reflects business success but can be a budget surprise for many cannabis entrepreneurs.
Cannabis Property Insurance Costs Remain Relatively Stable
For property insurance, rate increases have remained moderate, with some insurers raising premiums 5% to 10% annually. However, cannabis-friendly insurers offer competitive quotes, so shopping around is worthwhile.
Common Cannabis Dispensary Insurance Coverage Issues
Security Guard Liability Coverage
If you employ security guards or contract with a security company, review your liability policy for potential exclusions:
- Some policies deny coverage if a guard injures a patient or potential assailant.
- Others limit coverage if a firearm is used in a security incident.
Ensuring proper security liability insurance is crucial for cannabis dispensaries due to the cash-heavy nature of the business.
Staff Driving for Business Errands: Are You Covered?
If employees drive personal vehicles for dispensary-related tasks (e.g., purchasing office supplies), your business could face liability if they get into an accident.
- The employee’s auto insurance policy will cover them personally, but your dispensary could be sued.
- Many cannabis business insurance policies do not include coverage for non-owned auto liability—this should be added if applicable.
Additionally, most general liability policies exclude cannabis delivery services, requiring a separate commercial auto policy for delivery vehicles.
Liability Risks of Budtender and Clinic Director Advice
Expect future cannabis dispensary lawsuits from patients claiming negative effects due to product recommendations.
- A general liability policy may cover budtender recommendations, but coverage for licensed healthcare professionals on staff is less clear.
- Consider professional liability insurance or errors & omissions (E&O) coverage for added legal protection.
Navigating the Uncertain Cannabis Insurance Market
The cannabis insurance industry remains unstable, with only a few insurance providers offering comprehensive coverage for dispensaries. Given this evolving landscape, dispensary owners must:
✔ Understand what’s included and excluded in their policies.
✔ Review cannabis insurance costs annually to budget for potential increases.
✔ Work with an experienced cannabis insurance broker to identify coverage gaps and cost-saving opportunities.
Get Expert Cannabis Dispensary Insurance Guidance
If you need help navigating cannabis business insurance, or if you’d like a cannabis dispensary insurance review, contact me at ssherman@psafinancial.com or via our online contact form.
