Whether you’re a new cannabis dispensary purchasing your first policies or a dispensary about to enter your second year of business, you should understand the factors affecting your cannabis dispensary insurance costs and coverages in the upcoming year. The following is intended for medical dispensaries although some of these points will apply to all cannabis touching businesses.
Dispensary Insurance Costs
There are three general types of coverage that you should have for your dispensary: workers compensation, liability insurance, and property insurance. There are other types of coverage, but we will just discuss these three as they are most common.
- If your payroll grew, so will your workers compensation insurance premium
Your workers compensation premiums are tied to your payroll. At the end of the policy year, the insurer will audit your business and issue either a credit or debit based on the difference between your projected and actual payroll. If your payroll is higher than you projected, you should expect to pay an additional payment in addition to your first year premium.
If you are midway through your first policy year and have already significantly increased your payroll, I recommend that you notify your insurance company or broker. That way, the increased premium can be spread out among the months remaining in your policy.
- Liability insurance cost may be your biggest surprise
Insurance companies rate liability premium primarily based on your overall revenue. The average rate for a medical dispensary’s general and product liability coverage is roughly $3.50 per thousand dollars of revenue—some insurers charge a little more and some charge a little less. The insurer will then adjust that base number based on their perception of your business practices and the overall risk. Therefore, to get a rough idea of your liability costs, take your revenues and multiply times .0035.
If your revenues increased significantly from what was projected as a start up, you should expect a significant increase. I suppose this is a good problem to have because it means your dispensary is successful.
- Property dispensary insurance costs should remain relatively flat
For property insurance, I have recently seen increases of perhaps 5% to 10% from one of the main insurers. There are a few competitors who may offer more competitive quotes.
Overall Coverage Issues
The following are a few coverage issues that I have noticed during the past year. This is not meant to be an exhaustive list. You should read your policy and ask your broker any questions you have about how your policy would react to different situations.
- Security guards
Whether you employ your own guards or use a security company, make sure that there is coverage in the event that your security guard injures a patient or a potential assailant. Many existing liability policies contain an exclusion that would deny coverage and some limit coverage if a firearm is used.
- Staff members driving for work
If your staff is running errands in their personal vehicles (e.g. to get office supplies), make sure that your business is covered. While the staff member’s individual policy will cover them, your dispensary could also be sued since that staff member was operating as your agent while driving. One of the more common policies being sold does not contain this coverage.
Your dispensary should probably maintain a driver’s policy which lists, among other things, minimum insurance requirements for your drivers, requires them to prove that they have coverage, etc. Note that most insurers will not cover delivery of cannabis on the general liability policy. Typically, you must purchase/designate a vehicle through the business and purchase a separate policy.
- Budtender/Clinic director’s advice to patients
I expect that we will soon see more claims from a patient that will suffer an adverse outcome and try to bring legal action against everyone including the dispensary. Unlike a product liability claim, in which the plaintiff claims that the cannabis was contaminated, etc., the patient might claim that they received bad advice as to which product to use. There are arguments that a budtender would be covered under a general liability policy, but coverage for any licensed healthcare professionals on staff is less clear. There are insurers who will offer this coverage, and I think you should consider purchasing it.
The cannabis insurance marketplace remains unsettled, and there are only a handful of insurance companies that will cover your dispensary. As such, it’s important to make sure that you understand the coverage you are purchasing and the changes you can expect to your dispensary insurance costs as the landscape continues to evolve. If I can be of any help or answer any questions, please email me at ssherman@psafinancial.com or call me at 443-722-7467.
