Insurers Remain Wary of Cannabis Company Coverage

The legal cannabis is a high-stakes game, and many companies are clamoring for insurance. It’s a $9 billion industry (expected to hit $21 million by 2022) where regulation and standards remains spotty, rules are a mishmash depending on jurisdiction, companies deal largely in cash, the product itself alters chemical brain function and remains against federal law.cannabis insurance attorney

At The Cannabis Law Group,  our Los Angeles legal team has noted that while it is getting markedly easier for many marijuana business clients and related ancillary firms to obtain insurance coverage, it’s still a hugely under-served market, particularly given its vulnerability to litigation on several fronts.

Almost all businesses face some type of legal threat at some point or another, which is the whole point of why they buy insurance. But firms that deal in marijuana aren’t “just any other firm.”

Types of Lawsuits Legal Marijuana Businesses May Face in Coming Years

Cannabis firms can help shield themselves from litigation by hiring a dedicated law firm with extensive experience in the industry to help them build every facet from the ground up. It’s important to have all the proper permitting, lease contracts, partner agreements and meticulous protocol in place for everything – product testing/quality control, labeling, marketing, hiring, transport, financial management/bookkeeping – even the condition of your floors.

Although a tort can be raised under a wide range of circumstances, we see a few more likely on the horizon for the cannabis industry.

Product liability Lawsuits

Some attorneys have referred to this as a potentially “catastrophic risk” for the industry were one case or a class action case to prevail. There have thus far only been a trickle, but most legal analysts opine that is likely to increase alongside the market expansion, more retailers, wider access and greater public awareness. Whether or not licensed cannabis operators truly appreciate the risk of a consumer class action tort case remains to be seen. What we see as the most likely major product liability claims would be those involving cannabis products that are:

  • Adulterated;
  • Contaminated;
  • Mislabeled.

Plaintiffs will have a stronger case if there there is some violation of state regulation (and let’s be honest – the opportunity is ample). Businesses are already struggling to comply. One type of product liability claim would be something brought under California consumer protection laws.

Medical Liability/Malpractice Claims

Although recreational marijuana is legal, medicinal marijuana, recommended and overseen by the care of a physician, are still attainable (though less common). What we might see is an uptick in doctors prescribing marijuana for an expanded array of ailments. Some hospitals report seeing an uptick in cases of a condition called cannabis hyperemesis syndrome, which is basically repeated vomiting due to marijuana use and its impact on the digestive tract (the opposite effect of what cannabis typically has on the brain). Doctors who prescribe cannabis – and even those who don’t, but may see its effects in emergency rooms – may need to become more familiar with these kinds of ailments.

Doctors too may be unaware they need additional coverage if they’re going to prescribe cannabis – but it’s a good idea.

Especially where insurance is difficult to secure, the smartest thing cannabis businesses, physicians, landlords and ancillary firms can do is to preempt these types of claims by ensuring full legal compliance before a claim arises. A cannabis lawyer can help.

The Los Angeles CANNABIS LAW Group represents growers, dispensaries, ancillary companies, patients, doctors and those facing marijuana charges. Call us at 714-937-2050.

Additional Resources:

Insurers remain leery about covering California cannabis industry, July 3, 2019, By Cheryl Sarfaty, North Bay Business Journal