As anyone in the marijuana industry will tell you, starting a cannabis business often requires boatloads of cash and lots of blood, sweat and tears.
With so much on the line – and so many inherent challenges involved in this market anyway – you’d think cannabis business owners would take every step possible to mitigate risk.
Unfortunately, that’s not the case. Many executives running dispensaries, grows and infused products companies learn just how risky this business can be the hard way, after it’s too late and they suffer a catastrophic financial loss as the as a result of a theft, fire, customer lawsuit or other negative development.
Through extensive interviews with key MMJ personnel and first-hand observations of cannabis companies, we have identified several key areas of concern for businesses in this industry. Following are three of the biggest issues as well as steps you can take to minimize these risks:
#1 Employee car accidents
One of the most overlooked areas of risk is sending an employee out in his or her personal vehicle for business reasons. Whether it be to the bank, post office or to make a delivery from the grow to dispensary, the employer has no control over what happens on the road.
In most cases, employees in this industry drive their own cars – thus providing their own insurance. If a worker is involved in an accident and it’s their fault, the other party will often sue the registered vehicle owner. However, if the employee was on company business, their employer will be named in the suit. In this scenario, the employee’s personal auto insurance policy will pay first to its limit and then whatever is leftover will be the responsibility of the business owner.
This can be avoided if the company purchases hired and non-owned auto liability insurance, which shifts most of the risk to the insurance carrier. Business owners can further minimize their potential for loss by:
- Establishing minimum acceptable coverage limits for employee vehicles used for company business. An example would be a minimum of $50,000 per occurrence, not state minimums.
- Request proof of insurance at 6-month intervals from employees who may be required to drive.
- Require Motor Vehicle Reports for all drivers annually.
- Use company-owned or leased vehicles whenever possible that are insured on a commercial auto policy.
#2. Robbery
As we are all aware, security is a top priority for any cannabis business. There are many successful crime deterrents available, such as interior and exterior cameras, alarms, fencing, motion detectors or timed lighting systems, vestibules, security glass and even ceiling trip wire for soft roofs. But robberies still do occur in the industry, and they always seem to make the headlines. In addition to these visual deterrents, business owners should implement the follow suggestions to reduce risk:
- No one should be able to access your property without first being seen by employees or on camera.
- All camera recordings should be kept off-site.
- Recorders should have a 30-day storage capacity.
- Daily site walk-arounds to visually check fences, windows and access points should be part of your opening and closing procedures.
- Background/criminal checks should be conducted for all employees.
- Separate vaults/safes should be used for storage of cash and product inventory.
- Security should be heightened during opening, closing, off-hours and cash transfer times.
#3. Product purity, dosage and labeling
As we continue to grow and mature as an industry, product liability insurance is becoming more important. Currently, very few cannabis businesses purchase this type of insurance. The cost can be somewhat prohibitive, especially for a startup business. But there are many unknown risks associated with edibles and other food-related cannabis products in particular. Here are some tips to minimize risk on this end:
- Use independent labs to test all products being sold.
- Clearly label and package all products with proper, eye-catching warnings such as “KEEP OUT OF REACH OF CHILDREN.”
- Keep small samples of “batch” for 90 days to test in case of issues requiring a controlled sample.
- Place an expiration date on food-related products.
- Use a product tracking system to easily identify the source lot if product needs to be recalled.
- Design an effective recall process including patient notifications, product capture, sample retrieval and testing.
- Where possible, require vendors to show proof of liability insurance and obtain certificates.
Some final thoughts: Risk management equals good business management. Do your homework. Implement risk management into every business function and protocol. Mitigate risk by purchasing an insurance policy when a potential loss poses a threat to your business – but understand exactly what you are purchasing. Communicate, educate, support and encourage your employees. Finally, measure, monitor and celebrate successes.
Patrick McManamon is the managing member of Cannassure Insurance Services, a full-service insurance and risk management firm started in partnership with The ArcView Group.
