Like any business, a business operating in the U.S. cannabis industry needs both first-party and third-party liability insurance. Unlike other types of businesses, however, a cannabis-related business’ insurance needs may be dictated at least in part by state regulations. Although not every state that has legalized cannabis for medical and/or adult use has promulgated specific insurance requirements for this industry, a number of states, via their cannabis regulations, have done so. Accordingly, it is imperative for any cannabis-related business to carefully review the regulations in each jurisdiction in which it does business to ensure that it has obtained all required insurance.
Insurance requirements for cannabis-related businesses vary from state to state. Some states do not have any special insurance requirements for such businesses, but other states do. For example, Massachusetts requires that at least certain entities engaged in marijuana operations, with limited exception, “obtain and maintain general liability insurance coverage for no less than $1,000,000 per occurrence and $2,000,000 in aggregate, annually, and product liability insurance coverage for no less than $1,000,000 per occurrence and $2,000,000 in aggregate, annually ….” Massachusetts also requires that “[t]he deductible for each policy shall be no higher than $5,000 per occurrence.”
By comparison, Washington state mandates not just the type and amount of insurance but certain other contractual requirements as well. It requires, for example, that a marijuana licensee “at all times carry and maintain commercial general liability insurance or commercial umbrella insurance for bodily injury and property damage arising out of licensed activities” and that “[t]he limits of liability insurance shall not be less than one million dollars.” It also requires that “[t]his insurance cover such claims as may be caused by any act, omission, or negligence of the licensee or its officers, agents, representatives, assigns, or servants [and] also cover bodily injury, including disease, illness and death, and property damage arising out of the licensee’s premises/operations, products, and personal injury.”
But, Washington’s regulations go further still. They also state that (i) “[t]he state and its employees, agents, and volunteers shall be named as an additional insured” on such insurance policies and (ii) all such “policies shall be primary over any other valid and collectable insurance.” Further still, they state, in relevant part, that such insurance “be issued by an insurance company authorized to do business within the state of Washington” and that “[i]nsurance is to be placed with a carrier that has a rating of A – Class VII or better in the most recently published edition of Best’s Reports.”
By way of further comparison, while Pennsylvania requires that “a medical marijuana organization” have insurance, it does not specify the precise amount of insurance required. Instead, it rather ambiguously mandates that “[a] medical marijuana organization shall obtain and maintain an appropriate amount of insurance coverage that insures the site and facility and equipment used in the operation of the facility.” Pennsylvania’s regulations provide further: “An adequate amount of comprehensive liability insurance covering the medical marijuana organization’s activities authorized by the permit shall begin on the date the initial permit is issued … and continu[e] for as long as the medical marijuana organization is operating under the permit.” Pennsylvania also specifically requires that “[a] medical marijuana organization shall obtain and maintain workers’ compensation insurance coverage for employees at the time the medical marijuana organization is determined to be operational ….”
In reviewing applicable state regulations, it is important to consider more than just insurance-specific provisions or even cannabis-specific regulations. To know which regulations apply, and whether a specific business is bound by certain insurance requirements, it is often also necessary to review the definitions and potentially other provisions in a state’s cannabis regulations. For example, Pennsylvania’s insurance requirements apply to “medical marijuana organizations,” which, on its face, appears to be far from a precise term. However, the state’s regulations do define “medical marijuana organization” to mean, in relevant part, “[a] dispensary or a grower/processor.”
Additionally, it may be necessary to take into account a state’s broader regulatory scheme, which may require, for example, any employer (whether or not in the cannabis industry) to obtain and maintain workers’ compensation insurance.