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4 Insurance Concerns That Face Cannabis Businesses (And How to Prepare for Them)

The cannabis industry in the United States reported a record year of sales with a total of $17.5 billion dollars in annual sales in 2020. This was up 46% from the year prior, and it is anticipated that the latest numbers will be even higher for 2021 when they are released. A lot of this growth is being driven by the increasing number of states that have adopted recreational use legislation that permits adults to purchase the product for recreational consumption. A total of 19 states (plus DC and Guam) have legalized marijuana consumption for recreational purposes. The expectation is that this number will grow and that the number of people in the United States with access to legal marijuana is about to grow by leaps and bounds.

With this flurry of activity and excitement, some are beginning to look at the everyday concerns that some marijuana companies may have when it comes to running their operations. There are a number of insurance concerns that may crop up as a result of simply trying to operate these businesses safely and legally. We want to take a look at some of those concerns today.

Many Banks Still Refuse to Serve the Industry

Plenty of banks throughout the country outright refuse to serve the marijuana industry as they fear that they could run afoul of certain federal regulations that may cause them some trouble:

One of the largest headwinds facing the cannabis industry is the lack of access to banking services. Many financial institutions refuse to serve the multibillion-dollar cannabis industry given the regulatory uncertainty created by divergent state and federal cannabis laws.

This has left plenty of marijuana companies in the lurch as they do their best to sort out what they ought to do to try to combat the various barriers that are placed in their way. Sadly, many of these companies have no options open to them other than to try to reach out to any and all banks in the area that will even consider accepting their business. The list of banks that will do so is not necessarily that long, and it can be a major burden.

There is a little hope for the cannabis industry at this time as new legislation that would make it legal and permissible for banks to accept funds from the cannabis industry is working its way through Congress. Known as the SAFE Banking Act, this piece of legislation would make it safe for banks to handle transactions from cannabis industry companies in states where the sale of cannabis has been legalized. This legislation has not yet been acted on, but industry experts are hopeful that this may finally be the solution that they desperately need to get some assistance with their myriad of banking needs.

An Appealing Target for Robbers

Insurance companies are often more than a little wary of getting involved in the legal marijuana industry because they know the reputation that these businesses have for getting robbed. That is to say that many robbers target cannabis industry businesses because they know that these companies deal with a lot of cash, and they see this as a great opportunity to place a target on these companies.

close up photo of a man robbing while cashier getting money
Robbery

Numerous dispensaries have been targeted by criminals looking to steal cash in recent years, and it seems likely that this trend will continue for as long as the dispensaries are forced to deal with so much cash. There isn’t going to be much that these companies can do about it until legislation changes the way that they must operate, and no one knows for sure when that day will come. Until such time, the various dispensaries around the country will remain as highly valuable targets for those interested in stealing as much as they possibly can from the industry.

Workers’ Compensation Concerns

Every type of business has some risk when it comes to workers’ compensation concerns. Workers can get hurt in a variety of ways, and companies can be on the hook for large sums of money in some cases if someone under their care is harmed. This risk is magnified for the cannabis industry because they often have people working out in fields cultivating their product. In those fields, the workers are often met with the challenge of being around many pieces of heavy machinery that they need to operate. When people are made to operate heavy machinery, it is easy for things to quickly become dangerous for them.

In the dispensaries themselves, many workers face the risk of becoming the target of violence given the prevalence of robbers in the industry, and that is also a truly frightening prospect for insurance companies to have to think about as well. It can quickly begin to feel like this is a no-win situation for many insurance companies, and that is a big part of the reason why many of them are not stepping up to provide coverage for the industry.

Bankruptcy Risk

Finally, some insurance companies shy away from the cannabis industry simply because they fear the bankruptcy risks that these companies may present to their bottom line. You may have heard about the incredible amount of growth that is occurred in the industry when we mentioned this before and wonder how it is possible that there could also be a large bankruptcy risk in the industry, but there is.

A big part of the problem for many companies operating in this industry is that they simply get in over their heads rather quickly and ultimately don’t know enough about what they are doing to make wise financial decisions that benefit themselves and their bottom line. This heightens the risk of bankruptcy, and plenty of insurance companies simply cannot take on that level of risk when they are trying to work with companies that they know may end up making less than ideal financial decisions.

Despite the headwinds for insuring companies in the cannabis space, it can still be an incredibly interesting and dynamic place to do business. For more information about the insurance aspect of the cannabis industry, please contact us to get the latest details.

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