By Susan Preston and T.J. Frost
When a thriving cultivator purchased additional cannabis from a wholesale grower to meet the 5,000 pounds he was short, he was left holding the bag. A customer complained of a strong sulfur taste. And it was discovered that the wholesaler had applied the wrong pesticide concentration, rendering the cannabis unusable. The cultivator had to pull contaminated cannabis product from the shelves, a move that cost the company $3.5 million in one state alone.
When unable to produce or deliver more product, many cannabis businesses will turn to other suppliers and partners. However, improper vetting and a lack of understanding of state regulations and other requirements, can lead to a loss of product integrity and potentially costly product liabilities. Also, product liability doesn’t just include the product, but also the equipment – vape cartridges, batteries, lighters, etc.
Top Three Cannabis Product Liability Exposures Facing the Industry
There are three key areas of cannabis product liability exposures that business owners need to be aware of:
- Product contamination: When cannabis is sold in an edible form, business owners could be liable for food poisoning or illness. If the product is smoked, there are exposures to contamination, product mislabeling or misrepresentation, and possible health hazards claims related to long-term exposure to potential contaminants.
- First party claims: Claims made in the event of an accident, injury, or loss whether caused by the business owner or someone else create another set of exposures including manufacturing defects, failure to warn users on potential product usage hazards, improper labeling, or any product-related defect such as mold or odor that damages the product.
- Third party claims: Cannabis business owners could also be liable for claims stemming from the use of the product that result in a DUI, property damage, loss of wages, medical expenses, and bodily injury.
Product liability insurance designed specifically for the cannabis industry can help protect from these exposures and provide coverage for:
- Product contamination
- Bodily injury damages
- Fines and penalties for noncompliance with state regulation
- Injury to others – bodily or property –caused by product misuse by a third party
- Manufacturing defects or product-related defects
Having the right insurance coverage is equally important as having a sound risk mitigation process. Cannabis operations require a varied mix of insurance – property, crime, product, and crop insurance as needed. Insurance carriers differ in definitions, policy exclusions, and coverage language. It’s important to work with a broker who understands the policy fine print.
HUB International’s advisors and cannabis specialists are available to work with you to assess your business for proper security and employee protocols and to reduce your future product liability exposures, and make product and risk management recommendations that best mitigate your exposures to prevent loss, and ensure the right-sized coverage to address claims.