Marijuana Business Magazine March 2020

Marijuana Business Magazine | March 2020 96 LIMITING LIABILITY C BD manufacturers risk paying thousands of dollars in legal expenses if they lack insurance to deal with rash-inducing topicals, exploding vape pens and other problems connected to their products. Cannabis companies, regardless of their size, could benefit from having at least some product liability insurance coverage, according to experts. The poli- cies curb financial loss for manufacturers whose products create legal problems. In simple terms, a product liability policy essentially covers bodily injury and property damage that happens as a result of the use of your product, said Brett Lipton, vice president of Castle Rock Capacity Insurance Agency. The New York firm is a division of Epic Insurance Brokers & Consultants in San Francisco. Product liability insurance is especially important for CBD companies hoping to stock their products on the shelves of major retailers. Many big-box stores require at least some coverage as part of their retailer agreements, experts said. WHONEEDS INSURANCE? “My contention is if you’re putting a product in the public’s hands, then you really should have product liability insurance, regardless of what the product is,” Lipton said, adding that chocolate chip cookies need coverage as much as military contracts and medical products. The reasons are twofold: • Companies need to protect them- selves from claims and suits that could cost thousands, if not mil- lions, of dollars in legal fees. • There’s a responsibility to offer indemnification—compensation for harm or loss—to customers harmed by a product. Even an innocuous-seeming product such as baby powder could pose major headaches, as demonstrated by Johnson & Johnson’s litigation woes, Lipton said. The health-care giant is facing more than 100,000 lawsuits tied to its safety and marketing practices. In some cases, the company might not even be the direct cause of the legal problems—as when Johnson & Johnson’s Tylenol painkiller was the target of drug tampering and seven people died after consuming cyanide- laced capsules in 1982. In short, it’s hard to know what might generate legal issues related to a product. That’s why some experts recommend manufacturers get product liability coverage from the moment the product starts getting sampled. Even employees trying a cannabis topical or potential customers trying an edible could trigger problems. A SIGNIFICANT COST The annual premiums for product- liability insurance could easily run thousands of dollars. Castle Rock says coverage for hemp-based ingestible CBD products with sales under $1 million starts at “under $4,000” per year. “If something goes wrong and you get slapped with a lawsuit, chances are the cost to respond to the lawsuit is probably going to be more expensive than what the insurance would cost,” Lipton said. “On the other side, if there’s a judgment or settlement, I can pretty much guarantee you that’s going to be more expensive than what the insurance would cost.” Premiums are derived based on two factors, said Chris Martin, a senior wholesale broker with Veracity Insurance Solutions in Utah: what you’re selling, and how much of it you’re selling. The firm is an underwriter and servicer of commercial insurance policies within the cannabis and CBD industries. “If you have $100,000 worth of prod- uct out there, that’s a lot less exposure for an insurance company to consider than $100 million, where you have your product in a lot more people’s hands,” Martin said. The cost for coverage is typically lowest on topical products such as a CBD-infused lotion or makeup, with CBD manufacturers could shell out thousands of dollars while dealing with litigation from customers who sue over a problem tied to a product. To curb the potential financial loss, insurance carriers are offering product-liability insurance to CBD businesses. Here are considerations for CBD companies thinking about buying coverage: • Product-liability policies essentially cover bodily injury and property damage that happen as a result of a company’s product. • Experts recommend manufacturers get product-liability coverage as soon as anyone starts using a product—not just when it is available at retail. Problems could arise from employees trying a topical cream or test groups sampling a CBD-infused edible. • Premiums for product-liability insurance could easily cost thousands of dollars per year. The amount companies pay varies based on what they’re selling and the availability of the product. • Many big-box stores or retailers require CBD companies to have product-liability insurance. • Insurance carriers often add several conditions to product-liability policies that, if not followed, could essentially void coverage. Brett Lipton Courtesy Photo