Marijuana Business Magazine March 2020

Marijuana Business Magazine | March 2020 98 an insurance policy starting at $2,500 annually before taxes and fees, he said. Rates are higher, beginning at $3,500 per year, for ingestible products such as tinctures and even pet supplements. “Hemp flour and vape are the most expensive CBD-related policies. Those are $5,000 to start,” Martin said. RETAILERS MIGHT LOOK FOR COVERAGE The desire to work with retailers is perhaps the main reason CBD companies inquire about product- liability insurance, brokers said. Many big- box stores or retailers require coverage. Uninsured companies might run into delays in signing a retail agree- ment, or retailers might choose not to work with them at all without insurance. “It’s going to add validity to your company to be insured,” Martin said. “It means that an insurance company reviewed your product and approved it and is willing to cover it. If you were to go into a retail partner and ask them to sell your product and you didn’t have insurance, that would probably be a red flag to them.” CBD manufacturers can list their vendors as additionally insured parties on their policies. That would allow the retailers to be indemnified for money they become legally obligated to pay as a result of claims arising from insured products. Castle Rock advises CBD companies to consider discussing their insurance requirements with vendors or an attorney before making any decisions. Vendors might have a certain amount of coverage they require in order to stock a product. READ THE FINE PRINT Insurance companies might add several conditions to CBD manufacturers’ policies that, if not followed, could allow carriers to deny coverage, said Lisa Pittman, partner at Thomas Pittman. The Austin, Texas-based law firm specializes in business planning and compliance. “It costs a lot of money to challenge an insurance company, and you have to file a suit against them if they deny your claim,” Pittman said. Companies are advised to understand the full policy, including exclusions and endorsements, to ensure they don’t inadvertently void their coverage. Companies can get referrals from a trusted attorney, certified public accountant or other sources to ensure they are working with reputable brokers and insurance carriers. Some industry groups such as the American Association of Insurance Services are working to standardize exclusions and endorsements for the cannabis industry. Most insurers will not cover suits related to ingestible products that result from unchecked health claims or other statements that are not approved by the U.S. Food and Drug Administration. Others will deny coverage if a company didn’t provide notice about a change to the ingredients of the insured products, including sourcing the same ingredients from a different provider. As with any insurance policy, it always pays to read the fine print. Getting Coverage Insurance companies have a checklist to go through before deciding to provide a CBD manufacturer with product- liability insurance. Companies seeking coverage likely will be asked to hand over information about the product they want to insure as well as licensing materials and sales data. Insurance companies are risk averse and need a robust amount of historical data about the product and business in order to approve a policy and calculate premiums, said Lisa Pittman, partner at Thomas Pittman. The law firm in Austin, Texas, specializes in hemp and marijuana business planning and compliance. CBD manufactures should be ready to provide carriers with “pretty much anything you would expect to give an investor because, in a sense, the insurance company is investing in you by agreeing to take premiums in exchange for paying claims if something arises in your business,” Pittman said. Carriers will scrutinize product labels and the certificate of analysis from a licensed third party, said Chris Martin, a senior wholesale broker with Veracity Insurance Solutions in Utah. The firm is an underwriter and servicer of commercial insurance policies within the cannabis and CBD industries. Labels show whether a company has adequate warnings, non- misleading statements and ingredients approved by the U.S. Food and Drug Administration. The certificate of analysis, or COA, shows details about the levels of CBD and THC in a product as well as the presence of dangerous compounds such as heavy metals or pesticides. “If I can get a label with ingredients, a COA and an application with the business information and estimated sales, I can probably get you a quote,” Martin said. – Adrian D. Garcia Lisa Pittman Courtesy Photo Chris Martin Courtesy Photo LIMITING LIABILITY