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Committee Blog: Navigating Cannabis Insurance – 10 Essential Insights for Buyers

Produced by: NCIA’s Risk Management & Insurance Committee

Contributing Authors: Stephanie Bozzuto, Cannabis Connect Insurance, Acrisure Partner | Merril Gilbert, Trace Trust | Shay Aaron Gilmore, The Law Office of Shay Aaron Gilmore | Matthew Johnson, AssuredPartners

Navigating the labyrinth of insurance coverage can be daunting for any business owner, especially within the emerging cannabis industry. Questions like “What coverage do I need?” and “How do I ensure my policy covers my exposures?” are common and crucial. The National Cannabis Industry Association’s Risk Management & Insurance Committee is here to guide cannabis business operators in protecting both personal and business assets.

Below are ten key insights and considerations to guide you when purchasing your next insurance policy. Whether you have a policy in place or are exploring multiple policies, it’s crucial to ensure they align with your intended coverage.

  1. Understanding Policy Forms, Endorsements, and Exclusions

Policy forms, endorsements, and exclusions are pivotal during a claim. For instance, some policies sold to cannabis companies in the US have outright ‘cannabis business exclusions’. It’s crucial to read and understand these documents to avoid jeopardizing your business.

  1. Compliance with Protective Safeguards

To ensure theft coverage response in a loss, understand and comply with the protective safeguards on your property insurance policy. For example, non-compliance with a Central Station Alarm Warranty can exclude coverage after a robbery.

  1. Landlord Insurance Requirements

Understand the insurance coverage required by your landlord before signing any contract. If a triple net lease is required, you, as the lessee, will need to insure not only your business but also the building, which can be costly.

  1. Local Insurance Requirements

Each city, state, and county permitting cannabis will have its own insurance requirements, often including general liability, product liability, commercial auto insurance, and workers’ compensation.

Some states have created specific requirements not present in other states (looking at you, Michigan!). Consult with an attorney to fully understand and meet these requirements.

  1. Facility Maintenance

Maintain and update your facilities, especially if they are older than 20 years, to avoid limited property coverage and being forced to buy an “actual cash value” policy versus “replacement cost.” Updates to your HVAC, plumbing, roofing, and electrical systems are well worth the investment.

  1. High-Risk Area Considerations

If your facility is in a high brush area, be prepared for limited property insurance options and a list of exclusions due to tighter wildfire insurance availability. Your insurer may offer expanded coverage if you’re willing to invest in wildfire defense systems.

  1. Evaluating Insurance Companies

Know the financial strength of your insurance company before purchasing. Consider whether the company is admitted or non-admitted and research their reputation and claims experience.

  1. Claims Experience

Inquire about the carrier’s claims handling experience, conditions of coverage, and the duration it takes to receive a payout from a covered loss. If your broker doesn’t have claims experience with a given carrier, feel free to ask someone on the NCIA’s Risk Management & Insurance Committee.

  1. Legal Concepts and Types of Insurance

Understand the legal concepts involved in property and liability insurance and familiarize yourself with the different types of property insurance policies available on the market. For instance – are you purchasing an admitted or a non-admitted insurance policy? Are you on an ‘all risk’ or a ‘named perils’ coverage form?

  1. Grasping Liability Insurance Distinctions

Liability insurance is crucial, acting as “third-party” coverage, contrasting with “first-party” coverage like property insurance, which protects against damage to one’s own assets.

  • Duty to Defend vs. Duty to Indemnify
    • Understanding the difference between the duty to defend and the duty to indemnify is vital. The former is broader, obligating the insurer to defend the insured in lawsuits, even if allegations are baseless. The latter only kicks in if the insured is found legally liable for damages.
  • Defense Inside/Outside the Limits
    • One should also inquire about defense inside versus defense outside the limits of a liability policy. A policy with ‘defense outside’ considers all legal costs separate from the total liability coverage, while legal fees will erode the total liability limit for a ‘defense inside’ policy.
  • Insurable Interest
    • An insured must have a direct financial interest in the preservation of the property and be exposed to monetary loss as an immediate and proximate result of its destruction. The interest must not be contingent or expectant. Interest in anything not founded on an actual right to the property is uninsurable.
  • Scope and Importance in Cannabis Industry
    • The scope of liability insurance, covering legal costs and payouts, is essential, especially in the cannabis industry, where legal landscapes and associated risks are continuously evolving. Adequate coverage is paramount to mitigate potential financial losses due to unique legal challenges and risks, such as product liability claims.

Conclusion

The world of business insurance, especially in the cannabis sector, can be quite complex. However, with the insights provided here, you can navigate your policy purchasing process with confidence and ensure your business is fortified against potential risks. By understanding policy forms, adhering to safeguards, and adapting to local regulations, you can lay a resilient foundation for your business’s growth and success.

The proactive approach advocated by the National Cannabis Industry Association’s Risk Management committee emphasizes the importance of informed decision-making. By evaluating an insurer’s claims experience, comprehending legal nuances, and staying attuned to industry developments, you can empower your business with robust protection, ensuring a resilient foundation for growth and success.

Committee Blog: International GxP Considerations When Cultivating Cannabis – Part 1

Published by NCIA’s Facilities Design Committee

As the global cannabis industry continues to expand, the importance of international GxP standards becomes increasingly vital. GxP is an umbrella term used to describe the various forms of compliance/standards available: GMP, GACP, GMCCP (Bedrocan), etc. While GMP is typically associated with the manufacturing of pharmaceuticals and other consumer products, it can also be applied to plant cultivation (GACP). These guidelines were developed by the World Health Organization (WHO) in 2003; they help ensure the quality, safety, and consistency of products, fostering consumer trust and facilitating international trade. In this blog post, we will explore the key considerations and requirements for cultivating cannabis in accordance with international GxP standards, allowing cultivators to meet the stringent regulatory expectations across borders.

GMP vs. GACP: What’s the difference?

First, it is important to explain the difference between GMP and GACP: GMP (Good Manufacturing Practice) is a set of quality management and manufacturing guidelines and regulations that ensure pharmaceutical, food, and medical device products are consistently produced and controlled according to quality standards. It aims to minimize risks involved in production and ensures the safety, efficacy, and quality of the final product. GACP (Good Agricultural and Collection Practices) is a set of guidelines and principles used in the cultivation and harvesting of medicinal and aromatic plants. It ensures that the plants are grown, collected, and processed in a manner that maintains their quality and prevents contamination, ultimately ensuring the safety and effectiveness of herbal products derived from these plants. 

GxP Best Practices for Cannabis Facilities

Generally speaking, GACP applies to the “cultivation zone” and is less expensive to implement; GMP standards should be used in all “post-harvest zones” and is considered pharmaceutical grade. Below you will find a set of considerations and best practices used in most compliant cannabis facilities. 

  • Compliance with Regional Regulations: Before embarking on cannabis cultivation, it is essential to understand and comply with the specific regulations governing cannabis production in a specific region. Different countries have varying laws and requirements surrounding cannabis cultivation/export, including licensing, permitted cultivation methods, quality control, and product labeling. Familiarize yourself with the applicable regulations (in the country you intend to cultivate in and the country you intend to supply) to ensure full compliance with international GxP standards. Then organize a meeting (pre-audit) with your local audit provider (e.g. ASTM) to develop a proper gameplan.
  • Facility Design and Maintenance: A crucial aspect of GxP compliance is having a well-designed cultivation facility that prioritizes cleanliness, efficiency, and product integrity. Considerations include proper airflow and cannabis specific HVACD systems (e.g. InSpire.ag or Ceres GH Solutions), dedicated cultivation and processing areas, appropriate lighting, appropriate drying space, automation and adequate pest control measures. Maintaining a clean and organized facility with strict hygiene protocols is essential for preventing contamination and ensuring the quality of the final cannabis products. Water quality, flexible cultivation integration, and sustainability should be top priority when in the design phase of your project.
  • Crop Management System (CMS): Incorporating an all-inclusive CMS into your agricultural practices brings numerous benefits to crop monitoring and management. Real-time data collection, remote monitoring, disease detection, true seed-to-sale tracking, employee workflow tracking, certificate of growth analysis, predictive analytics, automated irrigation (based on real time plant weight), and historical data analysis collectively enhance a cultivator’s ability to monitor crop progress effectively. By making informed decisions based on accurate data and insights, cultivators can optimize crop growth, increase productivity, and promote sustainable farming practices. Embracing a good CMS (e.g. WeightSense Adapt), while leveraging the power of a Building Management System (BMS) is undoubtedly the best step forward towards advanced compliance, safer product and higher consistency/quality.
  • Seed and Genetics: Selecting high-quality seeds or clones with desirable traits is vital for successful cannabis cultivation. When sourcing genetics internationally, it is crucial to consider the origin and reputation of the supplier. Ensure that the genetics comply with regional regulations and are free from pests, diseases, and genetic abnormalities. Match phenotypes with your specific environment to naturally defend against some of these risks. Proper documentation and traceability of seed sources are essential for GxP compliance and product consistency. In-house tissue culture labs bring a host of complexity to your propagation department although provide true consistency and reduced disease if carried out properly.
  • Cultivation Practices: GxP-compliant cultivation practices focus on ensuring consistency, purity, and traceability (e.g. CMS) throughout the cultivation process. Considerations include standardized cultivation techniques, such as appropriate nutrient management, integrated pest management (IPM), water quality control, and sanitation procedures. Documentation of cultivation activities, such as crop inputs, environmental conditions, and pest management interventions, is essential for traceability and quality control purposes. As an example, under-canopy lighting (e.g. Thrive Agritech) can help reduce pests, disease, and labor input, all while increasing your yield and product quality.
  • Post Harvest Practices: GxP in post-harvest forms the cornerstone of ensuring the quality and safety of agricultural products after harvesting. These practices use a range of vital considerations, including stringent hygiene and sanitation protocols to prevent contamination, comprehensive worker training to uphold proper handling techniques, implementation of effective traceability systems for accountability, meticulous quality control measures for sorting and grading, and the maintenance of optimal storage conditions encompassing temperature and humidity control. The integration of pest and disease management strategies, robust packaging selection, documentation upkeep, and cross-contamination prevention further validate the post-harvest GMP framework. By focusing on these key principles, producers safeguard product integrity, enhance shelf life, and contribute to the overall safety of cannabis in the supply chain.
  • Quality Control and Testing: International GxP standards emphasize robust quality control measures throughout the cultivation process. Implementing comprehensive testing protocols for cannabinoid potency, microbial contaminants, heavy metals, residual solvents, and pesticide residues is crucial. Regularly analyze samples from each batch to ensure compliance with international quality standards and regulatory requirements. Establishing relationships with accredited testing laboratories can aid in obtaining accurate and reliable test results. Consider SAP analysis and run-off testing if you would like to maximize your situational awareness and plant health.
  • Documentation and Record Keeping: Accurate documentation and record-keeping are essential components of GxP compliance. Maintain detailed records of cultivation activities, including seed sourcing, cultivation inputs, environmental conditions, pest management, testing results, and batch-specific information via proper SOP (standard operating procedures) development. These records serve as evidence of adherence to GxP standards and facilitate regulatory inspections, product recalls, and traceability in the event of any issues. Most importantly, they help cultivators maintain a safe and stable facility.
  • Additional Considerations Include: Worker training, regulated plant-tracking system, inventory control, storage conditions, packaging, handling and cross-contamination practice, waste management and continuous improvement. 

In part two of this GxP blog, we explain the matrix between these interlocking subject matters and how/where they relate to GxP based on department (so keep a look out for part two). 

GxP Standards: Bringing It All Together

Cultivating cannabis in accordance with international GxP standards is crucial for ensuring the quality, safety, and consistency of cannabis products across borders. Adhering to regional regulations, designing and maintaining a GxP-compliant facility, selecting high-quality genetics, implementing standardized cultivation practices, conducting rigorous testing, and maintaining comprehensive documentation are all integral to achieving international GxP compliance. And of course, engage a local GxP specialist with experience in the cannabis field to help navigate your team to success. By prioritizing these considerations, cultivators can position themselves for success in the global cannabis market while meeting the requirements of regulatory authorities and ensuring consumer confidence in their products. It’s time to be a part of the solution, and help break the stigma that comes with cannabis cultivation and manufacturing. 

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