The cannabidiol industry has come a long way since its early days. It was an exciting time, the 2018 Farm Bill had just legalized the cultivation and sale of industrial hemp and its extracts, including CBD. The market was wide open and full of endless possibilities, but the early birds quickly ran into a variety of issues. One of the biggest ones was the lack of access to banking and insurance services.
Due to the industry’s state of uncertainty, these service providers were wary of hemp and CBD businesses, afraid of the consequences of transacting with what they thought were illegal enterprises. Thus, businesses were forced to find alternative ways to get loans and process payments, all while shouldering the risk of the business themselves.
However, times have changed. Due to a more fleshed out regulatory structure, banking and insurance providers can now transact with CBD businesses without fear of legal consequences. The insurance aspect especially has been a major victory as the CBD space can be extremely risky.
Companies can be held liable for any number of issues arising from their products, which could lead to lawsuits. Such entities could benefit from product liability insurance coverage as it would cover any financial loss resulting from lawsuits.
According to Brett Lipton, Vice President of Castle Rock Capacity Insurance Agency, a product liability policy essentially covers bodily injury and property damage that happens as a result of the use of your products. And if you’re hoping to stock your products on major shelves, such coverage is crucial as most big box stores require some coverage as part of their retailer agreements.
Lipton concurs, stating that even chocolate chip cookies need as much coverage as military contracts and medical products. “My contention is if you’re putting a product in the public’s hands, regardless of what the product is, you need insurance.”
The coverage will help CBD companies protect themselves from claims and suits that could cost them a ton of money, and it would allow them to compensate any potential customers harmed by their products.
However, while coverage is crucial, it doesn’t come cheap. According to Castle Rock, coverage for hemp-based ingestible products with sales under $1 million starts at about $4,000 per year. Chris Martin, a senior wholesale broker with Veracity Insurance Solutions says the premiums will be determined using two factors, what you’re selling and how much of it you’re selling.
“If you have $100,000 worth of product 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,” he says.
Like Lipton, he says that coverage is crucial for companies looking to work with retailers, adding that an uninsured company might run into delays in signing a retail agreement, and some retailers may just avoid them entirely.
“It’s going to add validity to your company to be insured. It means that an insurance company reviewed your product and approved it and is willing to cover it. If you were to go to 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.”
It is good to hear that CBD companies like Champignon Brands Inc. (CSE: SHRM) can now get the insurance cover that they need to thrive in this rapidly evolving industry.
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