Tomorrow it’s 420 Day! April 20 is the annual international counterculture holiday featuring cannabis-oriented celebrations that take place at 4:20 p.m. Created in 1989; the date is considered cannabis culture slang for smoking cannabis and advocating for its legalization.

As Canada’s budding medicinal and recreational cannabis industry continues to flourish, small business owners participating in the market must be ready for a myriad of challenges and risks that can affect their operations. 

Those risks may lead to expensive third-party lawsuits and reputational damage, which highlights the need for a comprehensive cannabis insurance policy.

The ever-evolving cannabis industry landscape is one of fierce competition lined with legal and regulatory demands. There are many regulations small businesses in the industry must follow as per the federal Cannabis Act. Nevertheless, opportunities abound despite the challenges.

5 liability risks cannabis businesses face

Download Our FREE Insurance Whitepaper

Learn everything you need to protect your small business.

Your email address will be used by Zensurance to provide latest news, offers and tips. You can unsubscribe at any time.

Zensurance - Small Business Insurance Guide

According to Statista, there are an estimated 3,188 retail cannabis stores across Canada as of June 2023, with Ontario home to most cannabis stores with 1,536 locations. Statista also notes the cannabis market in Canada is projected to be worth an estimated US$4.97 billion by the end of 2024 and will grow by 3.03% from 2024 to 2029, resulting in a market volume of US$5.77 billion in 2029.

Meanwhile, data from Statistics Canada shows recreational cannabis sales totalled $4.7 billion in 2023, a 15.8% increase from 2022. Recreational cannabis was legalized in Canada in October 2018.

5 Liability Risks Recreational Cannabis Retailers Face

From cultivators and producers to distributors and retailers, small business owners in the Canadian cannabis industry face several liability risks, including:

1. Product Liability

The cannabis products sold in any licensed retail store – dried flower, extracts, edibles – range in potency. If a customer suffers an allergic reaction or adverse effects from a product you sold, you may be liable for their injuries and medical expenses. Product liability insurance is essential for covering claims related to third-party bodily injury and third-party property damage caused by any product you manufacture, distribute, or sell.

2. Theft

Cannabis industry small businesses may be prime targets for theft, whether from within (theft by employees) or the risk of robberies and break-ins at their locations. Commercial property insurance covers your brick-and-mortar retail location, business contents, and inventory from damage and loss due to fire, water, natural disasters, vandalism, and theft. Meanwhile, commercial crime insurance covers employee dishonesty, internal theft, forgery, and fraud.

3. Third-Party Bodily Injuries on Your Premises

If a customer or visitor to your cannabis retail store sustains an injury – after a trip and fall, for example – you may be liable for their injuries and medical expenses. General liability insurance covers business owners for claims of third-party bodily injuries and third-party property damage.

4. Cyber-Attacks and Data Breaches

Any small business with a website or a point-of-sale (POS) system, stores customer information in the cloud, has an online store or uses email and social media networks is susceptible to a cyber-attack or data breach. Including cyber liability insurance in your overall policy will help you recover from such incidents. It’s designed to provide you with funds to restore your affected software systems and cover notification and credit monitoring fees and legal advice expenses.

5. Equipment Breakdowns

For cannabis producers, growers, and retail store owners, if your equipment suddenly ceases to operate properly because of an internal mechanical or electrical failure, it can compromise your business, damage your products, and affect your bottom line. Whether it’s your HVAC system, commercial refrigerators, or alarm and security systems, equipment breakdown insurance is designed to cover repairing or replacing your equipment up to your policy’s coverage limit.

Risk Management Considerations for Cannabis Small Business Owners

From cultivators and producers to distributors and retailers, small business owners in the Canadian cannabis industry must overcome several hurdles to determine where and how to budget for success. That calls for a thorough risk management strategy that includes:

  • Anti-theft measures. Cannabis industry small businesses may be prime targets for theft, whether from within (theft by employees) or the risk of robberies and break-ins at their locations. Installing monitored video surveillance and alarm systems and security mirrors, locking display cases, and investing in Electronic Article Surveillance (EAS) tags and systems can help minimize theft.
  • Following municipal, provincial, and federal regulations. The government regulations small businesses in the cannabis industry must adhere to may vary between different municipalities and provinces. Regardless, maintaining compliance is vital to the survival of your business.
  • Preventing cannabis product tampering. Any cannabis product that has been tampered with may cause physical harm to your customers and, in turn, expose you to third-party bodily injury lawsuits. Keep in-store products secure and properly labelled, and ensure your manufacturing partner runs a compliant, reliable, secure facility.
  • Public perception. The public’s perception of the cannabis industry may not be rosy. A negative perception leaves many with the impression that producing and selling legal cannabis is a risky venture. That can affect small business owners, including attracting talent to work in your store.
  • Financial challenges. Obtaining financing to kickstart a small cannabis business remains an uphill climb. In the U.S., federal law prohibits American-affiliated financial institutions from lending money to cannabis companies stateside and Canada.

How to Get Low-Cost Cannabis Business Insurance Quickly

A comprehensive cannabis insurance policy is essential for all small businesses participating in the industry. Zensurance can help you get the low-cost coverage you need quickly. 

Fill out our online application for a free quote.

We’ll shop our partner network of over 50 insurance providers to find the right policy for your cannabis retail outlet, customize it to suit your needs and budget, and answer any questions you have about your policy.

– Updated April 19 2024.

Related Posts

Share This Story:

About the Author: Alexandria Anthony

Alexandria Anthony is the Team Lead, Property & Hospitality, at Zensurance.