Just when you thought running a cannabis business was challenging enough, now you have to seriously consider liability risks for cannabis companies.
And this is no joke.
The industry is quickly growing and maturing. It’s a bit like a large-footed puppy that hasn’t quite grown into its feet.
And both legal and risk management experts are predicting a sizable surge of product liability lawsuits in the near future.
There Are Three Main Liability Risks for Cannabis Companies
Which is interesting because cannabis investors seem strangely oblivious to this. But without this knowledge, investors could be taking on some serious litigation risk.
And if lawyers start launching legal assaults based on product-liability claims, marijuana-stock investors could see their investments crash.
But it’s even more daunting for business owners.
No matter where your cannabis business sits on the supply chain, the following areas of liability risk should be strongly considered:
1. Product Contamination
It’s difficult to be absolutely certain that your product is free from potential contaminants. For instance, if you sell edibles and a customer gets food poisoning, you could be liable.
Or if a customer is exposed to pesticides or other contaminants while smoking your product, he or she may come after you if long-term exposure to your product is suspected of causing illness.
The bottom line is that as a retailer, you can be held liable for a defective product. Even if you weren’t involved in any way whatsoever with the manufacturing of it.
2. First Party Claims
These are claims that are made in the event of an injury, accident, or loss – regardless of whether it was caused by you or someone else.
They can include improper labeling, failure to warn users of potential usage hazards, manufacturing defects, or any other defect that could affect the product such as mold or odor.
3. Third Party Claims
A cannabis business owner could be liable for claims stemming from the use of product that results in a DUI, property damage, bodily injury, medical expenses, and/or loss of wages.
It’s similar to a bar that knowingly over serves its patrons – but only in the punishment.
All of this may cause you to frown, tap your forehead thoughtfully, and ask the following:
Then Why Do Other “Risky Businesses” Get a Free Pass?
America’s been in the business of selling risky products for a long time now. It’s big business, in fact.
And companies peddling tobacco, alcohol and sugar don’t get into much trouble. Right?
Well, first of all, those have been around a LOT longer.
But they also have inherent protections against such claims because they disclose health risks. Additionally, federal law guides them on how to play it safe.
For these companies, there’s an assumption of risk doctrine in law. In other words, the assumption is that if the consumer is going to willingly consume tobacco, alcohol and/or sugar, then they know the repercussions. It’s on them.
But these same exemptions offer very little to no protection for publicly listed marijuana companies.
And let’s be honest. Weed vendors aren’t great targets in lawsuits. Many consider them to be running shady operations that are not federally sanctioned.
Though that perception is changing.
Best Practices to Reduce Risk
Cannabis-product liability law is unclear simply because right now, there is no body of case law. It’s tough for weed companies to know how to operate within the law.
And with different rules from state to state, they’re even more susceptible to unknowingly breaking the law.
So if you own a cannabis business, be sure to consult with an experienced insurance broker about product liability insurance designed specifically for this industry.
You’re going to need that coverage to help defend yourself against potential claims and allegations. It will also go a long way toward paying damages if you’re found liable for negative consequences in connection with the use of your product.
It’s just as important to to have a sound risk mitigation process too. Your insurance broker can work with you to further reduce your risk by assessing your business practices and siting any security and employee protocols.
Play It Safe
Whether you’re a retailer, producer, processor, packager or distributor, you’re susceptible to liability risks for cannabis companies. Having the proper insurance and a trusted risk management program are two key strategies for success in the cannabis industry.
Once you’ve earned a great reputation, we’ll help to ensure that you keep it.