The legalization of recreational cannabis in Canada has brought—and will cause!—a host of changes. Already, new companies have been created and others may reinvent themselves to embark on this new cannabis adventure. In fact, we will witness the blossoming and expansion of an atypical market in upcoming years. This does not exclude, simultaneously, the creation of laws, regulations, etc.—and insurance programs. Discover the importance of creating a casualty insurance program tailored to this reality.
Going into Business, Well Insured
At the start, even if several insurance products can be considered optional, some are mandatory if you want to launch a business. Here are some examples.
- General Civil Liability.
- To do business with the SQDC, you need this coverage in order to adequately cover your operations and the consequences of your product sales. Furthermore, the minimum required by the SQDC for this coverage is $3 million. However, as the industry is rapidly evolving, this limit may change. From our side, in order to ensure the sustainability of your company, we recommend that you have a minimum limit of $5 million.
- Product Recall.
- As you are selling a perishable product, the possibility of a product recall is high. Since legalization, there have already been several recalls both in Quebec as well as elsewhere in the country. Therefore, we recommend this coverage that, in the event of the contamination of your product, covers costs relating to the recall, and the reintroduction or replacement of the product. You can also be compensated for operating losses resulting from your reduced sales.
- Finally, please note that in several Canadian provinces, including Ontario, this type of insurance is required in order to sell cannabis products. The province of Quebec could also possibly move in this direction.
- The Bond Set by the Cannabis Act. To obtain a license in accordance with Health Canada, you must provide the Canada Revenue Agency with a bond, the minimum of which is $5,000, and the maximum of which is $5,000,000. This requirement is often overlooked due to the multiple steps involved in obtaining the license.
Administering the Rules, Based on Change
Supported by Health Canada, the cannabis industry complies with multiple regulations issued by the government. Although the cultivation of cannabis is similar to agriculture or the food sector, the regulations governing it are much closer to those of the pharmaceutical industry. However, due to the embryonic nature of this business, the national regulations and requirements imposed are in constant flux, highlighting the importance of tailoring the terms of an insurance program according to possible adjustments and modifications.
A good example to illustrate this point: loss of income insurance, allowing you to recover lost revenue as the result of a covered loss. Usually, the time limit for claiming lost income is 12 months. Considering the uncertainties posed by the cannabis industry’s infancy and the rapidity (and occasional deliberateness) of Health Canada in handling these cases, we recommend increasing this limit to 24 months. Indeed, as the process can take more than 12 months before the situation has returned to what it was prior to the incident, it is necessary to tailor one’s insurance accordingly.
As mentioned earlier, there are a wide variety of insurance products available on the market, and our brokers stand ready to help you. In fact, at Lareau, our risk management-based approach commits us to studying your business by visualizing all the apparent and subtle risks inherent in your business operations. When these are detected, we offer you a multitude of insurers, including some that cover you internationally. You can then operate sagely.
Here are some of the risks related to the cannabis industry that can be identified during this process:
- Directors and Officers Liability Insurance Probably one of the most important coverages for a company operating in the cannabis industry. Managers can be personally sued for the decisions and actions they take in the management of the company. It is therefore very important to protect your personal wealth from problems that the company may encounter.
- Equipment Breakage Insurance A breakdown of production equipment can be costly both in terms of repair and the loss of income that it causes. Having the proper amendments associated with this coverage is essential.
- Cyber Risk You can be victimized by ransomware which freezes all of your operations. Thus, you must be protected against loss of income, negotiation costs and data reconstitution costs that may impact your company.
- Reputational Risk This coverage can allow you to absorb a loss of income as a result of damage to your reputation, i.e. from statements made by one of your company staff that would cause public relations issues. You can also cover the costs of hiring a public relations firm for crisis management purposes in order to improve your company’s image and products.
In short, the cannabis industry is rapidly evolving and changing. As a business, it is important to identify the risks and potential ways to prevent and manage them. At Lareau, our brokers’ proactive methodology and access to specialized insurers will help you make the right decisions.
Lareau – Insurance Brokers is a proud partner of SOS Cannabis.