Why Do I Pay More to Insure My Cannabis Shop?

When it comes to legalizing cannabis, Canada stands alone among the G7 countries. No other major economy in the world has opened itself up to the cannabis industry quite like ours has. As a result, cannabis retailing has disrupted the standard insurance practices, and so many insurers are reluctant to enter the game and readily underwrite the risks associated with this unique and still quite novel product.

Even when you do find an insurer who will offer you the coverage you need for your pot shop, the fact is it will cost you more than most other retailers. There are many reasons for this, from greater amount of regulations to the naturally higher risks associated with the product itself.

What Risks Are Unique for Cannabis Retailers?

There are a number of factors that increase the risks for a cannabis retailer as opposed to, say, a clothing retailer situated just next door:

• The high market value of your product and inventory
• Greater financial exposure to business disruption
• Susceptibility to inventory spoilage
• Break-ins and theft
• Fire risks
• The unknown future of cannabis related litigation

Why Does it Cost More?

In this province, the Ontario Cannabis Store (OCS) regulates the industry, and so to open a cannabis shop you must obtain a Retail Store Authorization which stipulates that you, the owner of the shop, carry a $10 million product liability limit on your insurance policy. This is 2 to 5 times higher than what is typical for other retailers. Higher potential payouts means higher premiums.

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When insuring your stock itself, you’ll also face higher costs. Much of the reason for this has to do with the high market value of your product and inventory. Though most cannabis shops are small, coming in at 600-800 square feet, they might comfortably have over $100,000 in inventory at any given moment. This is considerably more than the majority of comparably sized retailers in other industries.

The upshot of a high-value product is that any kind of business interruption can be considerably more costly for you. If, for example, a fire forces you to close down shop for an extended period of time, lost profits could end up being many times higher than a typical retailer.

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Consequently, insurance premiums for your cannabis shop can be as much as 75% higher than other retailers, depending on the precise value of sales, stock and the potential cost of business interruption, a critical part of an inclusive policy package which allows you to claim lost sales and fixed costs during a period of closure

Factors That Affect Cost:

• Higher value of inventory: Due to the high value of your stock compared to a more typical retailer, the probability of a higher claim on losses is greater. The market value of both the cannabis itself as well as the accompanying paraphernalia is high in relation to the space required for storage, exposing you to greater potential losses.
• Higher risk of fire: While a “high risk” of fire in your cannabis shop may evoke giggles in a few of your younger neighbours, this is no laughing matter in the real world of insurance rates. The fact that you are storing large amounts of a flammable substance in your store is cause for concern to both you and the store owners around you. A fire could shut down your shop for months, leading to lost sales and customers.
• Higher risk of spoilage: The very nature of your product makes it particularly susceptible to molds and fungi. A large proportion of your inventory can quickly succumb to a variety of molds and fungi that thrive on cannabis plants specifically. This is due to many factors, including the dampness of a well-grown bud and the method of storing the plant.
• Higher risk of break-ins and theft: Though weed is now legal, illegal markets still thrive, and the high relative value of the product and its addictive nature could leave you vulnerable to break-ins and employee theft and dishonesty.
• The unknown risks of a nascent industry: The legal cannabis industry is still a new one. It remains unclear what lawsuits could be brought forward in the coming years due to the effects of smoking weed or ingesting THC infused edibles. Will your clients be able to sue for brain damage? Intestinal problems? A bad trip? Insurance, by its very nature, does not abide so many unknowns all too willingly. Over time, as the first lawsuits work their way through the legal system, premiums may come down.

The risks highlighted above are all factors in making insurance more expensive for your cannabis shop than it is for a more typical retailer. These extra costs, combined with the various regulations involved in opening your own cannabis shop in Ontario, can be frustrating at times. But your insurance broker is here to help ease the process.

Is It More Expensive to Insure a Building with a Cannabis Shop?

While most cannabis shop owners rent space from a separate entity, if you do own the building in which your cannabis shop is located, the cost of insuring that building need not be significantly different for containing such a shop. The only real factor to keep in mind is that there are still a limited number of insurers ready to underwrite the risks. This lack of supply can have a negative impact on the cost of insuring the building.

How Can I Ensure That I’m Getting the Best Insurance at the Lowest Price?

If you’re currently in the process of opening a cannabis shop, take a moment now to sit down, take a deep breath, and relax, because we’re here to help! Over the last couple of years we have developed relationships with the few insurance companies that do proudly support the cannabis industry. Together we have developed a package of cannabis business coverages unique to the situation here in Ontario which are designed to ensure your business runs smoothly and with as little stress as possible!

Mitchell & Whale are the premier brokers for navigating through the cannabis industry, giving you the coverage you need at the best price available. Our experienced brokers have been working with businesses like yours from the beginning, and are here to help you achieve that sustained business high without the seemingly inevitable paranoia.

Give one of our brokers a call now to find out how to keep your cannabis shop premiums as low as possible!

Want to add to this story? Let us know in comments below! Mitchell & Whale is a fast-growing insurance brokerage in Ontario, striving to make insurance _not suck_ one customer at a time. Give us a call today to discuss any of your insurance needs at 1.800.731.2228.

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