Since the legalization of cannabis in 2018, Canadian retailers have been pushed to come up with holistic strategies to protect themselves. With more cannabis dispensaries and delivery services open for business, risks have grown.
“The largest risks to date from a claims perspective are theft, vandalism and water damage,” said Marcus Sargent, VP and client executive of healthcare, life sciences and cannabis at BFL Canada. “Regulators have done a good job mandating a certain level of security; however, I’ve started to see a deterioration in the quality of security, specifically with new stores.”
Sargent explained the importance for cannabis business owners having a quality security consultant from the onset to help mitigate theft or vandalism. As for water damage, like with any building, consistent maintenance and upkeep reduces the likelihood of potential damage.
“Emerging risks are where I feel risk management plays a bigger role,” he said. “The first and arguably biggest risk moving forward surrounds delivery services.
“If an employee is driving their own vehicle, this is a major risk as companies will be exposed in the event that there is an accident that causes bodily injury or property damage to a third party,” he noted. “Even if a retailer purchases their own vehicle, it will be challenging as many insurers don’t like the delivery risk to begin with.”
Uber recently announced its interest in entering the cannabis delivery market. While having both cannabis and pizza delivered to your door in one fell swoop sounds like an intriguing concept, this third-party option poses a new set of contractual risks retailers need to understand - particularly where that leaves them from a non-owned auto exposure standpoint.
“The retailer also needs to understand who is responsible if the delivery is lost or given to a minor,” Sargent added. “When it comes to cannabis, those deliveries would likely need to be held to the same standard as a CanSell certification, meaning a company could potentially risk their cannabis retail licence if an Uber driver isn’t following the right SOP’s.
“All of these scenarios pose new risk why is why having a strong risk management plan is paramount.”
Other emerging risks range from the tracking of cannabis inventory to legal expense coverage, but the biggest challenge for brokers in the segment is capacity and education.
“There are only a few insurers willing to support the industry given the fact that it’s a newly legalized industry without a large set of claims performance data for insurers to rely on,” he said. “Some would argue the true risk profile is still somewhat unknown with regulation and product innovation still developing.
“The immaturity of the marketplace makes it more challenging to identify potential claim trends and emerging risks. I believe this will change overtime - however, new capacity will likely be tied to the SAFE Act and federal legalization of cannabis in the US, considering some of the largest global insurers are headquartered in the US.”
Brokers also have limited experience in and education of the cannabis industry. With an abundance of risk affiliated with the space, understanding how to accurately identify, address and transfer risk needs to be top of mind.
“Pointing out limitations within a policy or of an insurer is also very important,” Sargent noted. “I see brokers time and time again making claims or representations to prospective customers only to find that what they’re suggesting is either excluded or limited drastically within the policy.”
Canada already has a strong regulatory foundation and government infrastructure in place, and as the cannabis community matures with respect to their own insurance needs, the relationship with brokers will change in time.
“Hopefully when we look back 30 years from now, we are still the predominant leader in the global market,” said Sargent.