Starting a Cannabis Retail Store: Key Insurance and Risk Considerations

Cannabis sales in Canada have risen month-over-month this year, reaching monthly sales of roughly $200M. Legal cannabis sales are expected to exceed $2B in 2020. With Ontario set to double its retail license approvals and a further 200 licenses pending in Alberta, the cannabis retail market in Canada shows no signs of slowing down. While this emerging business opportunity is an exciting prospect, it also presents complex risks and a host of regulatory hurdles. Current retailers and those considering entering this market need to be prepared to manage this and be aware of the steps ahead.

It takes the right mix of desirable product, location, and a welcoming and secure customer experience to be a successful cannabis retailer.  Once the business is established, retailers need appropriate coverage and on-going risk management support to ensure the business thrives. The initial stage of opening a cannabis retail outlet can be overwhelming. We have developed this short guide to help retailers better understand the insurance procurement process.  This process entails determining the right coverage, when it should be in place, and what to expect from your insurance broker.

Getting Started: License, Location, and Coverage

Before you get underway with launching your Cannabis retail store, you need to apply for your retail license. While waiting for the license to be granted, a retailer will need to secure the right location for the business. Once found, the property owner/landlord will require certain forms of insurance. At a minimum, this would include liability coverage.

Once you have chosen your location and signed your lease, it is typical for cannabis retail owners to undertake renovations on their leased property. You should discuss the scope of this work with your insurance broker.

With your renovations under way, your license secured, and an opening date set, that is when you need to start engaging with your insurance broker to develop your program accordingly. Your insurance broker will review your lease agreement and will work with you to ensure you get the required coverage and discuss how best to manage the potential risks to your business.

Ready for Business: Product Liability and Data Management

All the hard work to create the ideal customer experience is complete. The next focus is establishing inventory and preparing for the grand opening. Once you are ready to start selling, it will be necessary to secure product liability insurance, which is a mandated coverage in most provinces.

You may now also be collecting personal customer data. Protecting that sensitive data is paramount and it is important that you understand the risks of a privacy breach. Your insurance broker can help explain how to manage the risks that come with collecting and storing sensitive data.

Choosing the Right Insurance and Risk Specialist

The cannabis industry is highly regulated, complex, with many unique and challenging risks. It is important you have an insurance broker that understands the risks of this emerging industry and offers industry specific risk transfer and mitigation solutions. As your business evolves over time, your risk and insurance needs will evolve in step. Your broker needs to understand the nuances of your business and provide responsive and tailored solutions that recognize the unique nature of the Canadian cannabis industry.

Key Take-aways to Consider

1. Map out insurance program requirements early in the process to make sure you have the right coverage and to assist with budgeting as your business evolves.
2. Work with a broker that understands the cannabis industry and insurance market.
3. Discuss with your insurance broker contractual obligations so you are aware of what is expected ahead of time.
4. Always make sure you have your broker review your lease.

About the Marsh Canada Cannabis Practice

Our national team of insurance placement and risk specialists work with cannabis retailers, cultivators, and processors across Canada to create a customized insurance solution designed to meet your business needs. Our extensive network of regional and global risk professionals enable our clients to access specialists across supply chain, cyber, product liability to name a few. Please contact Esther Wiltshire to learn more.

Sources

https://mjbizdaily.com/ontario-to-double-pace-of-new-cannabis-store-approvals/

https://www.westerninvestor.com/news/alberta/alberta-posts-second-highest-cannabis-sales-in-canada-1.24195083