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Here’s what you need to know about how to make sure your retail store is protected…
By Chris Lavoie, PhD | Director of Provincial Licensing
ABOUT THIS SERIES
CannDelta, in partnership with the Business of Cannabis, has produced a 10-article series entitled “So, you want to open a cannabis retail store?” which is aimed at preparing prospective cannabis retailers with the tools and resources needed to open their own cannabis retail store. This series covers everything from initial planning, estimated start-up costs, the licensing process, location selection, staff hiring, inventory management, and much more. The goal of the series is to empower prospective cannabis retailers with the knowledge and resources needed to change their mindset from “one day” to “day one”.
Interested in accessing all 10 articles in one place? Download the CannDelta E-Book now using the sign up link at the top of this page.
OVERVIEW
Ensuring that your cannabis retail store has sufficient insurance coverage is one of your biggest challenges in setting up shop. Your insurance plan should be developed with the unique challenges of storing and selling cannabis in mind, such as strict government regulations, increased risk of theft, and product spoilage. In this article, we teach you how to get the insurance package your retail store needs to be protected now and in the future. You will hear from legal and insurance experts across the industry who have offered up great advice for you to protect your store.
THE BASICS
Setting up your insurance package should be one of your earliest priorities in setting up shop. You will need a comprehensive insurance plan for several important checkpoints, including for establishing a lease agreement, bank account, and wholesale purchasing account with the Ontario Cannabis Store (OCS). The basic coverages you will likely need include:
- general commercial liability insurance
- umbrella liability insurance
- cyber & privacy liability insurance
- crime & fidelity insurance
- property insurance
- business interruption insurance
- product recall insurance
There are additional risks however associated with running a cannabis retail store that you should consider such as spoilage of cannabis products, higher risk to theft and fires, and regulation changes as Federal and Provincial Governments continue to make changes. For Ontario cannabis retail applicants, your insurance policy must contain Commercial General Liability Insurance in the amount of no less than $5 million* to set up your wholesale purchasing account with the OCS.
Your coverage also plays a big role in securing a retail location says Patrick Gordon – an associate with Blakes Commercial Real Estate – who stressed that insurance is a key factor that tenants should consider when entering into a retail lease:
“Prospective cannabis retail tenants should canvass their ability to obtain insurance for the property they propose to lease and the cost of such insurance as early as possible in the transaction (and quickly once the landlord’s proposed insurance obligations are under the lease). Obtaining such insurance has proved challenging for some insureds in Canada to date although this market should continue to develop.”
Given the distinct provincial regulations governing cannabis retail stores, it is highly recommended that you consult with an insurance broker that specializes in cannabis to understand what level of coverage will be needed for your specific retail operation.
WHAT THE EXPERTS HAVE TO SAY
We caught up with some of the cannabis industries leading experts to teach you what you need to know to secure a comprehensive insurance plan to cover all aspects of your retail store.
Matthew Doty, Account Executive with Whitley Insurance & Financial Services
How important is having a business plan in place for obtaining great insurance coverage?
“In order to adequately prepare a cannabis business for the retail market, it is essential that one develops a proper business plan. Having a strong business plan and working with a collaborative team like CannDelta & Whitley Insurance can set a new business up for greater success.
In terms of insurance—a key element required prior to opening—one thing that underwriters are looking for is a thorough understanding of the business. As such, that business plan becomes uniquely important. Your business plan provides the blueprint for your business’ success and can demonstrate to insurers your understanding of the operational needs (staffing requirements, cannabis inventory, non-cannabis stock, equipment, etc.), market, real estate, risks, and possible revenue streams available.”
Tell Us About Whitley Insurance’s experience with cannabis retailers.
“At Whitley Insurance, we work with cannabis retailers frequently and understand the market and risks. This means we’re better able to advise business owners on the best
insurance approach and build a detailed submission which is appealing to insurers. Underwriters want to see a submission which is complete and one that demonstrates that the business owner and broker understand their operation and its risks—including numbers which are accurate and realistic in relation to the size and scope of the operations.”
Is it challenging for cannabis retailers to obtain insurance coverage?
“Right now, the cannabis sector is still quite new. That means market options are limited for insurance, and capacity plays a major role in placement of businesses as well. Working with experienced cannabis insurance brokers ensures that you have someone you can trust advising you and advocating on your behalf with those limited markets. In addition, the strong relationship between your broker and the market is an essential piece of the puzzle. When you partner with Whitley Insurance, you also partner with the Navacord Group of Broker Partners which gives you access to licenced brokers in every province and territory. For cannabis business owners looking to expand, this means you have access to the same level of local-touch expertise across the country ready to help you grow. This is a vital component as the insurance requirements in each province vary, sometimes significantly.”
What kind of coverages do cannabis retail stores need?
“In terms of the coverages needed when opening a retail location, outside of the required coverages like Liability, Products, and Completed Operations and Business Interruption, it is suggested that you look at a Cyber Liability Policy and potentially a Director and Officers policy. As cyber-attacks are an increasing worry for many businesses, a dedicated cyber policy can be put in place for a relatively low cost. Cyber policies can provide coverage for losses including Ransomware, Cyber incident response costs, cybercrime, system damage and business interruption, Network security and privacy liability, Media liability, and Technology errors and omissions.
Additionally, we have the right people in place to assist in building a Directors and Officers Liability Program for public and private companies. This is a unique sector, so we provide guidance and education on the personal liability associated with serving on a board and making strategic decisions at the C-Suite level. Many do not realize that Directors and Officers coverage does not only help protect large corporations but can also be a valuable tool for smaller organizations who are looking to help protect their personal assets.”
What are the common claims for cannabis retail stores?
“We are often asked what we are seeing in terms of claims, especially with this being such a new and emerging sector. The simple answer is that your largest exposures are likely to be the same or similar that most retailers face: slip and falls will be your number one concern, but you also need to be diligent in your preparation and have Standard Operating Procedures in place for employee dishonesty, and what is expected from your employees in the event of an attempted robbery.”
Have more questions? Reach out to Matthew directly:
Matthew Doty, BA, CIP, CAIB
Whitley Insurance & Financial Services
T: 613-243-0130
E: mdoty@whitleyfinancial.com
Fady Kamel, Managing Partner with All-Risks Insurance Brokers Ltd.
Can you tell us about the experience of All-Risks Insurance with the cannabis industry?
“Since early 2016 Fady Kamel has been working with Licensed Producers protecting them through Risk Management and Customized Insurance Solutions for Property and Liability coverages. In October of 2017 Fady began working with retailers in Alberta as stores were licensed and ready to open before Ontario. Working with retailers in Alberta from day one has given him the expertise and relationships required with Insurance company partners to find the best coverages and price available in today’s market.”
What factors determine your insurance premium?
“Your premium is determined based on two main factors your coverage limits and your expected revenue for the year. Coverage limits should be set based on the level of protection you require as well as your tolerance for Risk. This is why it is important to select a broker who will take the time to understand your business and tailor your coverage accordingly. The 2nd factor that determines your premium is your expected revenue, which usually comes from your business plan.”
What are some unique challenges that cannabis retailers encounter that impact their insurance coverage?
“Cannabis retailers encounter challenges that other businesses do not e.g. increased chance of theft. Criminals believe they can get away with burglarizing a cannabis retail store failing to realize the level of security at these locations is extremely high. For this reason, you should ensure you have the best security systems in place, we also recommend training all employees on how to handle a burglary situation which includes full co-operation with the criminals. These steps can reduce the severity and frequency of a claim which is crucial, as a claim could result in an increase in your Insurance premium on renewal.
Another challenge is the lack of options/competition. There are only a handful of Insurance companies who offer coverage for Cannabis Retail Stores, and we all know less competition means higher prices. Insurance brokers do not decide the rates, which is why choosing the right broker is important as relationships and understanding the risk Cannabis retailers face is where you will find more value than saving a few dollars.”
What are some tips for obtaining the best premiums?
“Insurance is a purchase that you do not want to cut corners on, we can beat any rate guaranteed by reducing coverages, however, if you don’t have the protection you need when a loss occurs then you are not protecting your business according to your risk needs but instead according to your budget. This can end up costing you much more in the event of a claim then if you had purchased the recommended coverage. A risk management assessment with your broker is crucial to determine your coverage needs, and risk tolerance level. Once that is completed and you receive quotes the best way to get competitive pricing is to see if there are any areas that you may be over-insuring and ask your Broker to negotiate the best terms for you.”
What do cannabis retailers need to know about the required coverage?
“Many clients ask for a liability limit to meet their lease Insurance requirements; however, they do not anticipate the liability limit that a retailer requires in order to do business with the OCS, which results in higher premiums. A good question to ask yourself is, “If there was a fire and I had to rebuild everything again will my Insurance policy limits be sufficient, or will I be out of pocket?”
What are the common claims for cannabis retail stores?
“As of today, we do not have official data to show where the majority of claims are coming from for Cannabis retailers however, what we have primarily seen is theft/burglary. A retail Cannabis store has many of the same risk factors as any other store for example; fire, water damage etc. Therefore, loss mitigation and risk management techniques are important to reduce the chances of loss whether you’re selling clothes or Cannabis many of the risks are the same from an Insurance perspective.”
Have more questions? Reach out to Fady directly:
Fady Kamel CIP, CRM, RIBO
All-Risks Insurance Brokers Ltd- Erin Mills
Cannabis & Commercial Insurance
Office: 905-820-5252
Cell: 416-837-7486
E: fkamel@all-risks.com
Mert Guler, Partner at Purves Redmond Limited
How is PRL involved in the cannabis industry?
PRL insures 5.5 million sq. ft. of cannabis production space across North America with our cross-border partners. Our cannabis team works hard to be one of the leaders in cannabis with respect to retail, production, Directors and Officers liability, as well as US and international expansion.
Outside of cannabis, our team insures 1,600 retail locations across Canada. These include franchises, corporate-owned and independent retailers. Our retail clients employ nearly 90,000 people across Canada.
What are the most important aspects of insurance premiums for cannabis retailers?
The OCS requires cannabis retailers to obtain $10 million in product liability to cover the risk associated with the product after a purchaser leaves a store, e.g. illness or injury. As a result, it is not uncommon that 50-60% of the premium on a typical policy is associated with product liability.
- Most landlords and leases also require other types of insurance. The key coverages include:
- Property’ insurance to protect you from loss or damage to cannabis stock, furniture, fixtures, leasehold improvements and electronic equipment.
Leases increasingly require retailers to purchase ‘loss of profit’ (or business interruption) coverage which is triggered if you are shut down after an insured property loss.
What added challenges and expenses do cannabis retailers face in comparison to other retailers and what are the most common types of claims?
The OCS’s minimum liability insurance requirements drive insurance costs higher for cannabis retailers versus other industries. Additionally, there are only a limited number of insurers doing business in the Canadian cannabis sector (for now). These factors can make it a challenge for new business owners to find the right insurance.
The two most common types of claims we see for retail are:
- (a) customer slip and fall claims (legal liability)
- (b) water damage (e.g. flooding, water rising from drains or sewer back up) which is covered under property insurance.
Cannabis retailers are likely to experience these types of common exposures as well. Our experience also indicates that security, theft, and crimes are all challenges and risk issues in this relatively new sector.
What tips do you have for obtaining the best insurance premium package?
There are many variables insurers consider. The best way to minimize pricing is to provide full and complete information in insurance applications and to have a detailed conversation with your broker outlining the following:
- Compliance with AGCO
- Details of building construction and upgrades (electrical, plumbing, roof, etc.)
- Risk mitigation factors such as sprinklers, proximity to the nearest fire hall, security, details of your safe
- Monitored fire and burglar alarm system
- CCTV cameras
- Detailed store risk management protocols and handbooks for employees; Criminal background checks for staff
Liability premiums are based on your sales forecasts, so be conservative and realistic – do not over-inflate the estimates. Have your insurance broker review your lease to ensure compliance with insurance requirements. Lastly, find a trusted insurance broker with experience in cannabis and retail since working with an inexperienced broker can lead to wasted time and higher premiums.
What types of insurance coverage do new cannabis retailers not anticipate?
During build-out, it is important to ensure clear communication with your construction consultant(s) or contractors with respect to insurance. Determine who is responsible for the risk of loss and insuring your store/assets? E.g. if there is a flood or a fire that damages the store during build-out (or if someone gets hurt), you do not want to be guessing whether there is insurance in place. Also, ensure compliance with the requirements of Workplace Safety and Insurance Board, click here to learn more.
How important is a solid business plan for obtaining the right insurance?
Insurers want to understand how your business and your risks will be managed. The more you share – even if a draft – the better you position yourself. Some of the specific items to include in your business planning, from risk mitigation and insurance perspective, are the items listed above as well as what is included in the insurers’ cannabis retail applications. The good news is there are ways to reduce costs by knowing the underwriters’ preferences and by working early with a knowledgeable insurance broker to position your store as “best in class”.
Have more questions? Reach out to Mert directly:
Mert Guler
Purves Redmond Limited
Cell: 647-524-2139
E: mguler@purvesredmond.com
BOTTOM LINE
In last week’s article, we taught you how to design and implement a robust physical security system to ensure your employees, customers, and assets were protected. This week, we continued the theme of protection by teaching you how to ensure your store has adequate insurance coverage for all risks associated with running a cannabis retail store operation. While a comprehensive insurance plan can be costly (typically $20,000 to $50,000 / year), it is a worthwhile expense to keep your mind at ease as you embark on the journey towards becoming a successful cannabis retailer.
*Edit: A previous version of this article published in August 2020 stated that cannabis retailers are required to obtain a minimum of $10 million in product liability. As of November 18, 2020 the OCS now only requires a minimum of $5 million commercial general liability (CGL) insurance to be obtained by cannabis retailer operators in Ontario.
CANNDELTA IS HERE TO HELP
Prospective and current cannabis retailers needing support should reach out to CannDelta for a free consultation. CannDelta is a Toronto-based regulatory and scientific cannabis consulting firm that can be reached at info@canndeltav2:8890 or toll-free at 1 (877) 274-6777.
