Cannabis business insurance: Key risks and coverage solutions

Over the past decade, the US cannabis industry—encompassing both hemp and marijuana companies and the businesses that serve them—has evolved from a niche market into a multibillion-dollar sector. As the industry has surged ahead, however, business insurance options haven't kept pace. Regulatory complexity and legal uncertainty are keeping many traditional carriers from entering the market, leaving cannabis companies exposed to gaps in coverage.

According to the 2025 State of the Cannabis Industry report, 77% of cannabis businesses expect sales growth this year—averaging a robust 38%. Yet many still lack the insurance protection needed to safeguard that growth. This article explores the current state of cannabis business insurance, the industry's unique risk profile, how companies can find the right coverage and what lies ahead for this fast-evolving sector.

Cannabis business insurance: Where we are now

Many insurance carriers remain hesitant to underwrite policies for cannabis businesses. In the past, some have even included cannabinoid exclusions, which effectively rendered the coverage useless for plant-touching hemp or marijuana companies. As a result, cannabis companies often face steep premiums for limited protection or have defaulted to self-insurance.

However, not all cannabis businesses face the same hurdles. Industrial hemp businesses that handle nonconsumable goods—such as textiles, paper and building materials—typically can secure coverage like any other business outside the cannabis space.

The situation is different for marijuana companies—those producing, distributing or selling products with more than a trace amount of THC, the psychoactive compound in cannabis—and for hemp businesses involved with consumables. "These companies typically have fewer coverage options," says Mike Meyer, a commercial risk advisor and cannabis practice leader at First Citizens.

In fact, hemp companies face some of the steepest challenges. The rapid pace of product innovation—think hemp-derived beverages, oils, tinctures, topicals and edibles, often containing CBD or trace amounts of THC—means limited claims history and elevated risk from an underwriting perspective.

"Interestingly, marijuana businesses have been around long enough now for carriers to be more familiar with the risks involved in insuring them," Meyer says. "But there's a new hemp derivative practically every week, and that level of innovation creates a lot of uncertainty."

Why cannabis businesses need insurance

Like any company, cannabis businesses face a range of operational risks that can result in substantial financial losses. Insurance helps manage these risks. Here are the most common types of coverage.

• General liability insurance: Covers third-party accidents and injuries that occur on business premises
• Commercial property insurance: Protects physical assets such as buildings, equipment and inventory
• Commercial auto insurance: Required when company-owned or personal vehicles are used for business purposes
• Business interruption insurance: Replaces lost income following a disruption, like a fire, flood or other covered event
• Workers' compensation: Legally required in most states to cover employee injuries or illnesses sustained on the job
• Cybersecurity insurance: Protects against digital threats such as data breaches, hacking and ransomware attacks
• Commercial umbrella insurance: Provides additional coverage when claims exceed the limits of standard policies

Still, for cannabis businesses producing or selling consumable products, these standard policies often aren't enough.

Elevated risks for cannabis companies

Operating in a nascent industry shaped by evolving regulations and rapid product innovation, cannabis businesses often require specialized insurance coverage like the ones below.

• Product liability insurance: Some cannabis products are ingested or applied to the body, making them especially susceptible to claims involving adverse reactions, contamination or mislabeling. Unlike most industries, however, product liability is frequently excluded from standard cannabis general liability policies—necessitating separate coverage.
• Product recall insurance: While general liability policies may cover government-mandated recalls—typically up to a $250,000 limit, according to Meyer—voluntary recalls due to contamination, testing errors or labeling errors require additional dedicated recall policies.
• Directors and officers, or D&O, insurance: Protects company leadership from personal liability in lawsuits related to management decisions. "Many businesses don't realize these policies even exist," Meyer says. "But they're critical for cannabis businesses."
• Professional liability insurance: This type of insurance is essential for cannabis-industry service providers such as labs, consultants, transportation companies and testing facilities—protecting them against claims of professional negligence or mistakes.
• Crop insurance: Under federal law, cannabis is still classified as a Schedule 1 controlled substance, so traditional crop insurance generally doesn't cover risks for cannabis growers. They'll need specialized policies instead.
• Cannabis consumption liability: If THC-containing products are consumed on-site, retailers need cannabis impairment liability coverage. "A lot of bars and nightclubs that began serving hemp-infused beverages in the last few years have been surprised to learn that their liquor policies don't cover cannabis," Meyer says.
• Coverage for other restricted substances: Businesses selling products with other psychoactive properties—such as kratom, nicotine or psilocybin—may need distinct policies depending on state laws and insurer requirements.

How to shop for cannabis business insurance

For cannabis businesses, finding the right insurance partner is essential. Most of these companies will need a mix of policies from multiple carriers to ensure adequate coverage, so working with a broker who specializes in the cannabis industry is key.

"A good broker for cannabis business insurance knows how to piece together coverage across multiple carriers," Meyer says. "We might find a carrier that's going to cover a particular need—but they might exclude others," he explains. "Then the question becomes, is there another carrier that can pick that piece up?"

Here are a few important things to look for when choosing a broker.

Cannabis industry specialization

Most insurance brokers are generalists. But cannabis businesses benefit from working with specialists who understand the industry's unique risks and regulatory challenges. "First Citizens has a team dedicated to the industry," Meyer says. "We can help cannabis businesses stay on top of compliance requirements, which may help avoid coverage issues down the line."

Carrier financial strength

Make sure a broker works only with financially strong insurance providers. A weak carrier might offer less-expensive premiums but could pose serious risks if they're unable to honor a large or complex claim. "First Citizens insurance brokers only work with A-plus-rated carriers for cannabis insurance coverage," Meyer says.

Integrated risk management

Large insurance agencies typically have capabilities that go beyond securing policies, and it's a good idea to seek out brokers who have the resources to help clients actively manage risk. At First Citizens, this often includes loss prevention services, safety training and claims analysis to reduce premium costs over time. "It's not just about coverage," Meyer says. "It's about creating a long-term strategy to lower risk exposure."

Good brokers will also offer guidance about when it makes sense to self-insure or adjust operations to unlock better coverage or lower rates.

The future of cannabis business insurance

Looking ahead, there's cause for optimism as the market for cannabis business insurance continues to evolve.

"We've seen a lot of progress over the past 2 years," Meyer says. "More carriers are entering the space, which leads to more reinsurance opportunities and downward pressure on premiums," he adds. "We're even seeing commitments from some standard market carriers to take a closer look at offering cannabis insurance options."

Policies are also becoming more tailored to the industry. Underwriters increasingly are using cannabis-specific language and offering new coverage options—such as bundled D&O policies to help cannabis companies attract and retain executive leadership.

Listed below are more positive indicators.

• More options for ancillary products: "A product like kratom, once considered nearly uninsurable, now has a growing number of viable insurance solutions," Meyer says. "Just during the past 6 months, we've seen 2 more options develop."
• Greater regulatory flexibility at the state level: While some states, like Georgia, have banned all products containing any amount of THC, Meyer says others are shifting toward a more pragmatic approach. "They're more worried about regulation, making sure these products are of the strength and potency that companies say they are."

Despite this progress, however, cannabis business insurance is still frequently misunderstood or underutilized.

"Some cannabis companies still only get insurance because it's required—by the state, their landlord or even a vendor," says Meyer. "They're not thinking about the cost of not having it. If there's a claim and you're not covered, what will you have to pay out of pocket?"

Meyer adds that businesses often underestimate their exposure, especially dispensaries. "They'll assume that because they didn't manufacture the product, they can't be held liable. But that's not how liability works," he says. "If a consumer has a bad reaction, most lawyers will name everyone involved, including the retailer."

The bottom line

For any business, the right insurance coverage is key to long-term stability and sustainable growth. But for cannabis companies—operating in a fluid, high-risk environment—it's even more critical.

Shifting regulations, surging demand and rapid product innovation present unique challenges within this industry, yet these risks can be mitigated. By understanding the complexities and partnering with brokers who specialize in cannabis, companies can build customized insurance portfolios that position them for long-term success.

Make sure your business is fully covered. Connect with a First Citizens hemp insurance specialist who understands your risks and how to reduce them.

Key takeaways

• Traditional insurance carriers have been hesitant to enter the cannabis market, leading many companies to pay high premiums for limited coverage or to self-insure.
• Due to elevated risks and rapid product innovation—especially for hemp consumables—many cannabis companies require specialized coverage from multiple carriers.
• Partnering with a cannabis-specialized insurance broker is essential to securing comprehensive coverage and navigating complex compliance issues.
• The outlook for cannabis business insurance is improving as regulations evolve, more carriers enter the market and more cannabis-specific policies become available.