The relative novelty of the cannabis market and its profitability are causing the industry to expand rapidly. Sales are increasing quickly, and startups continue to appear as the industry emerges.
But what happens when the cannabis industry expands from a few businesses to a few hundred? The rapid growth of the cannabis industry has created many opportunities, but as the industry flourishes, Human Resources issues have increased as well. Typically, these issues involve pay disputes, discrimination, and harassment, but they all expose businesses in the industry to lawsuits and settlements.
Fortunately, a product known as Employment Practice Liability Insurance (EPLI) can help.
Employment Practice Liability Insurance (EPLI) in a Nutshell
Employment Practice Liability Insurance protects against employee lawsuits involving:
- discrimination
- harassment
- wrongful termination
- retaliation
- breach of employment contract
- defamation
- failure to promote
EPLI protects businesses from lawsuits by employees (potential, current, or past) and covers similar lawsuits from customers, vendors, and suppliers. In other words, EPLI covers anyone related to the business of running the company. A good EPLI policy for a cannabis company covers both first and third-party claims and is a crucial tool for any company in the industry, regardless of whether or not a claim is founded.
Why is Employment Practice Liability Insurance Different for Cannabis Business Owners?
As the industry grows, expanding cannabis companies are scrambling to formalize the human resources component of their business. Often, these companies can decrease the risk of a claim by building a good hiring plan and training employees. Unfortunately, many cannabis companies have emphasized profitability rather than investing in core Human Resources programs, which has caused many of the issues facing the industry:
- Due to the fast-paced nature of the industry and the lack of formal HR functions, replacing employees is a constant concern. When asked, more than 40% of all cannabis companies stated that high turnover is a problem.
- The stigma of the industry, combined with its age, has made it difficult for cannabis business owners to hire employees. Almost 70% of all cannabis companies noted that finding qualified workers poses a significant issue.
- Almost 80% of all companies in the cannabis industry rate compliance as a top concern. Regulations are constantly in flux, and there are many discrepancies in the laws from state to state. Failure to comply with these laws can lead to large payments, revoked licenses, and even criminal charges.
- Less than half of cannabis companies have an HR department, meaning that there are few ways to enforce compliance.
A Real EPLI Scenario
Employment practice liability lawsuits are common in the cannabis industry. Here is an example:
In California, the former chief revenue officer of the cannabis distributor Lowell Farms, Kevin Lawrence, is suing for sexual harassment. He asserts that the wife of the CCO, Mrs. McMillin, harassed him before he was eventually fired. Lawrence claims that a hostile work environment and quid pro quo were created through consistent sexual advances, as well as pictures and video sent by Mrs. McMillin.
After Lawrence said he would mention the harassment to his wife, McMillin threatened to have her husband, the CCO, discipline him at work. Later, Lawrence claimed he was fired after reporting the harassment and included other company employees in his lawsuit.
In addition to Mrs. McMillin, Lawrence claims that a company co-founder behaved inappropriately towards him during a late-night work event. The event was reported, but the company’s CEO did nothing about the incident because of his close connections with the co-founder.
Lawrence also noted that two of his own employees had been harassed by an individual. However, after making his report, Lawrence was informed by the employees’ manager that the individual in question would not face repercussions due to his connections within the company. In less than a month, both coworkers were fired.
Without EPLI, Lowell Farms could be exposed to the serious consequences of the lawsuit brought against them. More importantly, the company could have implemented initiatives to reduce employee harassment in the first place, and proper measures could have been taken if anyone was acting inappropriately.
Proactive Practices
Cannabis companies that avoid these risks do so by being proactive in their employment practices. A few ways to alleviate risk involve:
- Implementing a training program that evolves with changing regulations. Ideally, this program will be an ongoing requirement for current employees to serve as a reminder of the importance of a safe work environment.
- Monitoring compliance provides an effective way to catch issues before they evolve into larger problems.
- Retaining employees to reduce turnover. Employee turnover is a significant issue within the cannabis industry, and companies can inspire employees to stay through richer benefits, employee excellence programs, and other vehicles to boost retention.
- The development of a formal HR department can proactively implement safety systems and alleviate the particular risks of owning a cannabis business.
A formal HR department makes it easier to implement Equal Employment Opportunity (EEO) programs that can create a safer, friendlier workplace. Here are some examples of EEO programs:
- Anti-discrimination policies
- Zero-harassment policies
- Diversity and inclusion narratives
- Employee training for discrimination and harassment
- Reasonable accommodation policies
- Complaint investigation procedures
In addition to a safer workplace, the proper implementation of EEO programs can also reduce premiums on EPLI policies.
Protect Your Business Today
Insurance is a valuable tool, but it may not be enough to fully protect your business. Managing risk involves various strategies and begins with a plan to address your financial risks. After a comprehensive assessment of your profile, your advisor at POWERS Insurance & Risk Management will help you implement a strategic risk management plan to address your uncontrollable risks.
POWERS Insurance & Risk Management stands by your side. We understand the unique risks that cannabis businesses face. We want to help you understand those risks and prepare accordingly.
Schedule a free consultation today.
