Due to the industry’s novelty, cannabis companies face unique challenges that are constantly evolving and often overlooked. Cannabis testing labs, a crucial part of the production process, face numerous risks, many of which are not well-known to typical business owners.
Cannabis testing labs face risks like shifting regulations as well as the potential contamination of products. To mitigate these risks, labs can turn to Professional Liability Insurance and Product Liability Insurance.
Cannabis Testing Lab Risks
The cannabis industry has many moving parts in a production process that ranges from seed to sale. Each part in the supply chain is growing at an exponential pace, and none more so than testing labs. As with any other business, cannabis testing labs face unique challenges that leave them exposed to risks. Professional and product liability policies can help these companies defend their business, safeguard their assets, and mitigate potential liabilities.
What Insurance Should a Cannabis Testing Lab Get?
There are a few recommended types of insurance for cannabis testing facilities. Two of the most important are professional liability insurance and product liability insurance:
- Professional liability insurance, or errors and omissions insurance, covers harm the cannabis testing lab as a business may have caused by negligence or mistakes in testing its cannabis.
- Product liability insurance covers harm that a cannabis product tested by the lab may have caused.
If a person is harmed by a product, they could blame the lab as a business or the product. This means that a testing lab could benefit from both of these forms of insurance to protect itself from claims made against it.
Examples of Professional and Product Liability Claims
Professional Liability
There are many ways professional liability insurance can protect a testing lab. Claims usually revolve around:
- giving wrong professional advice
- negligence
- participating in misconduct
To better understand the nature of professional liability, take this example:
The Millennium Tower
The Millennium Tower, a building in San Francisco, began tilting and sinking less than ten years after construction finished. It reached a point where it sank a foot and a half and leaned two feet off-center, even causing the basement foundation to crack. Homeowners sued both the builder and the designers of the building.
In this case, the designers may be negligent in their unsafe design of the building, which makes this a professional liability case. The homeowners who lived in the building were put in danger because of the actions of the designers and their practice.
Product Liability
Both small and large companies can face millions of dollars in settlements when facing a product liability lawsuit. Product liability insurance protects a company against a lawsuit when a product inflicts harm upon a person. Take this example:
THC edibles
There was a groundbreaking case filed in Denver in 2016 regarding Richard Kirk’s murder of his wife, Kristine Kirk. After eating part of an edible containing THC, Kirk shot his wife to death, and now the manufacturer and retailer of the edible he ate are being sued. This is one of the first wrongful death lawsuits in the industry. Kristine’s family now takes care of her three sons, and they are filing the lawsuit on their behalf.
The family claims that the store that sold the edible did not properly warn Kirk about the edible’s potency and the side effects that may come with consuming it. Part of the reasoning is that the edible was incredibly potent for being so small; Kirk did not even eat the whole edible. In fact, the edible, the size of a Tootsie Roll, had ten servings of THC in it. Kirk claims that the edible caused him to hallucinate and behave erratically, leading him to kill his wife.
The plaintiffs’ lawyers say they are looking to hold the evolving cannabis retail industry accountable for a failure to ethically warn consumers of edible content, the failure to dose those edibles, and the failure to warn consumers about how to consume them safely. The companies were negligent, reckless, and purposely deceitful about the way they labeled the edible so they could make a profit, according to the lawsuit.
Edibles don’t typically lead to death, and it is widely believed that they are completely harmless, which is concerning. Edibles are more slow-acting than smoking, which means people can consume much more THC than they intend.
This is a case of product liability. The failure of the company to label the edible with a proper warning means that the cannabis business is facing a potentially large settlement.
Beyond Professional Liability and Product Liability Insurance for Cannabis Testing Labs
Professional liability insurance and product liability insurance are not the only suggested insurance coverage for companies in the cannabis industry. General liability insurance and workers’ compensation insurance are important for cannabis testing labs that wish to operate in good standing.
- General liability insurance covers financial losses from lawsuits when a business causes property damage, bodily injury, or personal injury. It is fundamental to businesses that have regular interactions with the public.
- Workers’ compensation insurance compensates employees for medical costs and lost wages if they become injured in the course of their employment. Any business with employees should have workers’ comp insurance.
Take Action Now
Insurance alone is not enough to fully protect your business. Managing risk involves various strategies, with a key focus on addressing your financial risks. The first step is to implement a strategic risk management plan.
We can help with that! We will conduct a comprehensive assessment of your risk profile to identify known and unknown risks. Then, we’ll help you select the insurance product that best suits your needs
At POWERS Insurance & Risk Management, we stand by your side. We understand the unique risks that cannabis businesses face. We want to help you understand those risks so you can make informed business decisions. Schedule a free consultation today.
