If you are involved with the sales or distribution of Cannabidiol (CBD) products, you’ve likely heard about the recent legal activity surrounding some of the industry’s top players.
Major brands like Charlotte’s Web and CV Sciences were hit with class action lawsuits alleging the illegal selling of products containing CBD.
There is currently a lot of activity and uncertainty around this topic. As the FDA works to define market regulations, what does this mean for brands and the protections their insurance provides?
Determining a Plan of Action
Due to the evolving nature of the CBD industry, companies hit with class action lawsuits are pushing to delay these cases, stating that the FDA’s warning letters are not equivalent to a final action.
Instead, they are opting to wait until the government has determined how to regulate the market. Unfortunately, as these class action lawsuits pile up for brands affiliated with CBD and hemp, so do defense costs and legal fees.
Obstacles Finding Insurance Coverage
What can insurance carriers do to alleviate these financial stressors? Many business owners are shocked to learn there’s not much that can be done.
Without a formal determination from the FDA on how CBD products can be used and marketed (for example, as a dietary supplement or added into food products), insurance companies are sidelined to the the “illegality” of such products.
In fact, nearly all insurance companies will refuse to insure any business operating within the CBD space. This tends to result in a “Decline to Quote” or a quote with an “Exclusion” attached—barring coverage for any operations related to cannabis.
There are, however, a select amount of insurance carriers who are willing to insure CBD and CBD-containing products. Though these providers are typically conservative with their appetites, there are avenues to receive Liability Insurance policies for your CBD company.
You’ve Found an Insurance Provider—Now What?
Many business owners operating in the CBD and Dietary Supplement industries tend to assume that when a warning letter from the government or a class action lawsuit from a private party is received, their Liability Insurance policy will provide coverage. In other words, they assume their carrier will cover their defense.
Regrettably, this is an inaccurate assumption. These liability policies are narrow in their scope—their primary purpose to cover allegations of Body Injury caused by the covered products. This type of coverage extends for all operations in the CBD space: growers, extractors, wholesalers, manufacturers and brand owners.
Expertise is Essential
A knowledgeable insurance broker should be able to make this clear prior to receiving a potential letter or lawsuit. It’s essential that your insurance broker has the ability to set and manage expectations, and not leave you in the dark when it comes to your insurance policy and the questions that can stem from the regulatory ambiguities of the CBD industry.
Although the CBD industry continues to grow, insurance still remains a prevalent hurdle for many companies. Due to the extreme limitations of carriers, along with higher premiums for policies, it’s important to consider an insurance broker who brings expertise and proper advising to the table during the CBD industry’s evolution.
If you have any questions regarding the coverage you need, please contact me let me know.