On paper, it seems like a lucrative opportunity for these entrepreneurs—and it likely can be. The issue isn’t so much growing the business; it’s about protecting it appropriately and upfront.
Reading the Fine Print
As with many things in business, and in life, this is a case where it all comes down to the fine print.
Your policy language can make or break how your business sustains a loss. If it’s done right, you should have a clear understanding about the situations that would be covered and the situations that would not be covered. However, sometimes your coverage overlooks or disregards a critical issue; and you may only realize this exposure after the damage has been done—which is far too late.
As it stands today, there are just a small handful of insurance companies willing to provide a liability insurance policy for what could be deemed illegal by the U.S. Food & Drug Administration (FDA) (such as marketing CBD as a dietary supplement). Put simply, the insurance availability for businesses selling products containing CBD is slim.
Let’s pretend you’ve been told by your broker that your business is “covered for the manufacturing, sale and distribution of CBD.” Do you simply take their word for it? Unfortunately, this is usually where things begin to go awry.
When my clients who manufacture, distribute and sell pre-workouts, proteins, vitamins and minerals begin to look at introducing CBD to their product mix, the first step is always policy review and revision. If I’m talking to a start-up, we can build the policy from scratch to assume the risks they will face upfront, which is even more effective.
Regardless of where your business is at, the associated risks need to be accounted for and covered, and sometimes that’s not a cut-and-dry situation. Your broker needs to understand the nature of your risk, products, and available coverage to best secure your business.
Many of my current clients came from situations where their policy was built with efficiency and economy in mind—and some pretty bad oversight. Often it took just a few minutes of review to uncover some pretty egregious gaps.
Stances on CBD
There is some consistent language (with slight differentiation) between insurance companies and how they define their stance for hemp or CBD.
Summarizing the language, you will see that the endorsement will exclude coverage for bodily injury or property damage that contain Marijuana (cannabis) and/or Tetrahydrocannabinol (THC).
The exception? There will be coverage for products containing less than 0.3% THC provided that the sale or distribution of the product is permitted by all state and federal laws—and this is where the concerns persist.
Some insurance companies have more detailed language, which is more restrictive, and some have fewer details leaving a more open interpretation for coverage of CBD products on the Liability Policy.
The guidelines issued by the FDA have led to unclear interpretation of Liability Insurance policies and it’s important that as a business owner, you review your policy and understand how coverage applies to your products specifically.
Let’s be clear. Each and every policy is different between businesses and each and every claim is reviewed individually alongside the liability policy purchased by your business.
Many of the lawsuits being tied back to hemp and CBD products point to the formulation, labeling, and advertising, however, there’s not too much focus on bodily injury claims that may have been caused by the CBD products. This issue itself is a separate topic for discussion.
If you get a demand letter in the mail, and you are selling supplements and CBD products, it’s important you consult with your broker on the appropriate actions to take with your insurance company. The key thing to look for in a demand letter is “bodily injury,” which usually tenders the claim to the company’s liability policy.
Chris Morey is associate vice president at Bolton & Company. He is a Certified Sports Nutritionist who focuses on the needs of clients within Bolton’s Dietary Supplement Practice Group. With more than seven years of customer service experience, Morey looks to find the right insurance solutions for his clients in the Health and Fitness industries. With a substantial focus on the supplement industry and all parts of the supply chain, he also strives to serve the hemp and CBD product space as the insurance industry continues to fluctuate and evolve. Prior to joining Bolton in 2015, Morey worked for Nutrishop USA. He holds a Bachelors of Arts in Business Administration from Azusa Pacific University. He can be contacted at firstname.lastname@example.org.