How Cannabis Companies Use Risk Management to Scale Quicker

While various states are going above and beyond to enable cannabis startups, it’s worth noting that various risk factors significantly affect their growth. Cannabis remains illegal under federal law, which is perhaps the most considerable risk anyone could face. Another challenge for cannabis startup owners is to stay compliant with different laws in distinct regions of the country.

According to a report from New Frontier Data, the cannabis industry is expected to grow at a rate of 11% between 2020 and 2030. This makes 2023 an ideal time to launch a cannabis startup. But like any other industry, cannabis businesses would need to manage their risks and ideally opt for cannabis insurance.

Let’s have a detailed look at various risks and how effective risk management can lead your cannabis startup to scale quickly.

4 Primary Risks Cannabis Businesses Face

Every cannabis company, whether it’s a startup or it’s matured, faces a list of risks that can slow down its overall scaling process.

The first step of any risk management plan is identifying the risks. So, here’s a list of primary risks that cannabis businesses often face.

1. Legal and Regulatory Risks

Cannabis businesses operate in a complex and rapidly changing legal environment. Federal laws still criminalize cannabis, and state laws regarding cannabis can differ widely.

Staying compliant with all laws and regulations can be challenging, and non-compliance can lead to penalties, fines, or criminal charges.

Hiring a professional insurance company could be a solution if you need clarification on the ever-changing laws.

2. Product Liability Risks

As with any business that manufactures and sells products, cannabis businesses are at risk of liability claims if their products cause harm to consumers. Such incidents elevate the reputation risks even more.

The negative perception of cannabis in some parts of society can lead people to believe that cannabis products can harm them. So, many cannabis startups and businesses can receive backlash from customers, investors, and the community.

3. Security Risks

Due to the product’s high value and cash-intensive nature, cannabis businesses may be at a higher risk of theft and other security threats. The cash-intensive nature of the business is a significant reason why it’s an easy target for thieves. Controlling and mitigating employee theft is critical to ensure your company’s growth, as the workers know more about a company’s operating model than anyone else.

4. Market Risks

As the cannabis market is still developing, businesses may be impacted by changes in consumer preferences, competition, or other market forces. The limitation on cannabis companies to advertise and the stigma around the cannabis culture significantly influences sales of cannabis startups and businesses.

The good news is that the market is changing, with people gradually learning how cannabis is more than just a drug. Yet there’s still much to witness before general acceptance.

4 Ways Innovative Risk Management Insurance Helps Startups Scale Quicker

Finding the right kind of cannabis insurance involves having someone who understands the cannabis industry and is familiar with legal and compliance issues.

Other advantages of having a professional by your side include the following:

1. Specialist Knowledge

Cannabis insurance companies have specialist knowledge and expertise in the cannabis industry and are familiar with the unique risks that cannabis businesses face. This allows them to provide tailored insurance solutions specific to the cannabis industry.

These companies can help cannabis startups to comply with state and federal laws and regulations. They can guide on compliance issues and help businesses to understand their legal obligations, which helps to reduce the risk of penalties or legal action.

2. Wide Range of Coverage

Cannabis insurance companies can provide various coverage options specific to the cannabis industry, such as product liability, regulatory compliance, and property damage. This protects businesses from a variety of risks.

Additionally, these companies have experience handling claims related to the cannabis industry and can provide guidance and support to businesses in case of a claim. There are specific coverages like directors and officers insurance (D&O) for people in managerial positions.

D&O insurance provides protection for the individuals who run and manage the business. This insurance can protect individuals (D&O) from financial losses they may incur as a result of lawsuits or other legal actions brought against them.

3. Market Understanding

Cannabis insurance companies keep track of market changes and understand market trends, which can help businesses to anticipate potential risks and take proactive measures to mitigate them.

Insurance companies keep track of the latest developments in the cannabis industry and prepare your cannabis startup to adapt when needed. This includes diversifying your product line, expanding into new markets, making strategic partnerships, and more.

4. Cost Efficiency

Hiring a cannabis insurance company can be cost-efficient in risk management as they can help businesses identify and mitigate risks, which can help reduce the likelihood of claims and lower the overall cost of insurance.

Overall, you increase your chances of scaling quickly by hiring a professional insurance provider who is always a step ahead in the changing cannabis landscape and managing cannabis-related risks.

Are Cannabis Startups Worth It? 3 Factors to Consider

We discussed the risks associated with the cannabis industry and how insurance companies can help you reduce them. Still, the question lies, is launching a cannabis startup worth it?

The cannabis industry has gained widespread acceptance, with 88% of Americans supporting the legalization of cannabis. So, as far as public interest is concerned, there’s nothing a business owner needs to worry about.

1. Investment in a Cash-Only Environment

Before you start any business, it’s best to have money or some sort of investment (venture capital), time, and patience.

Firstly, everything from acquiring real estate to navigating regulations, building strategic partnerships, et cetera, requires money. However, in a cash-only environment like the cannabis industry, this could be a major obstacle.

Getting insurance and managing risk involves looking over your business’ legal and financial affairs. Any stakeholder would love to partner with a cannabis startup that provides a safe investment opportunity.

So, having coverage for everything from product liability to reputation risks elevates an investor’s confidence in your business, consequently speeding up your scaling process.

2. Marketing for Cannabis Companies

Managing risk and money is one aspect of starting a venture. Another essential element of a successful startup is effective marketing.

The existing consumers have a sense of brand loyalty. So, they are more likely to buy from trusted brands. That leaves new companies to rely mainly on social media, content, and email marketing.

3. Staying Motivated

Other factors that influence an investor’s decision to partner with a business include: a capable team that’s motivated to grow, transparency, professionalism, and, most importantly, creative ideas that could make just any cannabis startup scale quicker than others.

The cannabis industry is already caught up with the beginning of legal cannabis sales. However, it depends on cannabis startup owners to develop reliable and practical strategies to manage risks so they can scale quickly.

Staying updated with the market trends, having a good insurance company at your side, and understanding the risks involved can give you the competitive advantage you need.

Hopefully, this article helped you understand the significance of cannabis insurance and risk management in 2023 in a better way.