Recently, federal law changed making it legal to grow, manufacture, and sell hemp and hemp-based products, including CBD oil, hemp rope, hemp cloth, and more. Many farmers, manufacturers, and retailers are now looking at the hemp and CBD product market as a growing opportunity.
Of course, as with any opportunity, there are risks. And wherever there are risks, businesses look to insurers to help mitigate those risks by providing coverage in case their products end up causing bodily harm. Here is what you need to know about the hemp and CBD industry, and the risks associated with it:
1. Hemp and Cannabis are Closely Related
The reason hemp was illegal until 2018 is because it is a close cousin of the marijuana plant. Even though the hemp plant contains very little THC—the psychoactive compound in cannabis that creates a high—it was still outlawed. As long as the plant, or its products, contain less than 0.3% THC, federal law allows for growing and commercializing hemp. Products with more than 0.3% THC are considered marijuana and while they are becoming legalized in many states, they remain illegal at the federal level, which prevents any interstate commerce.
Related: Marijuana Businesses are Creating Opportunities for Insurers
2. CBD Oil is a Popular Alternative Medicine
While researchers are busy studying the uses of cannabidiol, or CBD, many people are already using CBD as a health supplement and claim it can be used to treat or manage a broad range of diseases. This use has led to an explosion in demand and has many investors looking to develop CBD tinctures, gelcaps and other products.
3. CBD can be made from Both Marijuana and Hemp Plants
Many manufacturers of CBD oils use marijuana plants that also contain THC and use processes that separate the THC from the CBD. This means that strict quality control protocols need to be in place to ensure CBD products are not over the legal limit for THC.
4. CBD Products Face Potential Bodily Injury Exposure
Because CBD products are typically ingested, inhaled, or applied topically, there is always the potential that someone may have an adverse reaction. This could be caused by a reaction to the CBD itself, or it could be caused by impurities including mold, bacteria, or inorganic materials. If the injured party decides to sue the grower, manufacturer, distributor, or retailer, having product liability insurance ensures the claim is handled quickly and professionally, and prevents the insured from being directly responsible for paying settlements. There is a significant amount of similarity between the exposures faced by companies creating THC products as there are from those creating CBD products.
Related: Liability Insurance for Cannabis Companies
5. California Proposition 65 can Impact Online Retailers from Other States
The California Safe Drinking Water and Toxic Enforcement Act of 1986, known as Proposition 65, requires businesses to provide warnings to Californians about significant exposures to chemicals that cause cancer, birth defects, or other reproductive harm—a warning that can apply to some CBD products. Because CBD products can be sold across state lines, this law can impact businesses in other states when their products are sold in California. This is something most small business owners in other states don’t often realize; however, with Admiral’s underwriting expertise, we are able to educate and protect our insureds from this exposure and the fines that come from accidental failure to comply with the regulation.
Obtaining Liability Insurance for CBD Products
Admiral Insurance Group is a leading provider of product liability insurance for CBD and other nutraceuticals and dietary supplements, as well as hemp, and cannabis or THC products.
If you are a wholesale broker in need of an insurance partner with deep expertise in the dietary supplement and nutraceutical industry, contact us to become an appointed broker. If you are a retail agent or broker with clients in marijuana, hemp or industry, we encourage you to connect with one of our wholesale broker partners.
Products and services described above are provided through various surplus lines insurance company subsidiaries of W. R. Berkley Corporation and offered through licensed surplus lines brokers. Not all products and services may be available in all jurisdictions, and the coverage provided by any insurer is subject to the actual terms and conditions of the policies issued. Surplus lines insurance carriers do not generally participate in state guaranty funds and insureds are therefore not protected by such funds.