As a result of a rise in the number of states that have legalized cannabis and the influx of investment money from VC companies and other sources, the business has exploded in recent years. With a projected $13.4 billion in sales in 2020, the global cannabis industry is poised for a whopping $148.9 billion in sales by 2031.

Rapid progress is being made toward the worldwide legalization and commercialization of cannabis. 


While it’s true that no investor can ever be sure of a return, there are safe ways to carry out cannabis risk management in the legitimate cannabis market. Coverage for business disruption, patent lawsuits, and network security are just a few examples of risk management areas that business owners and shareholders frequently neglect. A successful cannabis business could be destroyed by any number of factors.


This article will walk you through how you can deal with risk management as an expanding cannabis business.

Why is Cannabis Risk Management Important? 

Due to cannabis’s recent introduction to the global marketplace and the associated legal difficulties, insurance firms are unable to use their standard risk assessment techniques, especially when it comes to determining the appropriate level of coverage necessary to safeguard a business. 


There are no universally approved cannabis risk management methods like there are in other industries, where risk can be evaluated and calculated.


For cannabis companies, risk assessment is complicated for reasons that have less to do with the nature of the business itself and more to do with the insurance sector. Insurers rely largely on the banking system, but most banks refuse to do business with cannabis companies because it is illegal at the federal level.


As a result, cannabis businesses have a much more challenging time gaining access to basic risk-management cushions enjoyed by other industries. Some common examples include bankruptcy law protection, credit cards, etc.

Cannabis Risk Management Considerations

Here are the top four cannabis risk management considerations that can help your business in endless ways:

1. Handling the Unexpected Problem of a Bumper Harvest Unprecedented Cybersecurity Landscape

When cannabis businesses are only able to accept cash payments, they are more vulnerable to theft and other crimes. These dangers may be amplified by cannabis zoning regulations. The frequency of cannabis dispensaries in any one region may be constrained by local rules, forcing some into less safe parts of town.


Since federal regulations make it possible for financial institutions to face criminal prosecution for cooperating with cannabis-related enterprises, financial institutions will continue to be exposed to this risk.


The cyber liability landscape has almost entered a death spiral since the start of the global health crisis. To put it another way, cybercriminals were on the lookout for any sign of weakness during the pandemic. Individuals working from home, smaller companies, and developing sectors all felt the effects.


Some form of crime, theft, and financial coverage is necessary to help control the risks associated with a cash-based cannabis firms. This is important until banking regulations allow the cannabis industry to function as a legitimate enterprise with the security and stability that would dissuade criminal behavior.

2. Protecting High-End Property & Vulnerable Crops

The “useful life expectancy” of a property can be precisely estimated and monetized. While a human, it cannot be replaced or repaired if destroyed. As was previously indicated, cannabis sellers face the additional risk of having their property stolen. High repair bills for damaged machinery or structures could be avoided with proper insurance coverage.


Think about what would happen if there was a fire at the office on the weekend or if it was vandalized at night. In the event of property damage, stores must find a way to keep operating while also making reparations. They must therefore take precautions to safeguard their inventory and operations.


As a result of cannabis’s distinct characteristics, crop loss is another source of potential financial loss in the sector. Most policies that ensure indoor crops also cover losses due to fire, theft, and sprinkler malfunction.


Mold, disease, rot, climate change, and improper fertilization are all frequent dangers to cannabis crops. But many farmers face unique challenges. Growers are often left on the hook for losses because insurance coverage does not cover risks like these.

3. Employee & Workplace Safety

The majority of thefts at cannabis businesses come from within. Employees are the most common perpetrators of theft because they have ready access to goods, the ability to execute discounts, and a general understanding of how the firm functions.


Theft from within the store, on the other hand, poses a persistent risk to business as usual. While incidents of shoplifting, robbery, and break-in are unfortunately inevitable, they can be mitigated through strategic store layout, diligent staff training, and stringent security measures.


When transporting cannabis, businesses must take extra precautions to prevent theft. Theft can occur at any point in the distribution chain, from the manufacturer to the wholesaler to the retailer to the customer. This can lead to black market sales or even product tampering.


Get some good surveillance tools. The property will be safer and more secure after cameras, sensors, alarms, and other forms of intrusion detection have been set up. You can also get security guards to handle things like ID checks and keeping the store safe. Remember to conduct interviews and background checks on potential new hires.

4. Mindful of Ever-Changing Regulations

Rules governing the sale of cannabis are not uniform among states. But regulators aren’t closing their eyes when it comes to making sure cannabis businesses follow the rules. An organization’s success or failure in the cannabis market often hinges on how well it follows rules.


Here are some key cannabis risk management considerations that may be useful to you:

  • Taking precautions to restrict the entry and exit of cannabis will help guarantee that it is grown and delivered lawfully.
  • Retrieve illegal cannabis off the market
  • Reconciling the data presented necessitates better record-keeping, including a strategy to enhance inventory management and any stopgap measures.
  • The training and education of key individuals to ensure that your cannabis firm is all set regarding the application of provisions of the Act as well as Regulations.


There will be a growing number of issues in the cannabis market that must be monitored and addressed to ensure business.


Despite the lack of a silver bullet for cannabis risk management, organizations can benefit from consulting with a seasoned risk management team. Especially when it comes to determining what amount of operational risk is acceptable to investors and other key stakeholders.


This article was penned by Eric Schneider, MBA, MS, Managing Director, AlphaRoot.