CBD Insurance: What You Should Know

Cannabidiol (CBD) is one of the most popular and marketable cannabinoids derived from the hemp plant today. The CBD industry is considered a high-risk industry, as the FDA has yet to provide a regulatory pathway for the inclusion of CBD into foods, beverages, cosmetics, and supplements, and CBD companies remain subject to a hodge-podge of varying state laws. As legal hemp and cannabis markets continue to boom, it is imperative that hemp business owners understand the importance of CBD insurance. Without the guidance of well-versed hemp lawyers and adequate CBD insurance coverage, CBD businesses may face liabilities, including consumer lawsuits. Below, we assess certain issues that present inherent risk in the CBD industry and discuss coverage issues and CBD insurance policy types. 

Product Claims CBD Businesses Should Be Prepared For

An experienced hemp lawyer can assist in preparing your CBD business for potential claims that you may face and can provide guidance on how those claims may be avoided or mitigated. It is critical to stay informed on the particular legalities and regulations in the CBD industry, as there has been a significant increase in lawsuits in both the hemp and cannabis industries. Generally, the most prevalent consumer claims today concern labeling issues regarding CBD ingestibles, allergen issues for CBD topicals, CBD product medical claims, and THC-free claims.

Ingestibles and Topicals

The FDA considers CBD ingestibles to be adulterated products. The FDA has maintained that it is illegal to add CBD and/or THC to any food, beverage, or cosmetic, or to sell those products as supplements. CBD topicals present a wide variety of formulations, including lotions and creams, and those formulations utilize many different standard cosmetic ingredients that may also produce different effects on different people. Insurance claims and/or lawsuits regarding ingestibles and topicals tend to involve a claim that these products have contained some contaminant or allergy-causing ingredient. Additionally, claiming any specific health claim could result in consumer claims for deceptive and/or false marketing. Currently, there are over ten pending class action lawsuits across the United States regarding labeling challenges and deceptive claims.  An experienced cannabis lawyer can guide you in choosing labeling and marketing language that may mitigate the possibility of a consumer claim.

Medical Claims

Many CBD companies have received warning letters from the FDA for making medical claims regarding their products. Though several studies may show numerous medical benefits of CBD related to arthritis, cancer, inflammation, anxiety, and appetite, the FDA maintains that its safety and efficacy have not been demonstrated through reliable studies in the United States. Directly stating or implying that your CBD products treat, cure, mitigate, or prevent a disease on your website, labels, advertising, or marketing material could result in insurance claims and other ramifications. The FDA considers CBD and/or THC products that make health claims to be unapproved and misbranded drugs.

THC Claims

Many plaintiff lawyers are actively running advertisements urging consumers to join potential class actions for people who ingested a CBD product that did not know the product contained THC and subsequently lost their job and/or certain benefits after a positive drug test. Many CBD products use the term “THC Free” in their labeling and marketing claims. Not only is this deceptive, as trace THC remnants likely remain and/or or THC levels exist that our current quantitative testing mechanisms cannot detect, it can certainly subject your company to liability. 

Cannabis and Hemp Insurance Coverage

Insurance policies for the hemp and cannabis industry can vary widely. It can be difficult to know what coverage is important for your CBD business. Because of the significant degree of confusion in hemp and CBD regulation, hemp/CBD insurance agents may try to sell you an endorsement that you may not need or that may not be applicable to your business. An experienced CBD lawyer or hemp attorney can assist in providing guidance for your particular scenario. In general, there are a few pivotal policies that most CBD businesses should consider obtaining:

  • General Liability Insurance: This insurance policy is typically issued to most business organizations and is designed to protect the business against general liabilities, such as bodily injury, property damage, advertising injury, and other injuries that result from standard business practice. 
  • Product Liability Insurance: This insurance policy provides protection from financial loss as a result of claims against your products after they leave your facilities. 
  • Property Insurance: This insurance policy provides your CBD business with protection for your equipment, inventory, property, and any other items you might lose due to theft, fire, breakdown, vandalism, and natural disasters. 
  • Cyber Insurance: This insurance policy is designed to protect your business from online, cyber security breaches involving loss, typically related to personal information, fraud, merchant processing, and other website liabilities. If you are an e-commerce seller, cyber and data breach insurance may be crucial for you company.

Ensuring that your company has the right insurance policy and coverage can mitigate risk and assist in insulating your company from a devastating financial loss. Before signing any policy, it is imperative that you carefully scrutinize and review the policy and any endorsements and exclusions before signing.

As a hemp lawyer, Chelsie Spencer works with a wide range of clients in the hemp and CBD industries and remains active in legislative activity impacting legal hemp businesses. Contact Ritter Spencer Cheng or give us a call at 214.295.5070 for more information.