In the cannabis industry, many potential operators purchase or lease a building while they are applying for a cannabis license. The building remains vacant until they receive their cannabis license. Once licensed, the operator will typically need to update the building to meet the needs of their future business operation. Once complete, the building is ready for its grand opening and will be fully operational. During this entire process, there are different policies to provide coverage during the transition, which are:

Vacant building insurance: Depending on if the cannabis organization purchases the building or leases the building and it is in a triple net lease — the company needs to ensure it purchase an insurance policy that permits long-term vacancy. Standard insurance policies have a vacancy clause and exclusion which means the building must be fully operational for the policy to respond to a loss.

Construction insurance such as builders risk or 'course of construction': It is important to understand you will likely need to change your insurance policy or notify your existing carrier if they allow construction while the building is vacant. You will also need to purchase a policy that covers the hard cost and soft cost while the building is under construction. For example, if the building burns down at 90% completion of the project, the construction policy (builders risk) would be the carrier to respond during the loss and likely cover up to 90% of completion, which is where the project left off during the loss. A vacant building and general liability policy alone will not cover this loss.

Cannabis operational insurance: Once the construction is complete and a Certificate of Occupancy is issued from the city, the facility is ready to be fully operational as intended. This means, it is time to cancel the vacant property insurance policy, the vacant general liability policy and the course of construction/builders risk and move it into a cannabis program. Operators will then buy general liability, product liability, property insurance and other coverages for their operational company.

Working with a professional risk manager that specializes in the cannabis industry will make these three transitions much easier than they sound. As a new cannabis operator, it is important to keep your risk manager informed prior to each new phase.

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