By Isaac Bock, Managing Director and Head of Strategy for AlphaRoot, a cannabis-based insurance company.
As the cannabis sector continues to flourish, the grass keeps getting greener for investors in the industry. With cannabis legalization at an all-time high in Europe, more people are drawn towards investing in cannabis-related stocks.
A recent survey revealed that 43% of investors hold at least one cannabis-related stock or fund. However, stepping into this booming market isn’t as simple as it sounds, particularly when assessing its insurability.
This is where a due diligence checklist comes in. It’s like a guiding compass that helps investors make informed decisions. On top of that, it allows insurers to gauge the insurability of cannabis businesses.
Let’s explore why you’ll need a due diligence checklist to assess the insurability of different cannabis investments!
Due Diligence in Cannabis Business Insurance
Before we jump to the checklist, let’s first understand the role of due diligence in cannabis insurance. These are steps you take before dipping your toes in the water altogether. Simply put, due diligence works like a safety net for your business.
Given the complex regulations in the cannabis industry, it’s your way of ensuring you’re covered. Business owners must do their homework and look into coverage options that match their needs. Without due diligence, they might deal with serious damage to their reputation and hefty financial setbacks.
While most people don’t pay attention, it’s an equally, if not more, important consideration for cannabis insurers. Otherwise, they may expose themselves to risks, leading to potential financial losses and reputational damages.
So, it’s a vital step in navigating the complexities of the insurance landscape.
What Does a Due Diligence Checklist Include?
Now that we understand the importance of paying attention to due diligence, the next question is: How do you ensure you’re covered for it?
The answer is simple - through a due diligence checklist. With the right checklist in place, looking at the insurability of a cannabis business becomes easier than ever. Here’s everything a due diligence checklist includes:
Business’ Legal Compliance
Typically, a due diligence checklist has everything you need to assess a business’s commitment to compliance. In the US, cannabis laws differ from state to state. In some states, it’s only permissible for medical reasons; in others, it’s promoted for recreational purposes.
The legal requirements can be overwhelming, given the intricate and often conflicting regulations at both state and federal levels. The checklist helps you understand how a company is doing legally. This way, you can figure out whether it’s safe to insure it.
Company’s Operations History
Apart from compliance, this checklist gives you deeper insights into the cannabis business you’ve set your eyes on. It helps you check how long it’s been around, its financial stability, and the management team.
It’s a great way to ensure the company has a decent track record and a team that knows what they're doing. When insuring, remember - it’s not just about compliance. It’s also about having a good history.
Business Product Quality
When assessing a cannabis business for insurability, analyzing its product quality is vital. This is a crucial step in ensuring the company offers a safe, reliable product that reduces the risk of insurance claims. To avoid the claims, the product has to be top-notch.
Fortunately, a due diligence checklist covers the entire product quality evaluation. This includes all the safety measures and testing protocols that insurers need to ensure the product meets all health standards.
Company’s Risk Management Strategies
One of the most crucial aspects of cannabis businesses is to keep their products safe. Once again, the diligence checklist steps into the scene. It scrutinizes the company’s existing security measures and analyzes whether they’re strong enough to dodge risks like theft and data breaches.
Next up, it reviews the company’s risk management strategies. Here, the checklist looks at how the business plans to address potential liabilities, such as product recalls or legal disputes. Finding this information out beforehand is a true win for insurers.
Company’s Reputation
Lastly, the checklist examines the company’s standing in the cannabis industry. This is crucial because it directly influences the potential risk profile of the investment.
Looking at how the business is perceived in the industry tells the insurers a lot about its credibility and reliability. An overall risk assessment makes it easier for them to decide whether to insure a business.
Final Thoughts
If you’re thinking about insuring a cannabis venture, a due diligence checklist is all you need. This isn’t just paperwork; it’s a full-fledged guide that covers everything you need to know about the business.
Whether to insure a cannabis business is now easier than ever. So, when in doubt, trust the checklist - it’s your key to making the right decision!
About the Author:
Isaac Bock is the Managing Director and Head of Strategy for AlphaRoot, a cannabis-based insurance company. Bock first joined Founder Shield in 2017 before taking over their newly created AlphaRoot department which is dedicated to changing outdated perceptions on holistic medication. Isaac’s focus on building relationships is key as he realizes people are who they surround themselves with; thus continuously pushing to be among the best both in insurance and cannabis.
