Many people assume that cannabis businesses operate much the same way as any other type of business. For example, they believe that cannabis-related businesses have legitimate banking activities, such as operating a bank account, accepting credit cards, writing checks, and more. However, those familiar with the cannabis industry know that these assumptions are false.

It is extremely difficult for a cannabis-related business to get access to federally insured banks. Generally, it is not illegal to bank cannabis proceeds. However, many banks associate certain financial risks with providing banking services to cannabis businesses. Many are ill-equipped to run programs for a compliance-intensive category such as the cannabis industry.

What Are the Biggest Risks Facing the Cannabis Industry in the US?

Cannabis companies continue to face ongoing financial concerns, strict cannabis regulations, contentious politics, and more. For example, they face political hurdles from all government levels, from local governments to the federal government. Other business challenges they face include:

Legal and Regulatory

The legalization of medical and recreational marijuana in many states across the country, though at different levels, presents new challenges for stakeholders. These include those involved in the cultivation and growth of marijuana, manufacturing, marijuana dispensaries, and more.

The cannabis industry in the United States is worth billions of dollars. This may seem like an enormous number for a relatively new industry. However, experts project it to continue growing. This unprecedented growth heavily favors job seekers and cannabis-related businesses.

Although the cannabis industry is experiencing amazing growth, cannabis businesses are still encountering many legal and regulatory challenges to grow their operations. There is an ongoing fight to legalize the drug on a federal level. For example, the FDA is yet to provide adequate guidelines on including cannabis-derived products as commercial products.

Discussions on federal cannabis reform and legalization are growing into a confusing clamor on Capitol Hill. The lack of consensus among industry players and lawmakers suggests that solutions are not on the immediate horizon.

The waiting game is still on, and progress is coming in tiny steps. However, as more states continue to legalize recreational marijuana, there is a sense of inevitability. This is beginning to change the tone and tenor when it comes to establishing cannabis laws.

Financial Risks

Since cannabis remains illegal on the federal level, cannabis companies continue to face various financial risks. For example, financial institutions doing business at the federal are subject to various mandates.

This makes the cannabis industry a massive cash-only business. In states where cannabis is legal, the industry creates massive tax revenues and many business opportunities and jobs. Nevertheless, cannabis companies still operate on a cash basis due to the classification of marijuana by the federal government.

According to some studies, some financial institutions that choose to work with cannabis companies tend to file suspicious activity reports for transactions. This may help protect them from charges of aiding and abetting a federal crime or money laundering. This is why most of them avoid working with businesses in the weed industry.

Operational Risks

Emerging industries tend to fall into the highest risk factor when it comes to strategic planning quadrants. This is because they feature both massive profit opportunities and enormous risks. The cannabis industry falls into this category.

Medical marijuana has been legal in selected states in the U.S. for more than two decades. However, only recently did it transition into the huge commercial enterprise it is today. However, the operational risks in the industry run the gamut from physical security, huge losses, cyber losses, changing regulatory environments, and more.

Security and Privacy Risks

A growing concern for business owners in the recreational and medical marijuana industry is data privacy. Unfortunately, many business owners fail to treat it as a serious risk. As the industry continues to grow and mature in the U.S., experts expect to see continued lending, investing, and acquisitions in the future. This is where privacy comes into play.

Furthermore, as one of the fastest-growing industries in the United States, it is a prime target for cybercriminals. Therefore, as a rapidly growing yet risky business, it requires implementing the best security or risk management strategies.

For instance, state law and regulators require payment processing solutions such as POS systems to track every plant, cannabis product, and its production and sale. Other security risks include:

• In-store theft
• In-transit theft
• Insider theft

Litigation Risk

Marijuana growers, manufacturers, retailers, and other stakeholders in the cannabis industry face numerous litigation risks. If you run a marijuana-related business, you need to protect yourself proactively. It would help if you used a combination of educated insurance coverage options and sound business practices. Some of the litigation risks you face include:

• Product damage
• Theft
• Premises liability claims
• Defective product claims
• Financial risks
• Compliance issues

How to Avoid These Risks

This industry will continue to experience massive growth, coupled with an increase in challenges. This is why it is important to institute effective risk mitigation and security measures. As a business owner, you want to protect your investment and brand reputation. You also want to reduce your financial loss due to various factors.

Like in businesses in most industries, the risk profiles in the marijuana industry tend to vary based on the type of operation. Whether you are a dispensary, manufacturer, or cultivator, you can benefit from learning about the fundamentals of risk management. Three of the most important principles of risk mitigation you need to focus on include leadership, integration, and information.

Importance of Having Cannabis Insurance for your Business

Despite the impressive growth of the cannabis industry, insurers are still slow to enter the market. This leaves many industry stakeholders with a limited selection of coverage options to choose from. However, with some research, you will find the type of policy you need to cover unique areas of your business. These include affordable property insurance, theft insurance, and more.

The right type of coverage will provide your employees with a good benefits package and protect your business from unfortunate events. It can also offer general liability and product liability coverage for your business.

The Future of Cannabis Business in the US

According to experts, the cannabis industry should experience rapid growth in the future. Public perceptions continue to change, which is why more states are legalizing the recreational use of marijuana. The cannabis black market will no longer have a strong draw. The growing industry will also create more jobs.

However, many challenges will persist. Cannabis businesses face an increasing number of incidents. They will need to measure and mitigate these challenges to ensure continued operations and growth, in addition to gaining broader public acceptance.

Cannabis business owners need to keep the list of challenges discussed above in mind as they start the next year. Do you run a marijuana business? If you do, you should develop smart solutions to these challenges.

Unless you deal with the challenges facing your marijuana business head-on, you will not be able to compete with other cannabis companies in your area. It would help if you nipped the common risks in the bud to beat your competitors to the market.  Otherwise, seek professional help to grow your business. You also need to stay connected to your industry and remain vigilant. This will help you handle any new challenge that might upset your business in the future.

For more information on the risks facing the cannabis business and how you can prevent them, contact the experts at OG Cannabis Insurance at (877) 473 7979 to schedule service and request a quote.