Why High-Growth Cannabis Companies Need Good Risk Management

Cannabis Companies Need Savvy Risk Management

Cannabis Companies Need Savvy Risk Management

Risk Management for Cannabis Companies by Alpha Root:

Some states are making extraordinary efforts to facilitate cannabis startups. The major credit goes to cannabis insurance companies!

On the other hand, a number of factors threaten their success. The government’s prohibition of cannabis use is one of the biggest risks. Keeping up with all these law and enforcement risks, along with many others, can be difficult for cannabis startup owners.

A New Frontier Data study projects an 11% increase in the cannabis market between 2020 and 2030. Because of this, starting a cannabis business in 2023 might be your golden chance. 

But keep in mind that cannabis companies, like any other sector, need to take relevant steps to face and handle future risks. Ideally, by purchasing cannabis insurance, you can do this better!

To help you enjoy the smooth growth of your cannabis startup, we have discussed some major risks your company might face and how systematic risk management can help overcome them.

Major Risks to Cannabis Startups

According to cannabis experts, the first step is to recognize the risks before you take any action to mitigate them. Here is a rundown of some of the biggest risks cannabis companies face:

  1. Risks of Product Liability

If, by any means, your goods are harmful to the customers, your company is as vulnerable to lawsuits as any other manufacturer or retailer. This can significantly affect your business’s image before you even make one.

Some individuals may be afraid to use cannabis products because of the above reason. Customers, investors, and even members of the community may react negatively to cannabis companies.

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2.Market Risks

Startups in the cannabis industry may be affected by increased competition, shifting customer tastes, and other market factors. This often happens due to the infant nature of the industry. Sales of cannabis startups are greatly impacted by restrictions on advertising and the stigma surrounding the cannabis culture.

The good news is that the concepts are shifting in the market as more people see the true side of cannabis. For example, as a medicine. However, there is so much that remains on the negative side unless there is widespread agreement.

3. Risks with Advertising & Marketing

The advertising options available to cannabis companies are restricted by both state laws and the policies of private companies. It can be difficult for a startup to advertise online because many regional marketing channels (such as Facebook) do not allow the purchase of any such sponsored content. 

Due to these constraints, many cannabis companies use a mixture of content marketing strategies, such as email marketing campaigns, organic social media content, etc. The CEOs also grab in-person marketing opportunities, such as at trade shows and industry events, to reach their target audiences.

The success of a cannabis company is truly dependent on its ability to network and gain positive reviews from satisfied customers. 

4. Risks with Law and Regulation

The regulatory climate for the cannabis industry is complicated and ever-evolving. At the federal level, cannabis remains illegal. Also, the laws are very different from one state to another.

It can be difficult to follow every rule and guideline, but failure to do so can result in serious consequences. That is why cannabis insurance companies exist as a survival plan. 

If you need help keeping up with the ever-evolving insurance regulations, you might want to consider working with a professional insurance agency like Alpharoots!

5. Safety Risks

Cannabis startups are more at risk from major crimes and theft. This is because of the high-value product and the exclusive use of cash transactions. The companies are an obvious target for thieves because they deal only in cash.

Besides, as employers have the most intimate knowledge of the inner workings of the business, they are the best candidates for the prevention and mitigation of employee fraud.

6. Risks in Banking, Funding, and Insurance

When it comes to banking, cannabis businesses face unique challenges. Particularly, if your startup name contains any reference to cannabis. 

Despite cannabis’ legality in many states, many banks are afraid of damaging their FDIC status. Also, they don’t want to be charged with money laundering while working with the cannabis company, as that falls under the category of drug trafficking.

Opening a business bank account and giving your limited liability company or organization any name you like is generally not a problem outside of the healthcare sector. But if you visit a bank and try to open an account under the moniker “cannabis,” you might have a hard time. 

Including the words “weed” or “cannabis” in the name of your business immediately eliminates half of your potential customers.

How to Avoid Risks with Risk Management Cannabis Insurance:

In order to find the right cannabis insurance, it is best to consult with someone who is well-versed in cannabis law and regulation. When you have a qualified professional working in your team, you can enjoy the following benefits:

1. Generalized Protection

A cannabis insurance policy may include protection against product liability, regulatory noncompliance, and property damage, among others. This safeguards your startup against several risks.

The company providing insurance for cannabis can help guide and support businesses in the event of a claim. This is because they have ample prior experience in the cannabis sector.

2. Competent Expertise

Insurance agencies that cater specifically to the cannabis industry are well-informed about certain risks that are exclusively faced by this industry. As a result, they are in an authentic position to provide you with the ideal insurance policies that will work best for you.

3. Knowledge of the Market

The ability to foresee risks and take ideal preventative action falls under the expertise of a reputable cannabis insurance firm. Their awareness of and insight into the industry is unbeatable in many ways.

Cannabis insurance companies are well aware of the developments in the cannabis business. This allows your cannabis startup to be flexible in order to face certain changes as part of its risk management strategy.

4. Savings on Expenses

To reduce the chance of claims and the cost of insurance for cannabis, it is often cost-effective for cannabis startups to work with an expert insurance provider who specializes in the industry.

Overall, your chances of rapid expansion are much brighter if you work with an insurance company that stays ahead of the curve, especially when it comes to the management of risks associated with the cannabis industry.


Understanding the risks, keeping up with cannabis market trends, and working with a reputable cannabis insurance provider can give you the edge you need.

Cannabis startups that have implemented and documented effective risk management practices have a better chance of drawing in investors, generating and preserving capital, and achieving long-term, sustainable development.

We hope this article covered all the important points that will help you get a better grasp on the importance of cannabis insurance and risk management.

Cannabis License Experts offers support from day one of starting your cannabis business, including strategic planning, floor plan preparation, site audits, SOPs, Preventive Control Plans (PCPs), and more.

Our Edibles Compliance division can provide you with a solid plan for your edibles business to help get your products on store shelves.

Contact us today to discover how we can license and legalize your cannabis business to meet federal or provincial regulations.

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