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Medical Marijuana’s Growing Pains

Since California led the way in 1996, 23 states and the District of Columbia have legalized medical or recreational marijuana sale and use. In 2016, several states are considering bills that would legalize medical marijuana, reduce jail time or fines for possession and amend existing marijuana laws. In 2014, Congress even put its support toward medical marijuana and hemp growers in the omnibus bill.

As the medical marijuana (MMJ) industry grows beyond infancy, so does the scrutiny of its business liabilities. It seems every week brings a new growing pain for the industry. Here are three important liability concerns that you and your clients should be considering.

Product Liability

Product liability insurance is typically excluded from general liability policies for MMJ dispensaries and grow operations. This is for a couple of reasons: (1) the illegality of the product on a federal level and (2) lack of FDA approval for marijuana for consumption.

Product liability is an essential coverage for MMJ operations as it protects them in the event of claims because of illness or injury from cannabis products. These claims are on the rise as more individuals are exposed to MMJ, particularly when those individuals experiment with various ways of consuming THC.

A class action filed in Colorado in 2014 (Coombs v. Beyond Broadway) alleges that people became ill after eating THC-infused chocolate samples at an event. The class action is open to all attendees who may have been served at the event, so the demand and settlement could be dramatic.

This claim would be handled under the product liability policy. This coverage is available as a stand-alone product, though some carriers may be willing to package it back in with the general liability and rate it separately.

Product Recall

In the Wild West that is the cannabis industry right now, a trend is emerging: product recall.

Cannabis products are being recalled at an alarming rate. Denver alone has recalled 13 products in 13 weeks, including a vape pen oil containing a dangerous, banned pesticide. In October 2015, a number of products were recalled because of banned pesticide content.

Product recall is expensive, and none of those expenses are covered by product liability insurance. In fact, in nearly all of the product recall cases in Denver, no one was sickened by the pesticide-laden products. Cannabis purchased to make the products was independently tested by the manufacturer and voluntarily recalled.

Independent third-party testing is important for quality control, especially in the marijuana industry. When every media outlet and government organization has their eyes on your clients, they need to be one step ahead, so testing product before shipment or sale should be part of any risk management plan.

Product recall insurance is becoming essential. This coverage is written on a manuscript basis to fit the needs of your client and can cover everything from retrieval and shipping costs to destruction costs and even provide public relations help to rebuild and maintain the insured’s reputation.

Professional Liability

With medical cannabis, the dispensary takes on the responsibility of a highly regulated pharmacy. Insureds may be compliant with all state and local rules and regulations, but mistakes do occur. The most common are:

  • Failing to give the correct product to the patient or an authorized caregiver.
  • Failing to confirm the identity of the patient or caregiver before dispensing.
  • Failing to protect patient privacy.

All of the above and more can be covered with a properly written professional liability or E&O policy. Protecting patient privacy can also fall under cyber liability, which your clients should also be concerned about.

MMJ business owners have the same concerns as any other business: profitability, legality, providing a valuable service to the community. As insurance professionals, not only must we look beyond the nature of the business to see the similarities, but also the industry-specific concerns.

Medical Marijuana Law: Effect in Illinois

Last year, Illinois passed a “medical marijuana” law that became effective Jan. 1, 2014, known as the Compassionate Use of Medical Cannabis Pilot Program Act, 410 ILCS 130/1, et seq. The act allows doctors to recommend and certify the use of medical marijuana by patients who are under the doctors’ care for certain qualifying medical conditions.

Certain rights of employers are affected, but in other ways it will be business as usual for employers. Most notably, employers cannot discriminate against a registered patient on the basis of his or her registration (in most cases). This mandate may require employers to reconfigure their drug policies and certain provisions in their employee handbooks to ensure compliance with the act. Also, there will need to be management training to educate managers and supervisors.

Contrary to what you might first think, the act still permits employers to operate a Drug Free Workplace. Employers are allowed to prohibit possession or consumption of marijuana on their property. Further, the act specifically allows employers to enforce work rules, give drug tests and discipline employees exhibiting signs of impairment while at work. Employees beware! The act is not a license to possess or be high at work.

Based on the rights that employers still retain, it appears inevitable that sticky issues will arise as the act is implemented and employers struggle with compliance as well as enforcing their own policies. For example, while the act expressly allows employers to conduct drug testing, what if an employee’s drug test registers marijuana use, but the test cannot differentiate whether that use was hours, days or months ago? Would refusing to hire that individual be okay as enforcement of a Drug Free Workplace, or would that decision be discriminating against an individual for his or her “status” as a registered medical marijuana patient? Moreover, the law allows employers to maintain a Drug Free Workplace “provided the policy is applied in a non-discriminatory manner.” It is unclear whether patients will be able to assert disparate impact claims arguing that employers’ facially neutral workplace policies have a statistical impact on their “protected class.” Additionally, the law requires that an employee disciplined for exhibiting signs of impairment must be given an opportunity to contest the basis for the determination, but the law does not provide any guidance as to what type of procedural protection the employee must receive. Finally, it is unclear what, if any, interplay this Illinois law will have with the federal Americans With Disabilities Act.

Unfortunately, we believe that many of the gray areas surrounding the act will likely be resolved through future litigation. To make sure your clients are prepared, we suggest that you have a lawyer review your policies and procedures and provide training to your management personnel. Also, ensure that your clients have a robust Employment Practices Liability policy in place that will respond and defend the employers in case they are faced with a discrimination suit in relation to violation of the act.