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marijuana

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.

Marijuana Case Gets Even Weirder

Of all the states, who would have guessed that New Mexico would be the hotbed of medical marijuana court decisions?  Between the Vialpando v. Ben’s Automotive in May and the Maez v. Riley Industrial case, handed down earlier this month, New Mexico’s court of appeals appears to be one of the most pro-marijuana courts in the nation.

Back in May, when I first wrote about this issue, I wondered why the reasonableness of the marijuana treatment was not questioned, and our corporate counsel told me that surely there be additional case law. Sure enough, the court in Maez decided to take on the issue.

Maez suffered from an industrial accident and was treated by Dr. Reeve.  Dr. Reeve prescribed a variety of medications, including several opioids. As required for patients on long-term opioid therapy, he performed regular urine drug tests. Maez tested positive for marijuana.

Typically, recreational marijuana use, or the use of any illicit substance, raises red flags with the prescriber. But not with Dr. Reeve!

Dr. Reeve informed Maez that, if he was going to use marijuana, he needed to have a medical marijuana license. Luckily for Maez, Dr. Reeve was happy to provide him with one. According to Dr. Reeve, “Patients are going to use cannabis either one way or the other. . . . If a patient requests that I sign [a license], I will sign it . . . but I’m not recommending . . . or in any way advocating for the use of medical cannabis.” Dr. Reeve also considers the use of medical marijuana to be the patient’s decision, “as it’s private and voluntary, and it’s not overseen by a physician.”

So the guy ended up on a medical marijuana regimen because of a failed drug test. That should be sufficient for the court to find in favor of the payer, right?

Nope.  And it gets worse.

The court went on to rationalize Dr. Reeve’s actions as reasonable, stating that “[Dr. Reeve] adopted a treatment plan based on medical marijuana. He would not have done so if it were an unreasonable treatment.”

Imagine if that logic was applied to all workers’ comp medical treatment. The doc says it’s reasonable. . . so it is. State statutes and regulations have been evolving for more than a decade to specifically counter this argument. But not in New Mexico.

And it gets even worse.

To take this determination one step further, because the physician said it is Maez’s choice whether to use medical marijuana, the court, by default, has determined that the self-directed use of marijuana by this injured worker is reasonable because the physician signed off on it.

This is patient-directed care at its absolute worst.

To recap what led to this decision: illicit drug use, perpetrated by the injured worker, condoned by the doctor and supported by a court of law.

I wish I could tell you that marijuana should be the least of your concerns, but if this is the specious logic to which we’re beholden. . . we’ll need better guidelines, better tools and better lawyers.