Data reveal a concerning increase in violent crime in many U.S. cities during COVID in 2020 and 2021. Increasingly, cannabis businesses, particularly dispensaries, are targets for robbery or other criminal activity.
The reason that cannabis businesses are being hit particularly hard is not hard to fathom. Federal law still treats cannabis as a Schedule I narcotic, which means businesses have limited access to banking. Much of the industry still runs on cash, making it a target for theft of cash as well as product.
Cannabis business owners should be concerned with legally protecting their businesses under these circumstances. This includes both steps to prevent or mitigate the risks of criminal acts as well as protections in the event that a crime does occur.
In addition to the direct risks that come to a business from crime, such as loss of cash and inventory, criminal activity can drive away customers, as well as potentially subject business owners to liability. The law in every state allows property owners to be held liable if their negligence causes damages to people on the premises.
In most states, business owners owe an affirmative duty to customers to inspect the premises for dangerous conditions and to make necessary repairs, safeguards, or warnings to protect against harm. Dangerous conditions can include lighting that’s burned out or missing, malfunctioning security equipment, blind spots, or ongoing nuisance activity on the premises such as loitering or trespassing.
As far as the steps to take before a crime happens, ironically, one advantage that cannabis businesses have in operating in a heavily-regulated industry is that many precautions against criminal activity, such as premises access control, video surveillance, and storage of product in a safe, are often already mandated by state regulations.
Further steps however are called for to protect businesses, customers, and employees. As noted above, dangerous physical conditions on the property raise the potential for liability and should be regularly inspected for. Arrangements for proper storage of cash in a drop safe and regular pickups of cash deposits should be made. A policy should be in place for employees to conduct inspections on a regular basis and to promptly document and report any observed potential hazards.
Employees should also receive specific training in proper cash handling, loss prevention and robbery response from qualified security or law enforcement professionals. Documentation of and compliance with sound company policy helps protect the business owner in the event of a future incident.
Unfortunately, the reality is that no matter how many precautions a business takes, there’s no way to prevent every crime that can happen at a business. Cannabis business owners therefore need to take steps to protect their business for when a crime does occur. Both commercial property and liability insurance are available to manage the risk and exposure to cannabis business owners.
On that point, it’s important to understand what insurance does and doesn’t cover, as well as what coverage requires. For example:
Commercial property insurance generally will not cover the loss of cash, which makes proper cash handling policies all the more important.
Specific endorsements need to be obtained to cover cannabis stock, and additional premiums paid for this coverage.
Many insurance policies offered to retail businesses, and the cannabis industry in particular, specifically exclude coverage for violent criminal acts — including negligence leading to such acts — unless such coverage is specifically paid for.
Generally, claims for employee injuries (including from criminal activity) are covered by worker’s compensation insurance under the law of each state, which prevents employees from suing their employers directly. However, employers can still face liability for employee injuries in certain circumstances, such as under so-called “third-party-over” claims in which an injured employee sues a non-employer, who then in turn sues the employer.
Worker’s compensation insurance generally includes so-called “stop gap” coverage in these circumstances, but in states that have a state monopoly on worker’s compensation insurance (Ohio, North Dakota, Washington, and Wyoming), stop gap coverage has to be purchased separately (usually as an additional coverage to a general liability insurance policy). Coverage also requires that business owners promptly notify their insurers in the event of a claim, and that they cooperate with the insurer in investigating the claim.
The important takeaway is that protection from criminal activity and its consequences is something a cannabis business needs to think about before it happens. Consulting with an experienced attorney in this area before an incident occurs can save a lot of trouble and expense down the road.