Cannabis Industry Sees Increase in Product Liability Costs


The cannabis industry is still in its infancy. As such, businesses are struggling to find the right balance between creating innovative products while also ensuring they’re safe for consumers. For example, many manufacturers are still working out how to standardize and label their products in a way that is both informative and compliant with the law. In the meantime, there has been an increase in product liability costs for cannabis manufacturers and vendors as they try to ensure their products aren’t putting their customers at risk of injury.

This article will provide a brief overview of product liability laws and how they apply to the cannabis industry. Additionally, it will explore some strategies you can use to lower your company’s risk of exposure to product liability claims and related costs.

What is Product Liability?

Product liability, in a broad sense, refers to the legal responsibility of product manufacturers to create products that aren’t inherently dangerous and pose little to no risk to consumers.

The liability created through product defects is often referred to as a “strict liability”, meaning that a product liability claim doesn’t require the plaintiff to prove the manufacturer was negligent or at fault in any way. Instead, the product’s inherent defect is enough to automatically hold the manufacturer responsible for any damages or injuries stemming from the product.

For cannabis growers and sellers, this presents a significant risk. If a customer has a negative reaction to a product, your company could be held liable. Just the fact that they can file a lawsuit means that your company can face major problems even if the experience was not caused by a defect.

Because this risk is ever-present, your company needs to have a product liability insurance policy in place to make sure that you are not hit hard by product liability claims and forced out of business.

The Basics of Product Liability Law

In general, three main factors determine the ability of a manufacturer to be held responsible for product defects under product liability law:

  • The nature of the item being sold (for example, food, household items, consumables)
  • Who made the product or who sold it (manufacturers, wholesalers, and retailers)
  • How dangerous the product was in relation to its actual intended use (whether products are inherently dangerous in comparison to consumer expectations)

Any claims against your company are evaluated on these criteria, and they also determine to what severity your penalties will be.

How Does Product Liability Law Apply to the Cannabis Industry?

Although cannabis is now legal in many states, there is still a need for product liability laws to protect consumers. This is because cannabis is still illegal at the federal level, and states have the right to regulate it within their borders. This has created a patchwork of laws and regulations that create unique challenges for manufacturers.

For example, product liability laws require manufacturers to have a system in place to track and trace their products. This helps protect consumers by ensuring their products aren’t contaminated and that they can be tracked in the event of an illness or injury caused by the product.

Unfortunately, cannabis is still illegal at the federal level and therefore isn’t eligible for normal product tracking. This has created a dilemma for state regulators who have struggled to find a solution.

Strategies to Reduce Your Company’s Risk of Exposure to Product Liability Claims

As a cannabis manufacturer, there are a few things you can do to help lower your company’s risk of being targeted in a product liability claim.

Adopt a Good Manufacturing Practice

GMPs are a set of guidelines for manufacturers to follow when creating products. They outline everything from how products should be packaged and labeled to how they should be manufactured. Adhering to GMPs can significantly lower your company’s risk of being targeted in a product liability claim.

Create a Thorough Product Recall Policy

A product recall is often your last resort when a product isn’t working as intended and poses a risk to consumers. It’s important to have a product recall policy in place with clear instructions for how to handle a recall if necessary.

Adopt a Quality Control Protocol

Every business has growing pains. This is especially true for start-ups that are struggling with the logistics of scaling their business. If you’re experiencing growing pains, it’s important to implement a quality control protocol to ensure your products are still meeting the standard of quality you’ve set for your business.

Adhere to State Cannabis Regulations

The good news is that most state cannabis programs have regulations in place for manufacturers to follow. However, these regulations may change over time, so it’s important to stay up-to-date on the latest requirements.

Insurance Options for Handling Product Liability Claims

As a cannabis manufacturer, you may want to explore the possibility of getting product liability insurance. Product liability insurance will cover you in the event a product liability claim is made against you.

There are two types of policies available to manufacturers: A manufacturer’s policy and a product recall policy. A manufacturer’s policy will cover you in the event someone makes a product liability claim against you. This policy will typically cover your defense costs and any damages awarded to the plaintiff if the policy is not purchased with a “retroactive date”.

A product recall policy will reimburse you for the cost of recalling your product after a product liability claim has been made against you. You’ll have to pay a premium each month to have this coverage, but it can save you a lot of stress and money in the long run.

Call to Get a Quote for Product Liability Insurance

When creating a new product, it’s important to consider how it will be received by your customers. Doing so will help reduce your company’s risk of being targeted in a product liability claim. It’s also important to remember that product liability laws are ever-changing. As a result, manufacturers should maintain a regular dialogue with their legal counsel to stay up-to-date on any changes that may impact their business.

Millers Insurance Group provides insurance to companies in a variety of industries, including cannabis-related businesses. Please reach out to us or fill out our online form to get an insurance quote today for your company’s product liability coverage.


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