OCS Product Recall Insurance Requirements for Suppliers
It should come to no surprise that cannabis producers operate within one of the most regulated industries in Canada. From federal licensing to CRA excise taxes, provincial regulations and municipal compliance – there is no shortage of operational “red tape” for those in the industry to navigate.
In this article we will speak specifically to the Ontario Cannabis Store’s insurance requirements – with a particular emphasis on the mandated $15MM of product recall insurance imposed on all cannabis suppliers.
OCS Mandated Insurance Requirements for Cannabis Suppliers
Within the Key Supply Terms agreement, the Ontario Cannabis Store (OCS) outlines the requirement for cannabis Licensed Producers to carry a minimum of $5MM Commercial General Liability insurance and $15MM of Product Recall insurance.
For cannabis accessory suppliers, the OCS requires $5MM of Commercial General Liability insurance, waiving the requirement for Product Recall coverage.
What is Product Recall Insurance?
As the name implies, Product Recall insurance helps safeguard cannabis producers from the financial impacts which result from the recall of a product. This extends to cover both government-mandated and voluntary product recalls. Examples of these costs include:
The cost associated with notifying customers
Value of the product that must be recalled
The cost of returning the recalled product (withdrawal, shipping and storage expenses)
Cost to dispose of the product
Ancillary costs such as reputation protection and extra personnel wages
Are Micro-Cultivators & Processors required to carry the same levels of insurance?
All those with a license to supply cannabis products to the OCS must carry the required
$15MM of Product Recall insurance. This requirement applies to micro-cultivators and/or processors who sell directly to the Ontario Cannabis Store.
This requirement does however differ between provinces. For example, the Liquor Distribution Branch in British Columbia requires cannabis suppliers to
carry a minimum of $10MM Product Recall and Commercial General Liability insurance.
What types of events would trigger a recall?
As noted in the previous section, Product Recall insurance will cover both voluntary and government-mandated recalls. In our experience, the most common triggers of a recall for Canadian cannabis producers include:
Mislabeling and packaging errors (incorrect cannabinoid values, lot numbers & packaging dates)
Contaminated products (mold, bacteria, yeast)
Packaging that contains extraneous materials (metal shards, plastics)
Mechanical defects (i.e; defective disposable vape pens)
From simple mislabeling to faulty packaging or the presence of mold, even the most prudent cannabis producers may be required to recall a product. In fact, at the time of writing there have been approximately 42 cannabis product recalls within the Canadian recreational market. For these reasons, it is essential that cannabis producers’ partner with an insurance broker who can design a comprehensive insurance package that is tailored to the unique needs of one’s operations.
How much does Product Recall Insurance cost for Canadian Cannabis Producers?
It can be suggested that the Canadian cannabis insurance landscape remains in a relatively early phase of its maturity. This is characterized by the limited number of insurers willing to offer coverage and in turn, a less competitive pricing environment.
As a result, those within the cannabis sector are often subjected to insurance costs that exceed those levied against their counterparts operating in the more developed food, beverage and pharmaceutical industries.
Insurance companies will look at a number of factors to determine the annual premium charged. This includes:
Expected Gross Revenue (over a 12-month period)
Number of products sold (SKUs)
Type of products sold (dried flower vs. extracts or edibles)
Customers (retail & wholesalers vs. mid-stream processors)
Years in business (demonstrated experience)
Because the above characteristics vary widely between producers, there is no set standard cost of Product Recall insurance. Each policy is actuarially priced according to the perceived “riskiness” of one’s operations – or the expected size and likelihood of a loss occurring.
How can Licensed Producers obtain optimal coverage?
In order to obtain the most efficient pricing and coverage options, it is critical that LPs partner with an established broker who understands the dynamic cannabis insurance marketplace. An experienced broker should be ahead of any changes in the market with an inherent understanding of their client’s operations.
Here at CannaCover, our sole focus is dedicated to supporting those within the Canadian cannabis industry. We work with both private and public organizations across the country and understand the intricacies of the fast-paced insurance marketplace.
Give us a call now to learn how we may be able to support your growth moving forward.