Product Recall Insurance for Cannabis Producers
Updated: Nov 18
There are few nightmares a producer dreads more than a major product recall. Car companies have famously spent hundreds of millions on recalling dangerous or ill-equipped vehicles, and millions more on the scandal such recalls produce.
A product recall is a costly disaster for a couple of reasons. First, of course, is the loss of revenue on the product that was sold. Customers either have to be refunded or have their product replaced. Then there’s the bad press, and the marketing efforts that need to be leveraged to maintain positive public opinion. It’s an expensive headache, to say the least.
The cannabis industry is no different. Especially given the previously illegal nature of cannabis and the fact it is a consumable, close government and public oversight means extremely high standards must be upheld to avoid a product recall.
Thankfully, the insurance industry is moving quickly to cover cannabis producers. Here’s what you need to know about recall insurance and how it relates to your cannabis business:
What is Product Recall Insurance?
There are two types of product recall: voluntary and involuntary. A company might spot a defect in their product and voluntary recall it before an incident can occur. Alternatively, a third party like the government may insist on a recall if they determine it unfit for public consumption.
Either way, the right product recall insurance can be there to mitigate the damage. There are many costs that a product recall can incur, from replacing the defective product, covering customer notification, disposal and reputation management. Any one of these costs could put a small business in jeopardy.
With product recall insurance, companies have the peace of mind to encourage the intensive oversight the public demands. While no business owner intentionally creates a product they expect to be recalled, mistakes do occur, and a savvy owner prepares for the inevitability.
Product Recall Insurance for Your Medical Marijuana Business
Unfortunately, after years of prohibition against Cannabis, the government and the public are going to be extremely wary of cannabis producers. This, coupled with the fact it is a consumable (and one often done through inhalation) means that product recalls are going to be more common in the pot business than elsewhere.
In fact, it’s already become a reality in Canada. In August, a BC producer of medical marijuana had their cannabis recalled after some oil tested positive for two types of pesticide. The tests were conducted by Health Canada who ordered the recall.
This was part of a larger federal crackdown that is happening in an effort of enforcing extremely high standards of quality in the looming prospect of legalization, one that will continue to dog Cannabis producers as the government seeks to placate a skeptical public.
Ontario Cannabis Store (OCS) Supplier Product Call
For licensed producers looking to secure a supply contract with the Ontario Cannabis Store, recall insurance is a must. In fact, they stipulate in their key supply terms that suppliers must carry $15MM of recall insurance in addition to at least $5MM of general liability. Although these limits may differ in the master agreement, producers will still be required to carry recall insurance nonetheless.
If you’re in the Cannabis industry, you’re going to be at much greater risk of a product recall than you’d be in most other industries. That’s why it’s essential you pursue recall insurance to protect your business. With startup costs high and competition growing, it’s imperative your business isn’t susceptible to the financial fatality a major product recall can bring.