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Home > Articles > Cultivation > Content Piece

Risk Management Considerations for Cannabis Cultivators

By Eric Schneider

Published: Jan 24, 2023   

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Cannabis cultivators have the essential role of providing products for themselves and other operations. Like other cannabusiness, they face unique opportunities and challenges, from regulatory issues to climate change to workplace safety. With their hands in the dirt, cultivators are the beginning of the seed-to-sale process. Keeping the cannabis supply chain moving forward means cultivators must maintain momentum. But how? Let’s discuss risk management considerations that help keep the gears turning. 

Handling the unexpected problem of a bumper harvest 

Cannabis crop yields often depend on factors such as sunshine, rain, temperature, and air quality. Plants grown indoors are harvested year-round, but traditional outdoor crops are harvested in and around October (known as Croptober among growers) in the Northern Hemisphere, usually when the temperatures dip below freezing. Why? Because cannabis plants produce more trichomes when the weather starts to turn cold, so lasting outside until October means a better harvest. 

Thanks to favorable summer growing conditions, 2022’s growing season became one of the past decade’s largest bumper harvests. This outcome seems promising at first glance, but it’s created an unexpected cannabis issue: overproduction. 

The demand for cannabis lags behind the 2022 bumper harvest, leaving company leaders scrambling to avoid financial loss. Cultivators must find innovative storage technologies or accept a severe pricing cut for their flower. On top of the overproduction issue, there’s always the next growing season.

Managing an unprecedented cybersecurity landscape

Cybercriminals wasted no time preying on digital vulnerabilities as the world was sent home to deal with a devastating pandemic. Remote work became standard, online shopping skyrocketed, and most of us were glued to one device or another trying to endure the stay-at-home orders of Covid-19. 

It’s no surprise, then, that cyberattacks increased by 17% in the first quarter of 2021. But hackers didn’t stop at there. Instead, these criminals targeted nearly every industry, exploiting software vulnerabilities and executing highly sophisticated multi-tiered attacks.

Many organizations, including cannabis cultivators, rely heavily on tools and machinery that operate via an online network. These dynamics mean that cyber and property are now intertwined, intensifying the risk of these threats. 

Lastly, with so much pressure on company leaders to follow best cybersecurity practices, cyber liability claims have more commonly snowballed into D&O litigation this past year. Managing cybersecurity now requires prioritization for cannabis cultivators (not to mention the rest of us!). 

Protecting high-end property and vulnerable crops

Cannabis operators frequently use expensive, high-end equipment in daily operations. Extractors, cultivators, and lab testing facilities are a few examples. As you can imagine, any breakdown can be costly; repairs and replacement costs can reach into the six-figure range. 

Unfortunately, climate change impacts growers nationwide, especially in areas prone to wildfires, named storms, and other adverse weather conditions. While repairing and maintaining equipment can be troublesome, dealing with business downtime is an even worse headache. Crop loss is the worst fear for many cannabis cultivators. 

Prioritizing employees and workplace safety

As the coronavirus ran rampant in US cities and states, workers nationwide felt increasingly vulnerable to workplace harm. Many company leaders took note, providing more safety measures and updated protocols. 

Cannabis cultivators followed suit. However, most faced more workplace threats than a deadly virus. Here’s why. Cultivator operations typically hire farm hands to help run the business. As mentioned, operating expensive machinery is usually part of daily work. Cultivators use heavy machinery, creating an environment requiring the best safety practices. 

The cultivator is typically held responsible for medical costs and lost wages if an employee is hurt or gets sick due to a work-related event.

Additionally, employment-related litigation has been rising recently, with social movements like #MeToo or Fight for $15 spearheading claim events. Cultivators aren’t exempt from these situations and must be knowledgeable about cultural changes outside the cannabis circle.

Taking care of your operation and its workforce is a tall order that requires an honest review of your company from multiple angles. Working with a seasoned insurance broker specializing in cannabis is an excellent way to ensure you fill all your coverage gaps.

Keeping pace with ever-changing regulations

Unlike other industries, cannabis must navigate a legal landscape continually in flux. New legal developments surface routinely, such as President Biden pardoning simple marijuana convictions or the SAFE Banking Act tanking in the Senate recently. Unfortunately, cannabis regulations are misaligned at the local, state, and federal levels.

Cannabis cultivators face the unique challenges of keeping up with these legislative changes, particularly those operating in multiple jurisdictions. And, unfortunately, not complying with regulatory requirements gets expensive fast. Nevertheless, ignorance of the law isn’t an excuse for noncompliance.

Changing risks in other industries (technology, finance, etc.) can also impact cannabis cultivators and their bottom line. And as we’ve learned, supply chains can make or break companies and immensely disrupt the path to profitability. Consider approaching risk in a five-step process, which involves:

  • Identification: Pinpoint your vulnerabilities from large to small. 
  • Analysis: Understand how much the loss could hurt.
  • Evaluation: Determine the choices you have to approach each risk.
  • Tracking: Measure exposures and events against your recovery time. 
  • Treating: Decide whether to avoid, reduce, transfer, or accept the risk.

Cultivators with a strategic risk management plan often have more success avoiding events that could set them back financially and tend to recover more quickly from losses. As a critical part of the cannabis industry, consider these risk management ideas to keep your cultivating operation in the game for the long run.


Eric Schneider

Managing Director of AlphaRoot

Eric Schneider is the managing director of AlphaRoot, a tech-enabled cannabis insurance broker in New York City. Empowered by a team of industry veterans with long-standing relationships in the cannabis and agriculture insurance space, AlphaRoot can provide customized coverage and access to select insurance markets. Schneider is dedicated to his clients' best interests, attributing his success to taking steps one at a time instead of focusing solely on the bigger picture. This strategy helped triple AlphaRoot's book of business within its first year. Eric's mantra is to have heart, be smart, and most importantly, have fun — themes carrying the AlphaRoot team into becoming an industry giant.

 

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