Former FDA Commissioner Scott Gottlieb provided insights into the agency’s approach to products that contain cannabidiol (CBD) in April during a House Appropriations Committee hearing on FDA funding for 2020. Gottlieb reiterated that the agency considers most CBD products on the market to be unlawful. He highlighted recent FDA enforcement efforts against some companies selling those products, but noted that the agency lacks the resources to take enforcement actions against all the CBD products it considers to be unlawful.
So, you are thinking about jumping into the CBD frenzy and selling a food, beverage, topical cosmetic, tincture, or possibly even a dietary supplement infused with hemp-derived CBD. Can you get liability insurance for these products, even though they are illegal in the current environment? The answer is yes.
Now it might seem odd to you that insurance companies, which are historically very conservative folks, would actually step up and insure products that are technically illegal. But this would not be a first for the insurance industry. For example, employment practices liability insurance, which has been around for about 30 years, covers illegal activities such as age, sex, or religious discrimination, and many other torts.
The primary reason they can do this is that the insurance will not respond to anything related to the fact the product in and of itself is illegal. For example, if regulators come after a company for selling illegal CBD products, the costs incurred to deal with the regulators—including but not limited to any fines that may result from their regulatory action—are not covered by insurance.
What is covered then for these illegal CBD products? The primary, and far and away most important, thing that’s covered is an allegation the product was consumed and resulted in “bodily injury” to someone—or even to a pet, if you are involved in CBD pet supplements.
But don’t get too excited yet. Here comes the reality check, which involves the two major issues of cost and availability of the insurance. It’s not a particularly pretty picture, especially for startups with little cash to spare for insurance. I do expect this will change for the better over time, as CBD becomes more widely accepted, but right now (in spring 2019) the pickings are slim.
By the way, these comments and observations are not limited to just purveyors of CBD finished products. They apply to all CBD players, including growers, extract processors, bulk wholesalers, contract manufacturers, white label suppliers, and brand owners.
Recent News & Developments
Let’s review some recent developments. Just a few short months ago there were basically four liability insurers who would quote CBD risks; and as I wrote previously, only one of those in my opinion was a truly viable insurer. By “viable” I mean that this carrier would take your money and give you a policy with some real coverage—unlike the others, which have terms and conditions buried deep in their policies that would make coverage questionable.
The passage of the Farm Bill opened things up a bit. Immediately, two more carriers came in to compete for accounts either making or utilizing CBD. The number of viable carriers tripled to three. Competition is always a good thing.
Who’s Selling & How Much?
Who are these insurance companies that will offer liability insurance for CBD products? They are not your “standard” insurers you see on television like GEICO, State Farm, Allstate, Progressive, Farmers, Hartford, Travelers, etc. Not a chance. They are, however, insurers that have been insuring dietary supplements for decades, and they are used to providing product liability insurance to products that are contentious, like CBD is right now.
In terms of cost, CBD product liability insurance is currently more expensive than insurance for dietary supplements (without any CBD). Yes, the marketplace is thin, which no doubt has something to do with that. Further, as a broker, predicting what a CBD policy might cost is tougher than it would be for a supplement company, because carriers offering coverage are still finding their way on how to price their product. But again, I have little doubt this will change over time and premiums will become more predictable and affordable.
As to procurement of the right liability policy for your CBD products, I would recommend staying away from the widely-accepted practice of “JGI”—just Google it. It’s not a good idea because you will end up talking with a lot of people who do not know of what they speak. But you may not know that when speaking with them.
A knowledgeable insurance broker can walk you through this minefield. He or she will be on top of this rapidly changing landscape for CBD insurance and should be able to give you specific details about currently viable insurers and the approximate cost of a policy that’s right for you.