Cannabis
Driving growth in cannabis will determine which companies thrive and which decline.
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What to Expect in 2024
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What to Expect in 2024
Despite heavy regulation, falling prices and heavy taxes, new cannabis markets will open opportunities for those willing to take the leap. But change can be risky. Cannabis operations that support workers and enhance their risk management strategies will blossom.
Explore our key takeaways to protect your
profits and drive organizational vitality and resilience...
Overregulation and taxation limit profits, but exports offer hope.
The cannabis industry will face greater profitability challenges in 2024 than they’ve encountered since the Cannabis Act was federally legislated in 2018. But as acceptance of cannabis continues to spread around the globe, opportunities for growth in emerging markets abound.
Businesses will continue downsizing as a saturated market drives down revenues. Regulatory compliance will limit profits, with such fees accounting for more than 10% of operating costs for some cannabis firms. And excise taxes remain high, with little indication of changing. In fact, 85% of respondents to the HUB International 2024 Outlook Executive Survey listed regulatory challenges as a threat to their profitability.
But there is reason for optimism. The Cannabis Act is soon up for review — which could provide some tax relief — and the burgeoning export industry provides opportunities for expansion. Export revenue increased nearly 50% in 2022, as European demand for high-quality medical marijuana grows.
Similarly, while the standard recreational market is saturated in Canada, the demand for rare, small batch product continues to grow. Health Canada granted more craft licenses in 2022 than standard licenses — and some of these cultivators are commanding more than $1,000 per ounce for rare, hand-watered, organic product.
Vitality
Resiliency
Expansion
Expansion
Resiliency
Profitability
Promote retention and engagement with personalized benefits.
The cannabis industry is struggling with absenteeism, a lack of employee engagement and high rates of turnover. Cannabis industry respondents to HUB’s survey most often cited employee engagement, recruitment and absenteeism as issues affecting the vitality of their workforce.
Although the challenging economic climate for cannabis has led to some layoffs, stable organizations struggle to recruit and retain qualified employees because of uncompetitive compensation and benefits packages. In fact, more than half of budtenders leave a job within one year.
Investing in workers through training, showing career pathways and offering personalized benefits can differentiate cannabis companies for current and potential employees. Cannabis employers offering personalized benefits that include different health plan options, financial wellness initiatives and employer-sponsored retirement plans will create quality employee experiences (QEX), which drive increased engagement and productivity.
One HUB cannabis client was spending more than double what their competitors invested on employee health benefits. After analyzing the uptake of their benefits and using benchmarking data, they were able to save nearly $300,000 a year by modifying their funding to align with others in the marketplace while still offering several health plan options.
Expansion
Vitality
Profitability
Cash-strapped organizations should reconsider insurance protections.
Due to the highly regulated nature of the industry, virtually all cannabis companies have a risk management program. However, 90% of HUB’s 2024 Outlook Executive Survey respondents noted that they don’t have enough insurance to protect their profits, and just 40% said their company’s risk management and insurance strategy is aligned with C-suite objectives and organizational goals.
This mismatch between need and execution threatens resiliency and indicates that businesses should implement formalized risk management review processes. Adoption of catastrophe (CAT) modelling and risk forecasting will continue to grow, informing insurance decisions that will both save money and improve resiliency.
Financial constraints have led many cannabis companies to forgo directors and officers (D&O) coverage and cyber insurance, though rates for those coverages are improving. The number of cyberattacks each year is holding steady, but the cannabis industry remains one of the top three most targeted sectors by hackers.
Data-driven risk forecasting may reveal that a cannabis company is unlikely to sustain a significant loss under one policy. By reducing limits, the company can better protect itself by purchasing coverages in an area with greater exposure.
For example, many cannabis companies are unaware of the policy nuances in stock insurance, potentially leaving finished stock underinsured. If a cannabis company suffers a loss without sufficient stock coverage, their business interruption is also likely to be impacted and result in coinsurance penalties.
Resiliency
Vitality
Profitability
Product expansion brings both risks and rewards.
Shrinking profits, elevated inflation and high tax burdens have forced cannabis companies to up their creativity and enter new markets. From adding new smokable products, prerolls or gummies to their product lines to expanding sales to convenience stores, opportunities abound. In addition, regulatory changes in several provinces have relaxed rules around cannabinoids, which may make it easier to bring these products to market.
Developing new products is a top priority for half of Canadian cannabis companies, according to HUB’s survey, but this brings additional risk, particularly in the form of product recalls.
Even with a robust quality assurance program, a company’s products can be recalled for myriad reasons: contamination; the failure to print a warning message; a typo in a cannabinoid name; unlabelled substances; or an incorrect description of dosage or intended use. Of the 42 cannabis recalls in the country since legalization in 2018, nearly 70% were due to mislabelling.
Until recently, licensed producers in Ontario and British Columbia were required to carry $15 million in product recall insurance. In November 2022, Ontario
One Ontario-based HUB client worked with their broker after the law change to evaluate their product recall risk. They were able to substantially reduce their premium while retaining adequate recall protection and used the savings to increase business interruption coverage.
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HUB cannabis insurance, risk management and employee benefits specialists will work with you to develop a tailored strategy that will protect the bottom line, support your workforce and build resiliency for 2024. Here are some initial considerations:
Focus on strategically financing risk.
With significant weather events becoming more frequent and intense across the country and a challenging economic climate, cannabis companies need to better analyze exposures and strategically finance their risk to build resiliency. A broker with knowledge of the cannabis industry can help identify potential risks and the best insurance mix for your business.
It’s all about your people.
Do your due diligence before expanding.
Be transparent with your broker.
Do your due diligence before expanding.
Be transparent with your broker.
Focus on strategically financing your risk.
Improve recruitment and retention by giving employees the personalized benefits they want without increasing costs. HUB’s QEX approach will give you a competitive advantage.
It’s all about your people.
With a saturated cannabis market, it’s an enticing proposition to add a new related product. Be sure you are aware of all regulatory issues relating to an expansion and the additional risk it presents.
Do your due diligence before expanding.
Focus on strategically financing your risk.
It’s all about your people.
Be transparent with your broker.
Consistent communication with your broker will help you identify and mitigate issues in advance of your next renewal and position your company in the best light. Review exposures and insurance needs at least 90 days prior to policy renewal to allow your broker to find the optimal mix of coverage for your business needs.
Be transparent with your broker.
Focus on strategically financing your risk.
It’s all about your people.
Do your due diligence before expanding.
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Download our 2024 Cannabis Outlook and Insurance Market Rate Report to see what to expect in the coming year.
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When you partner with HUB, you’re at the centre of a vast network of experts who will help you improve your profitability, enhance the vitality of your workforce and remain resilient into the future. For more information on how to manage your insurance costs, reduce your risk and take care of your employees, talk to a HUB cannabis advisor. We’re here to help.
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1. Business of Cannabis, “Cannabis Industry Fees Are Preventing Profits, shows Health Canada Report,” August 23, 2023.
8. MJBiz Daily, “Non-revenue-generating cannabis jobs in peril as demand grows for hourly workers,” September 8, 2023.
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2. Saltwire, “High taxes threatening cannabis industry N.L. producer tells Trudeau,” March 16, 2023.
3. HUB’s 2024 Outlook Executive Survey polled 900 C-Suite and VP-level executives on the issues facing them on profitability, employee vitality and organizational resilience.
4. MJBiz Daily, “Canadian cannabis exports surge 50% to CA$160 million in 2022-23,” August 29, 2023.
5. MJBiz Daily, “Canadian marijuana entrepreneurs shift focus to ‘micro’ licenses,” July 17, 2023.
6. High Times, “Growing at the highest caliber humanly possible: The art of small batch,” August 18, 2023.
7. MJBiz Daily, “Cannabis producer Canopy cutting 800 jobs, closing flagship Canadian facility,” February 9, 2023.
9. Headset, “An analysis of employee turnover in cannabis retail,” July 13, 2022.
10. Canadian Lawyer, “Cybersecurity attacks in Canada hold steady, but things are getting worse,” July 18, 2023.
11. C-Store Dive, “Circle K expands Canadian cannabis agreement with 4 new locations,” November 9, 2022.
12. MJBiz Daily, “Why are Canadian cannabis products recalled for incorrect labels?” May 22, 2023.
13. Canadian Underwriter, “What’s new with cannabis insurance regulations?” May 18, 2023.
While 85% of cannabis industry respondents use data and analytics to inform benefits strategy, they may want to dig deeper to gain better insights on what their people want and need out of their benefits.
dropped that requirement to $5 million, and now requires companies to carry at least $15 million in commercial general liability insurance. British Columbia made similar mandatory insurance changes.
Of the 42 cannabis recalls in the country since legalization in 2018, nearly 70% were due to mislabelling.
But entering new markets brings new risk. Most general liability or product recall coverage defines a coverage territory, and claims that occur outside of those geographical limits are typically not covered.
With the rollback of Canadian regulations requiring cannabis companies to maintain certain policy limits for product recall insurance, companies can now purchase more commensurate limits and save on premiums. However, others are cancelling these policies altogether and taking on the risk. Cannabis companies should talk to their broker before changing or eliminating product recall coverage to ensure they are not creating unnecessary gaps and exposures.
of respondents to the HUB International 2024 Outlook Executive Survey listed regulatory challenges as a threat to their profitability.
Education is key. Cannabis company leaders need to understand the limits of their existing coverage and disregard the notion that policies they once viewed as “extra” are not necessary to manage their risk.
Adoption of catastrophe (CAT) modelling and risk forecasting will continue to grow, informing insurance decisions that will both save money and improve resiliency.
Although cannabis companies in these provinces that reduce product recall coverage will save on premiums, most general liability policies exclude product recall claims. If a company has insufficient limits and a recall occurs, it could threaten the resilience of the operation.
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