With the risk of cannabis or hemp product recalls or complete withdrawals from the market, newcomers and industry veterans alike can suffer tremendous damage to their brand and reputation. So, it’s important for existing CBD companies and newcomers who are just getting into the cannabis, hemp, and CBD markets to consider the significance of having the right coverage. The good news is that product withdrawal and recall insurance can help to fill this coverage gap. Before selecting a cannabis and hemp insurance provider, companies need to understand the basics of product withdrawal and recall insurance. Here are some key factors to consider:
Product Withdrawal/Recall Insurance Coverage Basics
Product withdrawal/recall insurance coverage is a specialized insurance product designed to protect the companies from financial losses and damages to their brand’s reputation in the event of a product recall or withdrawal. It’s critical for CBD companies to have this type of coverage as CBD is not legal on a federal level. That means a federal agency has the potential to deem a CBD product unsafe, and this leaves the CBD company at risk.
Companies producing cannabis products for sale to the public must get approval from the Federal Drug Administration (FDA). If the products do not meet regulations, the FDA can recall the product. Moreover, the FDA also has the power to issue a safety notice to the public to alert consumers about the product recall. A cannabis product recall also makes that product illegal to sell as the FDA’s recall declaration deems the product unsafe to use.
Unfortunately, product recalls are common. According to data from Statista, more than 4,000 consumer products in the United States were recalled by federal agencies in 2015 alone. It’s also not uncommon for the FDA to approve prescription drugs only to recall them years later. This practice is evident in a 2017 JAMA study, which revealed that the FDA recalled 32 percent of therapeutics between 2001 and 2010. Moreover, the FDA has already sent out a public safety notice about the warning letter that it had sent out to a major CBD manufacturer for marketing CBD products that were not approved and that held unproven claims. A Pharmacy & Therapeutics study also highlights that the states of Michigan and Colorado recalled CBD products in 2018 due to mold, mildew, bacteria, and yeast found on the products.
In the case of a product recall, product liability coverage isn’t enough to recoup from the financial and reputation damages these events cause. Moreover, an insurance gap exists because several insurance companies may not get into insuring CBD inventory or companies against loss since the industry has a banking problem. It may also depend on the state the CBD company is in. For instance, CBD companies in Delaware do not have the same flexibility to cover the loss of CBD crops due to weather as they do in California.
Unlike product liability insurance, product withdrawal/recall insurance provides CBD companies with extra protection in the event the government recalls one of the company’s products. So, it’s crucial for companies to have coverage via a product withdrawal/recall insurance policy.
Reduce Financial Impact
Without proper coverage, a product recall may have adverse financial impacts. For example, companies can lose money on unused inventory and even potential sales. The FDA’s public warning notice to Curaleaf is an example of the loss of potential sales. As a result, the CBD company’s stock fell by 30 percent, and it lost its partnership with CVS to sell CBD products in its stores.
Product withdrawal/recall insurance also provides coverage for CBD companies should consumers sue the company for any injuries they may have from the use of the company’s CBD product. It’s crucial for companies to consider these types of costs as they can easily become exuberant, depending on the type of injuries the consumer may have and the state of jurisdiction. With the right plan, CBD companies can find a product withdrawal/recall insurance helps to ease these financial burdens.
Provide Damage Control of the Brand’s Reputation
With product withdrawal/recall insurance, CBD companies can better manage the financial implications that hurt their brand’s reputation. Smaller CBD, hemp, and cannabis companies may not have the budget or cash flow to conduct damage control when a product recall occurs. In fact, it’s not uncommon for businesses to go out of business or file bankruptcy following a product recall. Companies that incur a product recall have to rebuild the trust they had established with their customers. This strategy often requires dipping into a marketing budget to spread awareness and to educate consumers about changes the company makes to improve its product. Without proper coverage, it’s easy for smaller CBD, hemp, and cannabis companies to not have the funds to implement damage control for the brand’s reputation.
CBD companies without the right coverage can easily incur several costs. From lawsuits to loss of inventory, a product recall can damage a CBD company’s reputation and hurt its bottom line. Thus, it’s critical for CBD companies to use product withdrawal/recall insurance policies to help cover the extra costs not covered by their commercial general or product liability insurance policies.