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From seed to smoke: Marijuana retail stores and dispensaries

Terpene Station Marijuana Dispensary in Eugene Oregon
The Terpene Station Marijuana Dispensary in Eugene, Oregon. Photo by Rick Obst via Wikimedia Commons.

Editor's Note: This is a condensed version of the third article in our series on recreational and medical marijuana, From seed to smoke: Risks across the marijuana supply chain. Learn how ISO Emerging Issues subscribers can read the full article here.

Defining marijuana types

Marijuana is a type of plant that, if consumed properly, can give the user a “high,” generally induced by the psychoactive chemical THC.

Recreational marijuana

In nine states and DC, so-called “adult,” “personal,” or “retail” marijuana and marijuana-related products may be used for non-medical (“recreational”) purposes, subject to certain limitations. In those jurisdictions that currently allow retail sale of marijuana, regulations typically address, in part: where retail marijuana stores can operate; the security of the stores; marijuana deliveries; and inventory tracking of marijuana products until their sale (“seed to sale”).

Medical marijuana

Additionally, in many states, so-called “medical marijuana” and/or marijuana-related products may be purchased and used for medicinal or therapeutic purposes, subject to certain limitations. An additional 17 states have so-called “limited access” medical marijuana programs, which the NCSL defines as programs that permit the use of “low THC, high cannabidiol (CBD)” products "in limited situations or as a legal defense.” These programs tend to be more restrictive than their comprehensive counterparts.

Similar requirements as those imposed on retail marijuana stores may apply to medical marijuana dispensaries, depending on the particular contours of a state’s medical marijuana program.

Is marijuana like liquor and tobacco, or completely different?

There are many different ways that insurers and risk managers may want to think about marijuana retail and dispensary operations.

Classification of the risk

Many of the requirements for retail marijuana stores may appear similar to those imposed on dram shops and other establishments selling liquor. Marijuana stores are primarily in the business of selling intoxicants. So should insurers and risks managers consider retail marijuana stores in the same business class as liquor stores?

Not necessarily. Retail marijuana stores may pose risks not always associated with liquor stores. Unlike intoxicating liquors, many marijuana products are meant to be smoked and inhaled. Smoking and inhaling marijuana could cause future health complications.

Be that as it may, many liquor stores also sell tobacco products alongside intoxicants. So why should retail marijuana be considered any differently? Well, some states not only allow the license-holders to sell marijuana, but also to cultivate and process the plant (or some combination of the three) on the same premises.

And there are further risks to consider if we’re talking about a combined cultivation/retail operation. Marijuana cultivation introduces new risks not otherwise contemplated in a regular retail operation - including potentially heightened risks of fires and explosions. (For more information on cultivation risks, check out the first article in our series.)

Do you want that to stay or to go?

There may also be risks associated with on-site marijuana consumption. A handful of jurisdictions have begun or are planning to begin to allow the sale and consumption of marijuana on certain premises. Perhaps this kind of operation could have a similar risk profile as a brewery or distillery that also serves drinks on-premises? This too remains to be seen.

Medical marijuana dispensaries

Many of the risks just discussed could also apply to medical marijuana dispensaries - depending on the particular requirements of a state’s medical marijuana program. However, medical establishments and permitted healthcare practitioners may also encounter potential professional liability risks, including those related to improperly evaluating a patient's qualifying condition or running afoul of any relevant regulations.

Other risks to consider

There are, of course, many other potential risks that retail and dispensary operations could face, including product liability, pollution, and theft risks.

Product Liability: As we noted in the first part of our series, operators along the marijuana supply chain may face potential liability if the marijuana sold is contaminated with pesticides. Many states that permit recreational or medical marijuana sales have begun regulating permitted and prohibited pesticides and other crop treatment chemicals.

Pollution: Marijuana plants and derivative products can reportedly emit strong odors. Marijuana cultivation and processing facilities are especially at risk of emitting potentially noxious odors that may potentially constitute a nuisance.
States and local jurisdictions may also regulate such odor pollution.

Theft: Retail stores and dispensaries may face an increased theft risk, both because of the concentration of high-value property and the large amounts of cash typically found at such operations

Additionally, many marijuana businesses, including retailers and dispensaries, rely on a cash-only business model. Because marijuana is currently illegal under federal law, most financial institutions are reportedly cautious or entirely unwilling to offer services to marijuana-related businesses.

The ISO Emerging Issues team continues to research and track potential considerations related to marijuana. You can find more of our research here.

Lucian McMahon

Lucian McMahon, CPCU, AU-M, ARM-E is a Manager of Research and Modeling for AIR Worldwide with the Arium group. Arium uses supply chain relationships to help organizations understand and quantify their exposure to casualty catastrophe events. You can learn more about Arium here.

You can contact Lucian at

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