What Is a Cannabis Brand’s Financial Liability for Customer’s Losses?

May 7, 2020 Cannabis Business

For every business, there is a liability. It should come as no surprise that the number of liability claims against the cannabis industry are on the rise. After all, the industry is growing and any business industry is a target for liability claims. The more business there is, the more financial liability claims there will be.

Claims against that perfectly good marijuana products:

  1. Made customers make bad decisions
  2. Made customers feel poorly
  3. Wasn’t what the customer expected

They handle cases on a case-by-case basis. But the real liability is a financial liability. What happens if your customers (and/or business partners) suffer because of your cannabis business’ mistake or oversight?

Today, we’re here to talk about what qualifies as a liable situation for your cannabis business and what your financial liability may be. The most important thing to remember is that precedent is mostly unset in these cases.


Cannabis Industry Financial Liability Conditions


In business, many things can be claimed against liability, including the slipperiness of your floors. But we’ll be focusing specifically on liability related to the cannabis product and customer losses. Here are your top concerns that we’ll cover one at a time in this article:

  • Poor Quality Product
  • Damaged Packaging
  • Mislabeling
  • Failure to Warn
  • Unclear Dosage Instructions


Poor Quality Product


The single biggest concern for any brand of organic products is product quality. Those who grow, cure, and process your cannabis products are highly responsible for the ultimate experience of the customers, and for providing the expected effects the customer is counting on. A poor-quality product ranges from cannabis that tastes bad (not liable) to cannabis that is harsh to smoke/vape (liable).

If you are a dispensary selling products of others, liable cases are more likely to be based on the customer’s discomfort. However, if you are the grower or processor, you may also be financially liable for the financial losses of your business customers like dispensaries that may have sold your poor quality product.


Damaged Packaging


Damaged packaging, on the other hand, is a very serious problem. Cannabis packaging is extremely regulated. It must be sealed, child-proof, and clearly labeled. Cannabinoid compounds improperly packaged might harm a customer. If you sell improperly packaged cannabis products, or products with damaged packaging, you can absolutely be held liable by customers.




Beyond the obvious. Mislabeling has become one of the leading causes of cannabis industry liability claims. Labeling of cannabis products is both one of the greatest sources of frivolous claims and the greatest source of economic claims, which we’ll cover in more detail down the line. Labeling is not only highly regulated by each legalized state, it is also used to determine whether customers are safely and accurately informed on how to take their cannabis products.


TCH-Free Contains THC


  • The single most dangerous mislabeling liability is the TCH-Free label for CBD products. Legally and financially, there is a huge difference between products that have trace amounts of THC and products that are completely free of THC. Why? Because we’re talking about customer credibility and job security.
  • Many of the customers who buy THC-free products work for strict or federal employers and could lose their jobs if they drug-tested for THC. They could lose clients, credibility, security clearance, and possibly put themselves at risk of their own lawsuits. If a customer experiences economic losses due to mislabeling of your product, you can and likely will be held liable.
  • There is not enough precedent to identify the total potential cost of this liability case.

Leads to Medical Complications


  • The next consideration is whether mislabeling leads to medical complications. If a label is designed so that customers misunderstand and take too large a dose, or even purchase the wrong type of cannabis product, your brand could be held liable. Charge medical complications and long-term medical consequences to your insurance.

Leads to Legal Complications


  • Finally, there are claims based on legal costs to customers. This is where most of the spurious mislabeling claims come into play, though some are legitimate and will be held up in court. If someone does something dangerous while on cannabis, they or their family may file a claim stating that the person was ill-informed.


Failure to Warn


Failure to warn often, but not always, falls into the mislabeling category. This means that claiming you failed to alert them to the product’s dangers before they purchased and used it. Your obligation to warn varies depending on your state and county laws. However, the basics start at using the approved cannabis warning symbol large and clear on the label.

You will then likely be required to include a few written warnings on the packaging so that customers are aware they can potentially experience psychotropic effects and should not operate large machinery.


Unclear Safe Dosage Instructions


Even if you follow the labeling laws to a T, customers who take too much may claim that you are liable for being unclear about safe dosage. Edibles are the biggest risk in this category, as customers often don’t realize how long it takes for medical snacks to take effect, Then, often, they eat too much while waiting for the first signs. If you don’t label dosage portions clearly, and a customer gets sick from taking too much, it’s possible they file a case.


Are You Financial Liability for Customer Economic Losses


Now let’s talk about financial liability. Most libel cases settle before or after court. However, the level of responsibility and the amounts that may be asked are not yet strongly established. Each state will also approach liability differently, based on their own laws and precedent for loss liability.

Currently, the liability discussion in the cannabis industry has turned toward insurance. Unsurprisingly, cannabis businesses are struggling to find insurance that actually fully covers their business and products from liability claims. Many standard insurance providers have a pre-written caveat that excludes coverage of all Schedule 1 or “psychotropic” substances, which includes cannabis.


Learn More About the Cannabis Brand’s Financial Liability


If you need financial guidance to find the right insurance coverage, defend against a financial liability claim, or help to prevent the possibility of a future claim, contact us today!