Cannabis Lab Testing Rules Are Changing: Insurance Steps to Take

Quick answer: Several states are rewriting their cannabis lab testing rules this fall, from how samples are pulled to what happens when a batch fails. For cultivators, manufacturers and retailers, a failed test can mean a whole batch that can’t be sold, and a sample that misses contamination can lead to a recall or a customer injury claim later. Insurance can help with some of that, mainly through product liability and product withdrawal or recall coverage, but only if your limits, exclusions and recordkeeping line up with the new rules. Review your coverage now, before the rules are final.

What’s changing in cannabis testing right now

Three states offer a good picture of where testing rules are heading. They are examples, but operators across the country face the same questions.

Massachusetts: a stand-alone testing chapter

At its October 22 public meeting, the Massachusetts Cannabis Control Commission released a draft of 935 CMR 503.000, a new chapter devoted to independent testing laboratories. According to the commission’s meeting materials, the draft covers lab operations and quality assurance, sampling and sample retention, required testing, reporting of results, testing failures, and waste destruction. The commission plans to discuss it at its November 12 meeting.

As Cannabis News reported, the draft says a failed sample would mean the entire production batch fails and can’t be sold unless it is repurposed, reanalyzed or remediated under the rules. Product that fails for pesticides or plant growth regulators could not be salvaged at all. Nothing in the draft is in force yet, and formal public comment is expected to open in January.

Oregon: potency retests and tighter lab standards

The Oregon Health Authority filed proposed testing rule changes on September 30, The Marijuana Herald reported. The proposal would let a business give the lab a target potency before sampling and request a retest if results come back more than 10% off that target, as long as the business first investigates and documents the discrepancy. It would also make clear that a product fails potency testing if even one sample exceeds the legal maximum, and it adds data-integrity rules that bar labs from manipulating samples, software or quality-control data.

Nevada: bigger lots, bigger sampling questions

Nevada’s Senate Bill 157 raised the maximum flower lot size from five pounds to 15 pounds. In a position paper to the Cannabis Compliance Board, seven Nevada testing labs warned that the proposed sampling rules could let contaminated product pass, according to The Marijuana Herald. The labs argue that mold such as Aspergillus can sit in isolated spots, so the whole sample should be ground and mixed before it is split. They also want labs, not cultivators, to control leftover retest and retention samples.

Why testing rules are an insurance issue

Testing sits right where regulatory risk turns into financial risk. A few ways it shows up:

• A failed batch. If a batch fails and can’t be remediated, the product may have to be destroyed. Many policies treat a failed compliance test as a business risk rather than a covered loss, so don’t assume the value of that inventory is insured.
• A recall after the sale. If contamination turns up after product reaches shelves, you may face the cost of pulling it back, notifying customers and destroying it.
• Customer injury claims. A customer who says a contaminated or mislabeled product made them sick can bring a claim against everyone in the supply chain, from the cultivator to the store.
• Disputes over results. Retests, lab errors and missing retention samples can turn into disagreements between operators, labs and regulators, and good records are often what settles them.

Coverage to review

Product liability

Product liability coverage responds to claims that a product caused bodily injury or property damage. Ask your agent whether your policy covers the products you actually sell, whether it includes exclusions for specific contaminants or product types such as vapes or edibles, and whether vendors and retailers you work with need to be named as additional insureds.

Product withdrawal or recall

Product liability usually doesn’t pay to get product back off the shelf. Product withdrawal or recall coverage is designed for that: costs such as notifying customers, retrieving and destroying product, and in some forms lost income. Check what triggers coverage, since some forms respond only to a government-ordered recall and others also respond to a voluntary one.

Crop and inventory coverage

For cultivators and manufacturers, ask how your crop, stock and finished goods are valued and which causes of loss are covered. Contamination, mold and regulatory destruction are often limited or excluded, so know where the gaps are before a batch fails.

Steps to take while the rules are being written

• Follow your state’s rulemaking. Comment periods and hearings are your chance to raise concerns about sampling, retests and retention.
• Tighten sampling and chain of custody. Standardize how lots are presented to labs, and keep logs of who handled samples and when.
• Keep certificates of analysis organized. Store results by batch so you can quickly trace a product if a complaint or recall comes up.
• Write a recall plan. Know who decides, who notifies the regulator and customers, and how product gets pulled and destroyed.
• Check your contracts. Review lab, supplier and retailer agreements for indemnity and insurance requirements, and confirm your coverage supports them.
• Meet with your agent. Walk through what happens under your policies if a batch fails, if a recall is needed, and if a customer files a claim.

Licensing and insurance rules also vary by state, so it helps to know what your state requires alongside the testing rules.

Frequently asked questions

Does insurance cover a batch that fails a state lab test?

Often not. Many policies treat a failed compliance test as a business risk rather than a covered loss. Some recall or contamination coverage may help in specific situations, so ask your agent exactly how your policy treats failed tests and regulatory destruction.

What is the difference between product liability and product recall coverage?

Product liability responds to claims that your product injured someone or damaged property. Product recall or withdrawal coverage helps pay the costs of pulling product from the market, such as notification, retrieval and destruction.

What affects the cost of product liability and recall coverage for a cannabis business?

Cost depends on the products you make or sell, your sales volume, your claims history, the states you operate in, your testing and quality-control practices, and the limits and deductibles you choose. The best way to know is to request a quote based on your operation.

Get coverage that keeps up with the rules

The Cannabis Coverage Company has been writing cannabis insurance since 2009. We are licensed in all 50 states and are part of Lions & Coventry. We can review your product liability, recall and inventory coverage against your state’s testing rules. Request a quote or call (916) 967-7715.

This article is for general information only and is not legal advice. Testing rules and policy terms vary by state and insurer.