OCS Product Recall Insurance: What You Need to Know

When you run a business, you’ll inevitably encounter a few snags here and there. But when you’re in a highly regulated industry, some problems could cost you thousands of dollars—or even lead you to bankruptcy if you’re not careful. One such industry is Canada’s legal cannabis market.

From federal licensing and excise taxes to provincial regulations and municipal compliance, Cannabis producers are put under a lot of pressure and scrutiny. These protocols and guidelines are there to protect consumers from potential health and safety risks. As such, it’s not surprising to see product recalls getting issued to cannabis producers regularly.

For the affected producers, product recalls lead to significant expenses and may even result in the loss of trust from their customers. If you’re a cannabis grower or producer, you might be wondering how you can protect yourself and your business from liabilities and expenses. Well, the answer is product recall insurance. 

This article will cover all you need to know about the Ontario Cannabis Store’s insurance requirements and how this affects your cannabis business. 

What Is Product Recall Insurance?

When companies are issued a product recall, it means that their products don’t meet specific standards or requirements, or there may be a health and safety risk present in the product. While this protects cannabis producers from consumer-related injuries or lawsuits, it’s still a costly issue for businesses to face. 

Recalls can be involuntary, which means the government or a regulatory agency requires it, or voluntary, meaning the cannabis producer was the one to notice the issue and pull the product from the consumer market.  

Although the exact cost of recalling a product will depend on several factors (such as the number of units affected, if there are customer-related injuries reported, and the length of the recall period), your response time to fix the issue(s) will also affect the total expense. It’s important to note that consumers will favour businesses that address the product’s problems quickly and with complete transparency.

Product recall insurance covers the expenses mentioned above or more, depending on the insurance package you get. It reimburses cannabis producers for financial losses incurred if their product is recalled from the market.

This usually covers both voluntary and involuntary product recalls and may include the following:

• Expenses associated with notifying customers about the issue;
• The value of the product that needs to be recalled;
• The cost of returning the recalled product to the manufacturer (withdrawal, shipping, and storage costs);
• Cost to dispose of the product; and
• Other related expenses, such as reputation protection or extra wages.

It's worth noting that product recall insurance is a specialized type of insurance and may not be included in a standard policy, such as general liability insurance. Cannabis producers may need to purchase this coverage as a separate policy or as an endorsement of their existing coverage.

Product Liability Insurance vs. Product Recall Insurance

Some business owners or policyholders may assume they have coverage for product recalls because they have product liability insurance, but this isn’t always the case.

Product liability insurance protects businesses against claims of injury or damage caused by their products. Basically, it helps cannabis producers pay for the cost associated with lawsuits, claims, and settlements. However, it does not cover costs related to product recalls. Product liability will only be triggered if there is a direct loss to the third party caused by a faulty product. 

Product recall insurance is intended to protect against the costs and losses associated with a product's recall. As stated above, it is typically excluded under a standard CGL policy. This insurance type can be triggered by a product liability claim or be activated if the government or a regulatory agency deems a product unfit to be sold to consumers.

Cannabis producers in Canada need to have product recall insurance before selling directly to the Ontario Cannabis Store.

What Are the Insurance Requirements for Cannabis Growers? 

The Ontario Cannabis Store (OCS) provides safe, responsible access to legal recreational cannabis for adults 19 or older. So, if you’re a licensed cannabis producer looking to supply cannabis products to the OCS, you must carry the required $15 million product recall insurance. This amount is separate from the $5 million commercial general liability insurance that suppliers must maintain. These requirements also apply to micro-cultivators and processors who sell directly to the OCS.

However, there may be slight differences in requirements between provinces. For example, the Liquor Distribution Branch in British Columbia requires cannabis suppliers to carry a minimum $10 million product recall insurance limit.

What Event Triggers a Product Recall Insurance Claim? 

Some of the most common triggers of a cannabis product recall insurance for Canadian producers are:

• Mislabelling and packaging errors, which may include incorrect cannabinoid values, lot numbers, and packaging dates;
• Contaminated products, including but not limited to mould, bacteria, and yeast contamination;
• Packaging that contains extraneous materials, such as metal shards or plastics; and
• Mechanical defects (i.e., defective vape pens).

As you can probably guess, a single defect or mislabelling of a product can result in hundreds or thousands of your products being removed from store shelves. On top of the expenses caused by the recall, cannabis producers will also have to deal with negative press. They would have to spend more on marketing to fix their company’s reputation.

For these reasons, cannabis producers must partner with an insurance broker who can design a comprehensive policy that meets the unique needs of their business. 

Get Comprehensive Coverage with KASE Insurance

Just like with many other industries, cannabis producers also need insurance. However, they may need more than the usual coverage for stock or store damage. Cannabis liability insurance is a reliable solution that protects policyholders against claims and lawsuits related to their industry.  

As a top commercial insurance broker, KASE Insurance is here to provide you with award-winning customer service and the best insurance solutions for your cannabis business. We are one of the few Canadian insurance providers offering cannabis liability insurance and other modern policies.

Contact our team today to discuss what we can do for your cannabis dispensary, or get a quick quote here.