Takeaways from Our Conversation on Environmental Risks for Cannabis Operations

March 23, 2023 by Don Jergler

In cannabis, there are the apparent risks – product liability, property, and certainly cyber for medical marijuana operations.

However, one of the most apparent risks to a cannabis operation are those that may not get as much media coverage.

Environmental risks – odor being chief among those – seems to have dropped off the radar of commonly talked about problems for operations as cannabis became more ubiquitous around the country.

Brokerage giant Lockton is making such conversations a priority by putting a focus on highlighting environmental coverage, risks and services for the firm’s cannabis clients.

For our latest podcast looking into Lockton’s new push on environmental coverage for cannabis, we spoke with Kate Dietrich, a vice president and senior environmental specialist with Lockton.

Following are takeaways from that conversation.

“When I think about the risks that I talk to our clients about, it’s really focused on the cultivation facilities, and then maybe the lab or extraction facilities,” Dietrich said. “And the first environmental risk that I like to share with them to be aware of is odor. The cultivation facilities, whether it’s an indoor greenhouse or an outdoor facility, are unmistakably odorous operations, and it’s certainly not an appealing odor to everyone. And so I think that is probably the largest exposure, from some sort of complaint or claim. It’s an air pollution type of exposure.”

Their clients have seen nuisance type claims due to odor, and the firm encourages them to look at ways to mitigate odor.

However, even those operators that do take steps to mitigate odors, including installing and using sophisticated systems, may face the risks of claims and complaints, she said.

“Like with other things with cannabis, there’s certain community organizations, there’s certain local organizations, or community members that, just due to their independent stance on cannabis, they’re sort of just looking for a reason to raise an issue with these companies,” Dietrich said.

Chemical usage is another environmental risk she and her colleagues at Lockton regularly talk to cannabis insureds about. At cultivation facilities or at lab or extraction facilities, disposal of things like pesticides, herbicides, fertilizer, all pose risks.

“And, so we’re looking at those types of risk and saying, ‘OK, what if there is a storage containment failure? What if there is an overspray incident during application? What if there’s a fire at the facility?’ Then that can spread those contaminants in an uncontrolled way. And, so a release of any of those types of chemicals into a water source, a drinking water source can result in some type of water pollution, bodily injury, etc.”

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Cannabis companies are also taking on other activities. For example, some of these operations have their own packaging facilities which may pose an environmental risk from potentially glues, or inks, or other chemicals within that process that could be considered an environmental risk, she added.

The firm is selling insurance products, but education is one of the biggest parts of Lockton’s push to get its cannabis clients better protected from environmental risks, she said.

Many of the firm’s cannabis clients are “the whole package,” meaning they have cultivation, extraction and retail operations, while others have highly unique risks.

“We try to get really granular because each one of them is unique. Each one of them have their own risk management philosophies and, and risk appetite,” Dietrich said. “And so, we’re diving deep into their operations. Where are they operating, geographically, what’s their surroundings? Are they in community? Is it relatively rural? We’re really talking to them in depth about the individual characteristics of their operations so that we can then sort of get into the conversation of what the risk really looks like, and then start talking about what risk transfer solutions are appropriate for them so that they can make those informed decisions.”

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