Balance risk and reward in the medical marijuana business
You are an entrepreneur engaged in an emerging industry dominated by people who know how to start, run, and grow a successful business. Initiative, passion, and accepting risk are on display in your world every day. Without risk – rewards are diminished.
Part of accepting risk is assessing what you can control, and what is beyond your control. Risks related to finances, operations, reporting, compliance, governance, strategy, and so on may be more in your control and allow for greater risk assumption based on greater understanding. Other risks related to the actions of partners and employees, regulators, customers, and a myriad of unknown elements may be completely out of your control, and must be considered in a different way.
Thoughtful risk assessment balancing the known and the unknown, the understood and the misunderstood is the key to managing the risks you will face. Risk management stems from having, or working with a trusted advisor to acquire an informed understanding of the relevant risks facing your business, then implementing a systematic approach to monitoring and controlling them. Managing risk involves taking actions to eliminate the risk, knowing in advance how to mitigate risk when something happens, and deciding what risks to accept and what exposures to transfer to others through insurance.
Some risks are more obvious than others, such as investing your life savings into a new business that may or may not flourish. Yes, insurance is viewed as a necessary evil by most. Many potential commercial insurance customers engaged in the start-up of either production or dispensing believe they can defer protection especially when there is negative cash or inadequate cash flow. No pun intended, but you are betting the “farm.” Have you asked yourself what would happen if:
- A fire or explosion destroys your entire crop or dispensary.
- A patient enters your dispensary, trips over a chair in your waiting room and sustains a broken leg with subsequent complications.
- Your product is stolen during shipment from your cultivation site to your dispensary.
- An employee severely cuts her hand while trimming plants.
- An employee is involved in an auto accident while driving on company business.
- A patient accidentally overdoses to the point of impairment and gets into a severe accident with a school bus.
- A patient becomes severely ill due to a contaminated product that you either grew and/or dispensed.
- An investor sues based on your not realizing the pro-forma financial projections you used in efforts to secure financing.
- A former employee sues you for sexual harassment and/or wrongful termination.
You can go broke trying to guarantee certainty. That is not Risk Management. The best business decisions are achieved when you have a thorough understanding of the balance between the risks and the rewards you face and a thorough knowledge of how to transfer the risks you decide not to assume. Aligning with a strategic business partner with the knowledge, resources and market clout to help you identify, manage, and transfer risk is a critical step that will contribute to your longevity in this business.
About the Author
Rick Black is a Senior Vice President at WGA with a focus on Property and Casualty Insurance. He joined WGA in 2007, bringing with him 30 years of insurance experience in all areas of complex risk and risk financing.