Fidelity bonds for cannabis operators

What a fidelity bond covers

A fidelity bond reimburses the insured business for direct financial loss caused by the dishonest or fraudulent acts of its employees. Standard coverage responds to theft of money, securities or other property, forgery and alteration, and computer and funds transfer fraud. With negotiated extensions it responds to losses caused by outside service providers acting in concert with employees. Coverage is written on a blanket basis for all employees or on a scheduled basis for named individuals.

Why cannabis is different

Cannabis operations carry unusually concentrated internal loss exposure for three structural reasons. Federal banking constraints mean a large share of revenue still moves in cash. The product, particularly flower, concentrates and high margin items, is portable, valuable and easy to divert. The workforce turns over quickly and includes positions with direct access to inventory and cash: budtenders, trim technicians, vault staff and delivery drivers. One dishonest employee can drain six figures from a dispensary before routine inventory reconciliation catches the loss.

Common cannabis fidelity claims

• Cash skimming at the point of sale and during nightly drops
• Inventory diversion, where product is written off as waste or destroyed and then resold
• Vendor collusion and kickbacks on cultivation inputs, packaging or services
• Funds transfer fraud and forged ACH or check instructions
• Embezzlement by bookkeepers, controllers and back office staff
• Theft during transport, including by armored car or contracted delivery personnel

Standard and manuscript forms

The basic commercial crime form is a serviceable start but rarely fits a cannabis operator unmodified. Our fidelity program negotiates manuscript endorsements for industry exposures: extending coverage to inventory and biological assets, defining employee to include leased labor and contracted budtenders, addressing computer fraud and social engineering in cannabis e-commerce, and matching limits to the operator's banking and cash handling protocols.

Limits, pricing and underwriting

Limits typically run from $25,000 for a small single location operator to $1,000,000 or more for multistate operators and large cultivation campuses. Premium follows the limit, the deductible, employee count, cash handling and internal control procedures and prior losses. Fidelity underwriting focuses on the strength of internal controls, not the personal credit of the owners.

Controls that lower the premium and the loss

• Separate cash handling, inventory custody and accounting reconciliation across at least two employees.
• Require dual custody for vault access and for cash deposits above a set threshold.
• Run background checks at hire and at promotion into any cash or inventory role.
• Conduct surprise cash counts and surprise inventory counts at least monthly.
• Enforce mandatory annual vacation for anyone with custody of cash, inventory or financial records. That single control has surfaced more cannabis embezzlement schemes than any other.

For commercial crime coverage outside cannabis, see our sister platform CommercialCrimePolicy.com.

Questions