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Houston, we have a hemp problem! In the ever-evolving cannabis industry, intoxicating hemp is generating big buzz. Thanks to a legal loophole in the 2018 Farm Bill, coupled with consumers’ growing demand for more healthy, accessible and discreet ways to indulge, a lucrative new industry has emerged for enterprising businesses, especially beverages, to flood the market with sensational products. 

So, what’s the problem? While innovation bodes well for the industry, businesses that manufacture, sell or serve intoxicating hemp products are widely exposed to liability, recalls, fines and lawsuits. These risks will only grow in 2025 as regulators take action to address this unforeseen and unregulated market amidst an outcry of public health concerns.

If you aim to capitalize on the next big wave of cannabis consumption, Product Liability Insurance is essential. S2S Insurance Specialists breaks down the issues and how product liability coverage can protect you.

What’s Driving Product Liability Risks?

1)  Mainstream Availability Remember when you could only (legally) purchase cannabis products at dispensaries? Today, intoxicating cannabinoids are infused in just about everything and available just about everywhere, such as gas stations, convenience stores, liquor stores, online, etc. Even DoorDash is exploiting the trend and will begin offering/delivering intoxicating gummies, chocolates, mints, and drinks (that meet the federal definition of hemp in states where they are legal). Greater access to a wide range of intoxicating hemp products, coupled with the lack of testing and regulations, leaves businesses extremely vulnerable to litigation – often due to unfamiliar dosage, prescription drug interactions and adverse side effects.

2) Intoxication Liability With smoking taboo and alcohol’s proven health and addiction problems, demand for more healthier ways to consume is fueling the cannabis beverage industry’s growth, which is projected to reach $81B in the U.S. by 2032.[i]  Hemp-derived products can contain an alphabet soup of chemicals, such as delta-8 THC, delta-10 THC, HHC (hexahydrocannabinol), etc. Bars and breweries are experimenting with various ingredients to concoct THC and CBD-infused libations. Many neglect to consider that intoxication effects vary widely from product to product and person to person. Similar in concept to liquor liability, if a business overserves a consumer and that results in harm, they could be held liable. Experimental dosing plus over-consumption creates immense risk for businesses that produce, serve and sell intoxicating food and beverages.

3) Product Recalls Unlike the regulated marijuana industry, products derived from federally legal hemp used to have a free pass from testing for heavy metals, mold, pesticides, residual chemicals, and other harmful contaminants. That is no longer the case as states pick up the slack on safety inspections and product testing. For example, there were at least 30 cannabis product recalls in California alone in 2024. It is reasonable to assume more will follow with intoxicating hemp products under the microscope.  A product recall can be catastrophic for any business – not only in terms of lost revenue but also in terms of damaging the brand’s reputation with consumers and suppliers throughout the distribution system.

4) False/Misleading Advertising Unfortunately, in this unfettered industry, there are unscrupulous

companies selling products that contain over-the-limit THC and/or erroneous dosages. Some are going so far as to mimic their packaging to popular snack foods like Cheetos and Sour Patch Kids, stoking fears of harm to children. In response, the Federal Trade Commission (“FTC”) issued warning letters to dozens of hemp companies for “unfair and deceptive marketing practices.” In 2025, we can expect a major crackdown on how cannabis businesses package and advertise their products.

How the Government is Responding

These causes for concern outlined above have put hemp in the hot seat, triggering the Senate and House Agriculture Committee to propose a ban on the sale of most intoxicating hemp products containing cannabinoids. Given the complexity of the matter, lawmakers opted to give a one-year extension to the current Farm Bill avoiding federal interference – for now – to the $28 billion gray-market industry.[ii] 

While Congress stalls, the Federal Drug Administration (“FDA”) has issued a consumer alert about the risks of delta-8 THC hemp and sent warning letters to dozens of hemp companies for adulterating and selling “unapproved” products. These reactive measures have had little to no impact though. So, a growing number of states are taking their own actions to ban or regulate novel cannabinoid goods.  California, for example, has a total ban on intoxicating hemp while Minnesota now controls hemp as part of their cannabis regulatory framework.  

To illustrate the risk retailers could face, Virginia recently levied nearly $11 million in fines against more than 300 businesses allegedly selling state-prohibited intoxicating hemp products. According to Green Market Report, “a whopping 82% of retail shops that carried hemp goods were found to be in violation of the ban on intoxicating hemp products.”[iii]

If businesses want to manufacture or sell intoxicating hemp products, especially across state lines and nationwide, they need to comply with a sundry of rules and take proactive measures, including securing Product Liability coverage, to protect themselves from the immense risks.

How Product Liability Insurances Protects Businesses

As the cannabis industry continues to evolve, intoxicating hemp beverages and edibles will be increasingly scrutinized and vulnerable to product liability claims. One such lawsuit is enough to fold a business due to exorbitant legal fees and fines, as well reputation damage beyond repair.

Product Liability Insurance is a specialized coverage designed to protect cannabis and hemp companies from claims that can happen anywhere along the supply chain. For product developers/manufacturers, this type of policy should be required. For distributers and consumer-facing establishments (bars, event venues, online platforms), it is highly recommended. Essentially, from origin to point of sale, no business is immune to product liability claims.

However, with proper coverage, your insurance company will pay for physical damages, bodily injury and legal expenses in the event of a lawsuit, regulatory fine or product recall, up to your policy limits. The Product Liability policy will also cover any medical expenses if someone is harmed by the product.

Bottom Line

The surge of intoxicating hemp products is providing unprecedented opportunity and risk. Making sure your suite of insurance policies includes Product Liability coverage should be a top priority in 2025. In fact, your business may be contractually obligated to have insurance requirements in supply agreements.

It is also important to work with an insurance broker, like S2S Insurance Specialists, who have a deep understanding of the cannabis industry and access to all the top-rated policies available from insurance carriers.

For a free consultation, click https://scheduler.zoom.us/david-rahn

or call (954) 790-6604.

https://www.s2sinsure.com/post/hemp-in-the-hot-seat-why-product-liability-insurance-is-a-must-have-in-2025

[i] https://www.fortunebusinessinsights.com/industry-reports/cannabis-beverages-market-100738 

[ii]https://news.bgov.com/bloomberg-government-news/hemp-ban-rider-attached-to-farm-bill-text-headed-to-house-floor 

[iii] https://www.greenmarketreport.com/virginia-levies-11-million-in-fines-against-over-300-retailers-for-illegal-hemp-goods/