Part 1: You Found Mold, Remediated It, and Passed Testing. So, You’re Covered… Right? Not Always
In the cannabis industry, compliance is often treated as the finish line. You identify an issue, remediate it, pass state-mandated testing, and move the product to market. From an operational and regulatory standpoint, that sequence feels responsible. It feels like doing things “the right way.” But when it comes to insurance, that assumption can create a dangerous and expensive false sense of security.
Welcome to Operator Tips
This article is the first in my new Fat Nugs Magazine editorial series called Operator Tips, created to help cannabis operators understand where regulatory compliance ends and true protection begins. This is not about selling insurance. This series exists because too many operators are finding out the hard way that passing testing does not automatically mean insurance coverage applies. And I am tired of seeing our industry end up on the losing side of regulations it believed were protecting it.
Across markets like Connecticut, California, Massachusetts, Michigan, Nevada, Colorado, Maine, and Oklahoma, more and more operators are discovering that regulatory approval and insurance response are not the same thing. The gap between those two worlds is one of the most misunderstood and financially devastating risk exposures in cannabis today.
Operator Tips is about closing that gap. Not through legal jargon or fear, but through clarity. This is about helping operators protect their businesses, their partners, their customers, and the integrity of the plant itself.
Before we go any further, I want to be clear about something. I don’t personally agree with many of the remediation tactics used in cannabis today. There is real data showing that, depending on the method, remediation can negatively affect the product, its integrity, and its relationship to the patient and the plant. From a cultural standpoint, from a quality standpoint, and from a respect-for-the-plant standpoint, remediation has always been complicated.
But remediation exists whether I like it or not. It is part of the regulatory framework in most states, and many operators rely on it to stay operational. So this series is not about debating whether remediation should exist. It is about making sure that operators who choose to use remediation understand the full picture of risk that comes with it. Because remediation does not just carry product and cultural implications. It carries legal, financial, and insurance consequences that most people are never told about.
If remediation is part of your process, then you deserve to understand what that means beyond passing testing. You deserve to know where your exposure actually begins. That is what Operator Tips is here to do.
The Compliance Myth
State cannabis programs are designed to protect consumers by setting testing thresholds and remediation pathways. If a product fails due to mold, yeast, or other contaminants, remediation may be permitted. Once the product passes retesting, it can legally be sold.
From the regulator’s standpoint, the issue is resolved. From an insurance carrier’s standpoint, the analysis is very different.
Insurance policies are not governed by state cannabis rules. They are governed by contract language, exclusions, and legal doctrines that existed long before legalization. Two of the most critical and least understood are Known Loss and Failure to Comply with Law, often applied in hindsight. Understanding these concepts is the difference between thinking you are protected and actually being protected.
Known Loss: When Fixing the Problem Creates a Coverage Problem
Insurance is designed to cover accidental and unknown risks, not losses that are already known or reasonably expected. If mold is discovered before a product is sold, insurers may argue that any resulting bodily injury or product liability claim tied to that product was no longer accidental. Even if the product was remediated, passed testing, approved by regulators, and legally sold, the prior knowledge of contamination can be used to trigger a Known Loss defense.
In simple terms:
Once you know a product was contaminated, insurance may view any future harm related to that product as foreseeable, even if you believed remediation fixed the issue.
That means:
- Legal defense costs may not be covered
- Settlements or judgments may not be covered
- The financial responsibility may fall entirely on the operator
All while the product was legally sold and fully compliant under state law.
Failure to Comply in Hindsight: When Approval Isn’t the Final Word
Another shock for operators often comes after a claim is submitted, when insurers re-evaluate compliance retroactively. A product that passed testing and was legally sold can still be characterized as non-compliant under policy terms if an insurer alleges that:
- The remediation process altered the product in a way not contemplated by the policy
- The presence of mold, even if remediated, constituted a defect
- The product was contaminated or compromised at any point prior to sale
This analysis usually happens after an adverse outcome, when insurers are deciding how to limit or deny coverage. That is why operators often do not learn about these gaps until it is already too late.
What This Means in the Real World
When these principles are applied, the consequences can be severe:
- Defense costs may be denied, forcing operators to fund their own legal response
- Settlements or judgments may not be covered, even in consumer injury cases
- Partnerships, brand trust, and financial stability can be permanently damaged
For many operators, this is the first time they realize insurance is not a safety net. It is a contract with boundaries, exclusions, and interpretations that do not always align with cannabis regulations.
This Isn’t About Cutting Corners
This conversation is not about bypassing regulations or lowering safety standards. It is the opposite. It is about understanding where regulatory compliance ends and insurance exposure begins so operators can make informed, responsible decisions.
Remediation may be legal. That does not automatically mean it is safe from an insurance standpoint. In many cases, remediation introduces risk rather than removing it.
The Right Questions to Ask Before a Claim
Instead of asking, “Does this pass testing?”
Operators also need to ask:
- What exclusions apply to mold, bacteria, or product impairment?
- How does my policy define contamination?
- Does remediation impact or void coverage?
- What happens if a claim arises six months from now?
- Who pays for legal defense if coverage is denied?
These questions should be answered before a product ever reaches the market.
Why Operator Tips Exist
Operator Tips exists because insurance knowledge in cannabis is usually reactive. It shows up after something goes wrong. After money is spent, after relationships are damaged, after coverage is denied. This series flips that script.
It’s about proactive protection. It’s about giving operators access to information that usually only becomes visible in courtrooms and claim disputes. Regulation protects legality. Insurance protects survival. Knowing where insurance stops is just as important as knowing where the law allows you to proceed. Because the worst time to learn you are not covered…is after you did everything “right.”
About the Author
Jeremy Ortiz is a Cannabis Insurance Coverage Specialist at Risk Strategies (a Brown & Brown company), helping licensed cannabis operators across the U.S. and Canada protect what they’ve built through smarter insurance and risk planning. A sun-grown cannabis cultivator since age 19 and advocate of natural plant medicine, he brings a different, operator-first perspective to risk management. Through Operator Tips, his goal is clear: get operators thinking proactively before a claim forces the conversation.
