Cannabis extraction labs represent one of the most complex and high-risk segments of the cannabis industry. These facilities transform raw plant material into concentrates, oils, distillates, and infused ingredients—often using flammable solvents, high-pressure systems, and specialized equipment.
Because of these risks, cannabis extraction labs face significantly higher insurance scrutiny than dispensaries or standard cultivation operations. A single incident—fire, explosion, equipment failure, or contamination—can result in catastrophic property damage, severe injuries, regulatory shutdowns, and massive financial loss.
This guide explains how cannabis extraction lab insurance works, what coverage is required, the unique risks extraction facilities face, how insurers underwrite these operations, and how to protect your lab in 2025.
Why Cannabis Extraction Labs Require Specialized Insurance
Extraction labs combine multiple high-risk factors that insurers evaluate carefully:
- Flammable gases and solvents
- High-pressure extraction systems
- Explosion and fire hazards
- Specialized electrical and ventilation requirements
- Strict state and local safety regulations
- High-value equipment and inventory
Standard commercial insurance policies almost always exclude cannabis extraction operations. Labs must work with cannabis-specialized insurers that understand both the science and the regulatory environment.
Common Types of Cannabis Extraction Methods
The extraction method used directly affects insurance availability, cost, and required safety controls.
1. Butane Hash Oil (BHO) Extraction
BHO extraction uses butane or propane to separate cannabinoids and terpenes from plant material.
Insurance considerations:
- Highest fire and explosion risk
- Strict building and ventilation requirements
- Explosion-proof rooms required
- Limited carrier availability
2. CO2 Extraction
CO2 extraction uses pressurized carbon dioxide to extract cannabinoids.
Insurance considerations:
- Lower fire risk than BHO
- High-pressure equipment exposure
- Expensive equipment replacement costs
3. Ethanol Extraction
Ethanol extraction uses alcohol-based solvents.
Insurance considerations:
- Flammable liquid exposure
- Strict storage and handling protocols
- Fire suppression requirements
4. Mechanical or Solventless Extraction
Includes rosin presses and ice-water extraction.
Insurance considerations:
- Lower fire risk
- Still requires equipment and product liability coverage
Core Insurance Policies for Cannabis Extraction Labs
Extraction labs require layered insurance protection due to their elevated risk profile.
1. Commercial Property Insurance
Property insurance protects the physical facility and assets, including:
- Extraction equipment
- Ventilation and air-handling systems
- Electrical infrastructure
- Fire suppression systems
- Tenant improvements and build-outs
Policies must be written on cannabis-compliant forms and specifically allow extraction operations.
2. Equipment Breakdown Insurance
This is one of the most critical coverages for extraction labs.
Equipment breakdown insurance helps cover:
- Mechanical failure of extraction equipment
- Electrical failure
- Pressure system rupture
- Motor burnout
- Control system failure
Without this coverage, most equipment-related losses are excluded.
3. Cannabis Inventory & Stock Coverage
Extraction labs must insure:
- Raw plant material
- Work-in-progress extracts
- Finished concentrates
- Distillates and oils
- Stored solvents (where allowed)
Coverage limits should reflect peak inventory values, not average levels.
4. General Liability Insurance
General liability insurance protects against third-party injury and property damage claims.
Typical minimum limits:
- $1,000,000 per occurrence
- $2,000,000 aggregate
Higher limits are often required due to the severity of potential incidents.
5. Product Liability Insurance
Extraction labs play a critical role in product safety.
Product liability coverage protects against claims involving:
- Contaminated extracts
- Residual solvent issues
- Improper concentration levels
- Mislabeling downstream
This coverage is essential even if products are sold wholesale.
6. Workers’ Compensation Insurance
Workers’ compensation is mandatory for labs with employees.
Extraction lab injury risks include:
- Chemical exposure
- Burns
- Explosion-related trauma
- Equipment injuries
- Respiratory issues
7. Business Interruption Insurance
If a fire or explosion forces shutdown, business interruption coverage can protect:
- Lost income
- Payroll
- Rent or mortgage payments
- Loan obligations
- Regulatory restart delays
Extraction labs often require extended restoration periods.
8. Pollution & Environmental Liability
Extraction labs may need environmental coverage for:
- Chemical spills
- Solvent leaks
- Environmental contamination
Standard property policies exclude pollution-related losses.
Major Risks Faced by Cannabis Extraction Labs
1. Fire and Explosion
Solvent ignition is the most catastrophic risk in extraction operations.
2. Equipment Failure
High-pressure systems are costly and complex to repair.
3. Regulatory Shutdowns
Non-compliance can halt operations for extended periods.
4. Inventory Loss
Damaged extracts often cannot be salvaged.
5. Employee Injury
Severe injuries can lead to costly claims and investigations.
Insurance Underwriting Requirements for Extraction Labs
Insurers require strict safety controls before offering coverage.
Common Underwriting Requirements
- Explosion-proof rooms
- Class I, Division 1 electrical compliance
- Fire-rated construction
- Certified extraction equipment
- Proper ventilation systems
- Gas detection and alarm systems
- Standard operating procedures (SOPs)
- Employee training documentation
Labs without these controls may be declined entirely.
How Much Does Cannabis Extraction Lab Insurance Cost?
Extraction labs are among the most expensive cannabis operations to insure.
Typical Annual Premium Ranges
- Small labs: $25,000 – $75,000+
- Mid-size labs: $75,000 – $200,000+
- Large or BHO-focused labs: $200,000 – $500,000+
Pricing depends on:
- Extraction method
- Facility design
- Equipment value
- Security measures
- Claims history
- State regulatory environment
Common Insurance Mistakes Extraction Labs Make
1. Assuming Property Insurance Covers Equipment Failure
It does not without equipment breakdown coverage.
2. Underinsuring Inventory
Peak production periods must be insured.
3. Using Non-Compliant Facilities
Non-code-compliant buildings are often uninsurable.
4. Skipping Pollution Coverage
Solvent incidents can trigger environmental claims.
5. Not Updating Coverage After Expansion
New equipment increases exposure.
How to File an Insurance Claim After an Extraction Lab Loss
Step 1: Secure the Facility
Ensure safety before documentation.
Step 2: Notify Insurers Immediately
Delays can impact coverage.
Step 3: Preserve Evidence
Do not discard damaged equipment without approval.
Step 4: Provide Documentation
- Maintenance logs
- Equipment specs
- Training records
- Security footage
Step 5: Cooperate With Adjusters
Extraction claims often involve specialists.
Frequently Asked Questions
Are BHO labs insurable?
Yes, but with limited carriers and strict requirements.
Is equipment breakdown insurance required?
Practically yes—most losses stem from equipment failure.
Does product liability apply to wholesale labs?
Yes.
Can labs insure solvents?
Sometimes, with strict limits and storage controls.
What happens if my lab is shut down by regulators?
Regulatory shutdowns are typically excluded.
How The MHP Group Helps Cannabis Extraction Labs Get Insured
The MHP Group specializes in high-risk cannabis insurance and understands the complex operational and regulatory challenges extraction labs face.
We help extraction labs:
- Secure cannabis-compliant property insurance
- Structure equipment breakdown and pollution coverage
- Meet underwriting and safety requirements
- Navigate carrier inspections
- Maintain compliance with state regulations
Our expertise allows labs to operate confidently—even in the most challenging insurance markets.
Request a Cannabis Extraction Lab Insurance Quote
If you operate a cannabis extraction lab, specialized insurance is essential to protect your facility, employees, and products.