Insurance Considerations in the Cannabis Space

On Sunday, September 2, 1666, a small bakery in London caught fire and it spread. In two days, the city would burn. The wind would spread into the heart of the city, destroying over 13,000 homes, 80 churches, 40 public halls, and St. Paul’s Cathedral, amongst others. It is estimated that the fire displaced 70,000 of the 80,000 residents in London, and it was because of this incident that property insurance, as we know it, was born.

In today’s world, insurance has a place in almost every industry out there. From the simplest food truck to the biggest conglomerates in the world, insurance is a necessity to do business in the free market. Losses can devastate someone’s entire livelihood, and without the proper coverages, life can change in an instant. Just like it did in London in 1666, one minute everything is fine, the next it’s all over, everything is destroyed, and there is nothing there to save you from financial ruin. Everyone has some sort of insurance, whether it be a simple personal auto policy or a series of commercial policies. It’s a requirement in multiple facets of life.

In that regard, the cannabis industry is no different. If you are vying for licenses, whether it be a vertical integration or a single dispensary, you are going to be required to have insurance. It’s what goes into that insurance that truly makes this different, and if you take the wrong approach, catastrophe lies in the wake.

It hasn’t been since the dot com boom that a product has simply popped up out of nowhere. The insurance industry is based on risk assessment, and without data, it’s very hard to accomplish any of that. The cannabis industry is in the midst of this problem. Regulations surrounding the market have left the majority of carriers out of the space, and the few that have entered are just now beginning to gather their loss data. That leads to some confusion about what is and isn’t covered, and if you don’t do a thorough job of vetting your agent for what is and isn’t covered, you could run into a huge problem when you submit a claim.

It should come as no surprise to anyone that there will be plenty of agents who enter the cannabis market in order to chase the money that comes along with it. That is an age-old issue, and in this industry, it can be a deadly one. It is absolutely pertinent to choose an agent that not only cares about protecting their clients, but also cares about the cannabis industry as a whole. This product is too risky to deal with anything else, and you must be thorough.

The main issues we have run into surround exclusions. Because of the aforementioned novelty of the cannabis market, the information is still limited. Coverages have been dwindled down for a lot of carriers to mitigate their risk, and there could be parts of the policy that render what your needs uncovered. These are called exclusions, and if you have the wrong one, the policy is effectively useless. For example, transportation licensees have an exceptionally hard time when trying to obtain proper coverage. That is because the Cargo/Transportation policies that are used by all normal trucking companies usually have a “Schedule One” Exclusion due to the Interstate Commerce Clause. That exclusion would, in and of itself, cause a claim to be denied if the insured was working with a schedule one substance (i.e. cannabis). There are also awful Heath/Hazard Exclusions that render the policy useless if any substance that could be smoked is involved (again, cannabis and its constituents). Without digging deep into the policy, these things are unknown to the insured.

   

In addition, agents without the proper experience in the cannabis market may not be aware of these exclusions either, and that combination of misinformation can literally ruin a company.

All of these issues stack on top of the fact that this product is worth its weight in gold. The claims surrounding the cannabis market have the potential to be millions and millions of dollars, and licensees are conducting business without having the proper coverage to protect them from suits. That issue needs to be fixed, and in order to do that, we have to educate the industry on the issues surrounding the risk itself, as well as the lack of knowledge by insurance agents and carriers alike.

When you choose your agent, make sure they are experts in all areas. Not just insurance, not just the industry, but cannabis ITSELF. Those are the agents you can trust. Those are the agents that will help protect your livelihood. Those are the agents you want to help grow your growing business.

John Ericson is co-founder of GreenSeed Insurance Services, a locally owned and operated cannabis insurance with over 30 years in the insurance industry. Learn more about GreenSeed at greenseedinsurance.com.

This piece appeared in the January/February issue of Greenway Magazine.