From seed to sale, every aspect of the cannabis industry can be insured. And although some policies are pricey, there is coverage available for those who are looking.
Cannabis business insurance as an industry has settled into a steady state. Loss histories have accrued over the decades of various levels of legalization, meaning underwriters have a much better grasp of how to properly price policies.
And though federal legalization continues to make aspects of the insurance industry difficult, creative workarounds have made just about every aspect of insurance possible today.
“The industry is steady, and as new states come online, new opportunities will present themselves,” said Chris Martin from marijuana insurance brokerage Insurance Canopy.
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While pricing of some policies has continued to stay elevated, the more vanilla policies regarding cannabis have seen some premiums come down over the years, Martin said, though delivery and auto continue to be tough areas to insure.
Typical policies in the cannabis space include:
- Auto
- Cargo
- Commercial General Liability
- Commercial Property / Business Interruption / Crime
- Crop
- Cyber
- Directors and Officers (D&O)
- Employment Practices
- On-Premises Consumption
- Products Liability
- Professional / Errors and Omissions
- Recall Coverage
- Workers’ Compensation
On-premises consumption policies make up a field that is particularly emerging and taking shape, especially with hemp-derived seltzers being sold at traditional breweries and bars, even in states without legal recreational use.
Meanwhile, workers’ compensation is one of the thinnest markets with very few providers eager to write policies.
When it comes to insuring dispensaries, the insurance risk profile is very similar to that of any high-value retail operation. Typical policies begin with a broad Business Owners Policy or General Commercial Policy, with an emphasis on liability, premises protection, and theft coverage.
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As a rule, most policies in the cannabis space are being sold on the non-admitted or surplus line markets, meaning costs tend to be higher than they could be if they were sold in a traditional regulated market.
One way for cannabis business owners to keep costs down is to focus on best practices and professional certifications. For example, underwriters tend to favor dispensaries that follow strict operational protocols, such as keeping limited stock on the sales floor and locking the rest in a vault, especially as they are closing for the night. High-quality surveillance and so-called mouse-trap entry systems are becoming the nationwide norm.
Cannabis business insurance challenges
For brokers who are connecting cannabis businesses with insurers, one of the chief frustrations is the nationwide lack of uniformity when it comes to policy language. Policies can differ significantly between insurers, and especially between states.
“Most of my problems come with the wording of the insurance language itself,” said Chantal M. Roberts, CMR Consulting.
To that end, the National Cannabis Industry Association developed a comprehensive Risk Management and Insurance Manual that aims to put some uniformity in the industry. The National Association of Insurance Commissioners also has a Cannabis Working Group to try to help with those best practices on the regulation side.
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Still, the devil is in the details of the individual policies.
“Before they buy a policy, business owners definitely need to look closely at all documents,” Martin said. “Many of them have exclusions and tables and clauses that limit coverage and can really come back to bite you.”
The risks involved in cannabis business insurance have tended to stay the same over the past decade and tend to mirror the losses any other business faces.
“The main claims are fire and theft. We are also seeing a lot of smoke and mold damage affecting the finished product,” Roberts said.
The one place that the industry has put a lot of energy into – and worried about – was product liability. But Martin said that so far, best practices have kept most of those claims at bay, for now.
“We really don’t see any health hazard claims with people getting sick from the product,” Martin said. “When it comes to product liability, everyone has to get everything tested and have certificates of analysis, and so far, product liability has not really been a big loss area.”
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Federal criminalization continues to pose a long-term problem for the insurers, particularly when it comes to premium financing. Without access to the full financial system, creative workarounds have been the rule of the day – along with the high interest rates and fees that come with them.
Many in the industry have been singing the refrain that things will improve once federal legalization happens. Others sarcastically say that federal legalization is about three years away – and always will be.
Until then, cannabis business insurance policies are available, and the market is relatively stable, even if some quirks make certain aspects more expensive than they otherwise might be.
*This article was submitted by a guest contributor. The author is solely responsible for the content.