Risk programs and Insurance programs for the marijuana industry are new, and face several unique challenges. However, they are fundamentally similar to other industries in many ways, including the overall risk view:
- First party coverage for their facilities, including buildings and contents, are similar to many other properties, albeit with unique characteristics. Safeguards we are already familiar with, such as sprinklers and robust security systems, are required in this business.
- Marine insurance is what protects product that moves around, thus an integral part of the overall risk picture for any business that manufactures (or grows, as the case may be) a product, then transports it to distributors. As with other businesses that make or improve a product at one location and sell it at another, the cannabis business does exactly the same; transportation needs to be insured as well.
- Third-party coverage – lawsuits - will be similar to alcohol: with extremely restrictive coverage. The insurance industry provides limited protection for “products liability” for the alcohol and tobacco industries, so anticipate the insurance market to leave this exposure squarely on the industry. Don’t expect insurance companies to take this risk off the table. Having good controls in place to ensure quality is one of the allures of legal marijuana for consumers. It makes sense that the industry controlling the production should take a greater degree of responsibility for its use (or misuse).
Marijuana related businesses are unique in other ways:
- Some carriers have taken the stand that because it’s illegal under federal law, they will not insure any related businesses. Thus the market is limited for cannabis-related property, marine, and liability. That said, Lloyds of London won't provide liability insurance but does provide some of the "marine" (transportation) risks. Work with experts at Gordon Atlantic who have cultivated relationships with carriers already working in Colorado and California markets.
- There is political risk: the Trump administration is taking a stronger enforcement stand on existing laws than the Obama administration did. Political risk is a consideration often made by big multinationals when assessing a new market and/or developing markets; with pot, it’s a risk right here in the US because of conflicting laws and selective enforcement.
- Transportation poses a greater theft exposure as it relates to the cannabis industry as compared to other industries. Items that “fell off a truck” provide a black market that makes hijacking consumer goods attractive to crime groups. Marijuana is even more attractive as it is an easier product for crime enterprises to move quickly. As a result, greater security, including armored vehicles, chain of possession documentation, and other controls will be required during the transportation leg.
- This is a cash only business. Banks operating across state lines won’t accept cannabis-related accounts because of federal laws. Some local banks will permit cash deposits, after which paying electronically or by check, the lifeblood of other commerce, becomes possible. Large cash holdings still pose a problem for businesses operating in the Massachusetts market, so coverage, when available, will require significantly higher levels of security than businesses with little cash on premises.
A closing word about insurer defense. In Colorado, an insurance company tried to deny a claim on a cannabis operation since the business was involved in “illegal activity.” The business successfully sued, as the judge ruled the insurance company knew exactly what kind of policy they were entering into at time of binding, so claiming "illegality" didn’t fly. With that lawsuit on record, we don’t expect other carriers to try this line of denial.
The new marijuana business in Massachusetts is evolving, and many risks remain exposed. But with that said, when viewing through the same lens of risk as other businesses the challenges and insurance solutions become clearer. Cannabis business insurance inherently has its own needs. Working with veterans of risk for businesses at Gordon Atlantic Insurance when developing an insurance program for your cannabis business will provide you access to relevant carriers and insight into your range of exposures and how they can best be covered. Call us toll free at 800-649-3252 to discuss your scenario. Prefer to talk versus type? Click below for a return email or phone call.