Cannabis companies in the US often struggle to find the same slew of insurance products that many other developed industries have available to them today. As an underserved market segment, these businesses rely on insurance professionals who can provide their clients with expertise and the coverage solutions that are right for them.
During a panel at Insurance Business America’s Cannabis Cover Masterclass in Boston on June 10, leaders in the cannabis insurance space will shed some light on the inner workings of cannabis manufacturers, retailers, and dispensaries, and explain where risk lies as well as what coverage is needed. The Cannabis Cover Masterclass in Denver and Los Angeles, now being held in June 2020, will have similar panels.
Education around coverage for cannabis companies is crucial considering some of the mistakes that these clients can make when purchasing insurance, which includes not segregating their coverage lines.
“They might own real estate and try to insure everything under one policy through their traditional real estate coverage for their general liability needs,” said Rich Vazquez (pictured above), managing director at Hotaling Insurance Services and a speaker at the Cannabis Cover Masterclass in Boston. “They should speak with their attorney so that they can create a real estate entity and more importantly a cannabis entity to segregate those risks, because why would you want to have exclusions on traditional real estate when you could prevent that?”
Another potential stumbling block is getting the right coverage because many carriers have specific focuses, such as cannabis dispensaries or manufacturers.
“People have found themselves in positions where they have coverage, but with a carrier that is not focused in their area,” said TJ Riley (pictured below), financial advisor and insurance specialist at Empire Wealth Strategies and a speaker at the Cannabis Cover Masterclass in Boston. “That comes with exclusions because those carriers are not equipped to take on that risk even though they’re willing to underwrite it.”
This situation also creates a false sense of security for cannabis insureds since they might think they have coverage, but their policy has serious exclusions. In fact, Riley has seen clients who have exclusions on their policy that are directly related to their day-to-day operations, which creates a risk in and of itself because if something does happen, that company doesn’t actually have insurance coverage, despite paying all these premiums.
In terms of the coverages that cannabis clients need, depending on the type of operation these can include product recall, as well as transportation coverage to protect loss when products are going to and from their destination.
“A lot of times, they hire private security and transportation companies thinking that those companies have adequate insurance coverage and they might, but only for a certain limit,” explained Vazquez. “It might not exceed the cost of the vehicle, so if they’re using an $85,000 or $100,000 vehicle, it might have a cap on the amount of the coverage or it might be up to a certain weight limit because sometimes the policies will reflect coverage for weight. Then inside of that cargo, you might have merchandise that is 10, 20, or 30x the value of what their cap is at so that can cause an issue.”
Nonetheless, one of the toughest parts about being a cannabis company and getting insurance is that there are so few insurance carriers willing to underwrite these risks. While Riley believes this will change over time, options continue to be limited.
“It’s not like you can call Travelers or Chubb or any of the big insurance carriers that do property and casualty, and say, ‘Hey, I’m a cannabis company. I do X, Y and Z cannabis.’ It’s also not like going on Google and finding a quick quote,” he said. “There are so few carriers willing to underwrite [cannabis] that these companies will take whatever quote they get first because they see it as insurance coverage, but not because it’s the right coverage.”
To learn more about what cannabis clients need in their coverage, register for the Cannabis Cover Masterclass in Boston on June 10. Insurance Business America will also hold its Cannabis Cover Masterclass in Denver on June 25 and Los Angeles on June 03.