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Insuring Weed - Inside the Burgeoning World of Cannabis Insurance

Can you insure you cannabis crop against fire and weather? What about theft?

Posted by:
BehindTheWaves on Friday Nov 13, 2020

Inside the Burgeoning World of Cannabis Insurance

cannabis insurance

The exponential growth of the cannabis industry has opened the eyes of many to the enormous possibilities that can be harnessed in the industry. While some sectors are already yielding maximum returns, some are yet to live up to their potential.

One of the sectors of the industry that hasn't fully blossomed is the insurance sector. The world of cannabis insurance has been underutilized majorly because of the legal issues looming over the sector. However, recently cannabis insurance has been showing signs of huge growth potential and a lot of experts are leaning towards the sector being the next big thing in the cannabis industry.

Just how much of an impact can the growth of cannabis insurance have on the industry? What does this mean for regular cannabis users and investors? These and lots more will be talked about in this article. I'll be drilling down on all things cannabis insurance and how its growth can help the cannabis industry.

A closer look at the Cannabis Industry and Insurance

Max Carter, CEO of New Dawn Risk calls the cannabis industry a “huge market with enormous potential with legal cannabis sales projected to rise to $40 billion by 2025”. The legalization of cannabis for recreational and medical use in several states has been revolutionary. The impact this has had on the growth of the industry over the past couple of years cannot be overemphasized. The legal cannabis market in a lot of states has skyrocketed beyond what most people thought possible.

More players and stakeholders are coming into the industry bringing about growth and expansion. This growth has translated into a huge surge in sales of cannabis products, more legal dispensaries, and profits for cannabis companies.  But while most sectors of the industry are thriving, why isn't this the case for cannabis insurance?

The cannabis industry much like every other booming industry out there has several players and drivers. The cannabis industry is a giant field so there are a lot of holes that need filling. A lot of industries like the beauty industry, medical industry, etc have been taken full advantage of cannabis upward trajectory; filling the needs of cannabis consumers while coming up with several innovative ideas in their various sectors. Sadly, the same can't be said of the cannabis insurance sector. Presently, a lot of insurers are missing out on the vast opportunities in that sector of the cannabis industry. The cannabis world is on its way up and smart entrepreneurs and business owners should be looking for ways to jump on the train while they still can.

A detailed analysis of Cannabis Insurance

The world of cannabis insurance is one that many insurers are wary of jumping into despite the obvious potential.  A. M. Best's report “Cannabis: New opportunities for insurers but with burgeoning risks” fully talks about the situation. The report explains the challenging environment that the cannabis industry poses for insurers. The major stumbling block is the stance of the federal government on cannabis. Despite the growing acceptance being enjoyed by cannabis in several states, it is still illegal federally and this creates a bit of a bind for many insurers particularly property and casualty insurers.

A New Dawn Risk reported that about $1 million annual premiums will be paid by the US cannabis industry if they were insured to levels normal to other businesses. However, the present reality of cannabis insurance is that there is a limited number of insurers and limited quality. It is presently hard for most cannabis businesses to get quality coverage at reasonable prices. In comparison to the coverage being offered, the prices for insuring cannabis businesses are too high. The fact that there is a limited number of suppliers in the cannabis insurance market also worsens the situation.

If fully utilized, cannabis insurance can cover a wide range of risks that applies to a vast number of players and sectors in the industry. These sectors include cultivations, dispensaries,  retailers, distributors, infused products, and property owners.

Cannabis companies face first-party risks that majorly arise from property damage and theft. One good example is the wildfires in California. The fires had a huge impact on both the razed cannabis lands, the plants involved, and subsequent operations that depended on those plants. For cannabis farmers affected by the fire, a good insurance policy would have been much appreciated.

The risks and litigations of cannabis insurance also include product liability claims, insurer liability, and other traditional risks. All these show that there's a possibility for normalcy for insurers in the cannabis industry.

The current State of Cannabis Insurance

The current state of cannabis insurance is shameful. It offers cannabis businesses little coverage against threats. This was evident with the way the devastating California fires that razed down a lot of cannabis lands was handled. Another event that has exposed the financial frailties of many cannabis firms has been the covid-19 pandemic. Max Carter explains that the pandemic will make insurers tighten their terms thereby putting cannabis producers in tougher situations. This invariably becomes a problem for cannabis firms with important insurance needs.

A. M. Best carefully explained the limited coverage offered by the basic policies of most insurers. The commercial general liability lies between $1 million per occurrence and $2 million aggregate. Likewise, property liability and product liability lies between $1 million per occurrence and $2 million aggregate. This clearly shows that the present insurers in the industry are too cautious. The limits being offered are far from enough for most cannabis businesses. It also indicates that there are big limits to the coverage available to cannabis problems which is a big problem. The shared limits between general liability and product liability is a huge disservice to cannabis firms.

What all these policies show is that insurers have assessed the risks in cannabis insurance and have resorted not to go all-in. In fact, some of the policies offered by insurance companies are non-cannabis-specific. The policy on product coverage for cannabis companies is a good example. It is often offered based on a claim only and not by occurrence.

What the Future holds for Cannabis Insurance

While the current state of cannabis insurance is nothing to write home about, its future is a different story.The American Association of Insurance Services created a Cannabis Business Owners Policy form for cannabis businesses. This form is similar to that of the Insurance Service Office but more cannabis-specific. The CannaBOP is tailored to take into consideration the peculiarities of cannabis businesses and the industry. The CannaBOP policy has already been approved in California in 2018 and Colorado in 2019. This policy will go a along way in regulating cannabis insurance and giving necessary coverage to cannabis companies.

Although much is still needed to fully take cannabis insurance to where it needs to be, policies like the CannaBOP shows we're on the right track. Hopefully, in the not so distant future cannabis businesses will be able to enjoy the full benefits of efficient cannabis insurance.








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