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Matt Engle
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Insurers Must Play Catch-Up to Meet Cannabis Industry Needs

By Matt Engle
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Matt Engle

As the cannabis industry continues to grow, demand for insurance products is also increasing. While insurers have been cautious about entering a market that carries the stigma of a Schedule I drug, the cannabis industry is clamoring for insurance coverage options tailored to meet the needs of key players— distributors, growers, processors and retail dispensaries.

The escalating need for insurance products tailored to these cannabis business sectors has not expedited an increase in coverage offerings. The slow entry of insurance carriers into the cannabis sector can be tied to a reluctance to insure an industry with emerging and often unknown risks. This will begin to change as more information becomes available on what loss ratio trends look like in the cannabis industry.

For now, there is a wait-and-see stance held by insurance carriers. This presents a major concern for cannabis-related businesses that are subject to risk at every stage of the supply chain, with particular exposure for theft, general liability, crop loss, and product liability.some degree of crime and theft coverage is needed for these enterprises to help manage the risks associated with a cash-based business

Theft

For cannabis companies, the use of paper currency is a huge part of their risk exposure. Federal banking regulations have limited these businesses to dealing mostly in cash, which makes them a prime target for crime and fraud. Currently, only one carrier will insure coverage for cash and theft risk, and the policy is limited to $1 million for most risks. This is inadequate coverage since many operators have more than that amount on-site.

In states with legislation legalizing cannabis, the cannabis sector will be able to move away from operating in cash if Congress passes the Secure and Fair Enforcement (SAFE) Banking Act, which would protect financial institutions from liability for federal prosecution that could arise from servicing cannabis-related businesses authorized under state law. Until banking regulations give the cannabis industry the ability to operate as legitimate businesses with the stability and safety that would deter criminal activity, some degree of crime and theft coverage is needed for these enterprises to help manage the risks associated with a cash-based business.

General Liability

Cannabis-related businesses need the same general liability coverage as other businesses to protect their premises and operations from lawsuits involving public contact. However, standard general liability policies—which exclude Schedule I substances from coverage—were not created with cannabis businesses in mind. It is still difficult for these businesses to obtain adequate general liability as a result of the legal uncertainty associated with the industry.

Product Liability

Product liability exposures for cannabis businesses encompass a wide range of areas, including edibles, vaporizers, pesticides, mold/fungus, misrepresentation, label claims, breach of warranty, deceptive practices, and failure to warn.

A major area of exposure concerns accidents resulting from impairment. A cannabis cultivator, processor, distributor, or retailer potentially may be considered liable in the event a product defect results in injury after reasonable use or when label defects fail to warn users that a product may have psychoactive effects.

Another area of risk exposure involves products that contain THC, the psychoactive compound that gives cannabis users a high. As the number of THC-containing products such as edibles and tinctures increases, so does the potential exposure to product liability claims for manufacturers and retailers.

The California Cannabis Track-and-Trace (CCTT) system also has implications for product liability. The CCTT is a statewide system used to record the inventory and movement of cannabis and related products through the commercial supply chain. All state cannabis licensees, including those with licenses for cultivation, manufacturing, retail, distribution, testing labs and microbusinesses, are required to use this system. The product liability impact lies in its capacity to determine responsibility along the supply chain from seed to sale.

For example, if a plastic vape pen explodes, a product liability lawsuit could have repercussions for many touch points across the supply chain beyond the manufacturer of the pen–all of which can be identified through CCTT. Entities that touch cannabis products such as soil suppliers or delivery persons also have product liability risk exposure. Personal injury attorneys can find incident-related parties easily and determine liability. This makes it particularly important to add these parties to the policy as additional insureds to help reduce claims exposure.

Crop Loss

Another area of concern for risk exposure is crop loss. Crop insurance is generally hard to obtain due to the significantly different nature of cannabis crops compared to traditional crops like corn or soybeans.

Fires in Sonoma County devastated cannabis crops in Northern California back in 2017.

An indoor crop insurance policy covers cultivators when there is loss resulting from threats such as fire, theft, and sprinkler leakage. However, crop insurance policies generally do not cover losses resulting from mold, rot, disease, changes in climate, or fertilization issues. Many growers forgo this coverage and instead elect to absorb losses and regrow their crops.

Outdoor crop coverage is generally unavailable, or the cost is prohibitive. Any potential for writing outdoor crop insurance for the cannabis industry essentially disappeared as a result of the recent wildfires in California. These devastating fires highlighted the pressing need for property damage and business interruption coverage for growers and dispensaries and other downstream businesses whose supply was disrupted. This lack of available outdoor crop insurance is one of the more notable gaps in available cannabis business insurance coverage.

While cannabis businesses operating in states that have legalized medical and/or recreational cannabis use have challenges getting adequate insurance coverage, there is some good news on the insurance front for those in California. Last year, California’s insurance commissioner announced approval for carriers to offer insurance coverage specifically to cannabis businesses. The state also approved a cannabis business-owners policy (CannaBOP) program that provides a package policy containing both property and liability coverage for qualifying dispensaries, distributors, manufacturers, processors and storage facilities. Colorado is on the verge of being the second state to approve its version of a CannaBOP program.

While more insurance carriers are beginning to write cannabis coverage, the limited insurance options and policies with restrictive plans currently offered todaydo not meet the needs of the cannabis industry. Insurers must catch up to the coverage requirements of this sector by offering more options tailored to growers, retail dispensaries, processors and distributors with better terms and better pricing.

German Public Health Insurer Takes First Look at Cannabis Coverage

By Marguerite Arnold
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Techniker Krankenkassen (or TK as it is also frequently referred to) is one of Germany’s largest public or so-called “statutory” health insurance companies. It is companies like TK that provide health insurance to 90% of the German population.

TK is also on the front lines of the medical cannabis discussion. In fact, TK, along with other public health insurers AOK and Barmer, have processed the most cannabis prescriptions of all insurers so far in the first year after the law change. There are now approximately 15,000 patients who have received both a proper prescription and insurance approval coverage. That number is also up 5,000 since the beginning of just this year.

In a fascinating first look at the emerging medical market in Germany, TK, in association with the University of Bremen, has produced essentially the first accessible report on approvals, and patient demographics for this highly stigmatized drug.

Because it is in German, but also contains information critical to English-speaking audiences in countries where the medical issue is being approached more haphazardly (see the U.S. and Canada), Cannabis Industry Journal is providing a brief summary of the most important takeaways from TK’s Cannabis Report.

Patient demographics from the report

Most Patients Are Women

This is not exactly surprising in a system where symptomology rather than ability to pay is the driver of authorizations and care. This is also exactly the opposite trend when it comes to gender at least, that emerged in Colorado on the path to medical legalization circa 2010-2014. While chronic pain is still the most common reason for dispensation, the drug is going mostly to women, not men, in their forties, fifties and sixties.

Even Chronically Ill Patients Are Still not Getting Covered

This data is super interesting on the ground for both advocates and those who are now pushing forward on “doctor education” efforts that are springing up everywhere. The only condition for which cannabis was approved 100% was for patients suffering from terminal cancer pain from tumours. In other words, they were also either in hospice or hospital where this kind of drug can be expedited and approved quickly. Other conditions for which the drug was approved were both at far lower rates than might have been expected (see only a 70% approval rate for Epilepsy and a 33% approval rate for Depression).

Conditions and degrees of coverage chart from the report

Expect approval rates to change, particularly for established conditions where the drug clearly helps patients, even if there are still questions about dosing and which form of cannabis works best, along with improved research, data and even patient on boarding.

Also expect interesting data to come out of this market for patients with ADHD (or ADHS).

Imported Cannabis Is Very Expensive

A table showing the different medicines prescribed in Germany

TK and other public health insurers are also on the front lines of another issue not seen in any other legalizing cannabis country at the moment. An eye-wateringly high cost per patient. The biggest reason? Most of the medical cannabis in the market is being imported. This will change when more cannabis begins to enter the market from other EU countries (see Spain, the Baltics and Greece) and, yes, no matter how many elements of the German government are still fighting this one when it begins to be cultivated auf Deutschland.

Most German Patients Are Still Only Getting Dronabinol

If there was one thing that foreign investors should take a look at, it is this. One year after legalization, just over 1/3 of those who actually qualify for “medical cannabis” are in fact getting whole plant medication or a derivative (like Sativex).

This means only one thing. The market is continuing to grow exponentially over at least the next five to ten years.

piechart
Most German Patients Are Still Only Getting Dronabinol
photo of outdoor grow operation

How to Reduce Mold & Contaminants in Indoor, Greenhouse and Outdoor Grows

By Ketch DeGabrielle
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photo of outdoor grow operation

Controlling your grow environment doesn’t start when you germinate your first seeds, it starts before you build your grow. There are steps you can take that will have a significant impact on mold growth and contamination, and these will vary based on the grow environment you choose.

Below is a roadmap to where each grow environment stands in terms of mold and contamination risk, and simple steps you can take to mitigate these factors.

Outdoor

The benefits of an outdoor grow are significant – using natural sunlight to grow plants is both inexpensive and environmentally sound. However, it allows the least amount of control and makes plants susceptible to weather conditions and outdoor contaminants including dust, wind, rain and insects. Depending on humidity and precipitation levels, mold can be a big issue as well.

Outdoor growing has obvious benefits, such as natural sunlight, but may also require extra steps to prevent contamination

When selecting an outdoor area for a cannabis farm, there are two important factors to consider: location and neighboring farmland. Geographical environments and sub-climates vary and once you have purchased land, you are committed, so be sure to consider these factors prior to purchase.

While arid desert climates have abundant sunlight and long growing seasons, flat, dry lands are subject to dust-storms, flash floods and exceedingly high winds that can damage crops. Conversely, more protected areas often have high humidity and rainfall late in the season, which can create huge issues with bud rot and mold. Neighboring farms also have an impact on your grow, so be sure to find out what they cultivate, what they spray, their harvest schedule and how they run their operation. Large farming equipment kicks up a lot of contaminant-laden dust and can damage crops by displacing insects to your farm if they harvest before you. Pesticide drift is also a major issue as even tiny amounts from a neighbor’s farm can cause your crops to fail testing, depending on what state you are in.

With outdoor grow environments always at the mercy of Mother Nature, any cultivator is wise to control contamination potential on the ground. Cover soil and protect your crop by planting cover crops and laying plastic mulch on as much ground as reasonable. In many cases it makes sense to irrigate uncultivated parts of your farm just to keep dust down.

Greenhouse

Greenhouses are the future of cannabis cultivation. They allow growers to capture the full spectrum and power of the sun while lessening environmental impact and operating expenses, while still being able to precisely control the environment to grow great cannabis. With recent advancements in greenhouse technology such as automated control systems, positive pressure, geothermal heating or cooling and LED supplemental lighting, greenhouses are the future. However, older or economy greenhouses that take in unfiltered air from outside still have a medium amount of mold and contamination risk.

A greenhouse grow facility

Before building your greenhouse, study the area while taking into account climate, weather conditions and sun exposure. Excessively windy areas can blow in contaminants, and extremely hot climates make cooling the greenhouse interior a challenging and costly endeavor.

There are several simple operational tactics to reduce contaminants in a greenhouse. Add a thrip screen to keep insects out, thoroughly clean pad walls with an oxidizing agent after each cycle, and keep plants at least 10 feet from pad walls. Plan to flip the entire greenhouse at once so that you can clean the greenhouse top to bottom before your next crop. A continuous harvest in your greenhouse allows contaminants to jump from one plant to the next and reduces the ability to control your environment and eliminate problems at the end of a cycle. Lastly, open shade curtains slowly in the morning. This prevents temperature inversion and condensation, which can cause water drops to fall from the ceiling and transfer contaminants onto plants below.

Indoor

An indoor environment offers ultimate control to any grow operation. Cultivators can grow high-quality cannabis with the smallest potential for yeast and mold growth. Unfortunately, indoor environments are extremely expensive, inefficient and environmentally costly.

Talltrees
An indoor cannabis operation set up (Image: Tall Trees LED Company)

With indoor grow environments, keeping mold and contaminants at bay comes down to following a regimented plan that keeps all grow aspects clean and in order. To keep your grow environment clean, change HVAC filters multiple times a month. It’s also important to install HEPA filters and UV lights in HVAC systems to further reduce contamination threats. Clearly mark air returns if they are near the ground and keep those areas free of clutter. They are the lungs of your grow. Also, stop using brooms in the grow space. They stir up a lot of contaminants that have settled to the floor. Instead, use HEPA filter backpack vacuums or install a central vacuum system. Set up a “dirty room” for anything messy on a separate HVAC system, and be sure to thoroughly clean pots after every harvest cycle.

Learn more about reducing mold and contaminants in an indoor or greenhouse grow in another article from our series: 10 Ways to Reduce Mold in Your Grow.

Marguerite Arnold

Mainstream Media Picks Up On Cannabis

By Marguerite Arnold
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Marguerite Arnold

The British online newspaper, The Guardian, has just begun to cover cannabis. The regular feature, part of their “society” section, is clearly attempting to cover cannabis a bit more consistently and regularly as the California rec market begins to gain (legal) steam.

The writer now helmed to lead this effort is Alex Halperin, a business journalist in the U.S., who landed the gig apparently on the success of Weedweek – a highly cryptic weekly summary blog of mostly U.S.-based industry events and updates.How the Guardian will cover the industry and related issues will be interesting to follow.

This is also not The Guardian’s first foray into the topic. The media outlet, which got its start in the 1800’s in Northern England and expanded dramatically to reach a global digital audience over the past decade, has covered cannabis legalization on a fairly regular basis for the last four years. This new focus also comes at an interesting time. Apart from events in the U.S., Canada is moving forward with recreational this summer. And in Europe, the medical discussion continues apace. That said, it appears the Guardian is going to focus on the U.S. market, at least initially.

It will be interesting to see if that focus shifts (and if they allow other journalists outside of the U.S. to participate in the expanded coverage). While California might well be the largest state economy in general, the Canadian market is already larger and more developed, being regulated nationally across multiple provinces.

Another Mainstream Media Cannabis Column?

This is hardly news. The Guardian is actually treading on ground established already by most of the big news and business publications – including niche publications, blogs and of course, the trade press.

How the Guardian will cover the industry and related issues will be interesting to follow.

The purpose of the column apparently is to spark an “adult conversation” about cannabis – and how it is “changing modern life.” The initial focus on the U.S. market (and California in particular) may have seemed to make sense to a media outlet looking for outrageous stories. But as everyone knows, the U.S. is only one market – and further one still without federal protection.

However, the Guardian is also now competing with other business and mainstream publications that are already in this space. Main Street, the online business ‘zine helmed by Jim Cramer, created one of the first mainstream specialty cannabis sections almost four years ago with the coincidence of the Colorado rec market. Other notable publications and media outlets have significantly increased their coverage of cannabis as well. CNN has been reporting consistently on cannabis topics like legalization and U.S. federal reform efforts for some time now. Business Insider and Forbes have covered ongoing and growing investments and the financial side of things for several years. The Denver Post has its own entirely cannabis-focused subsidiary, The Cannabist.

And as public companies, in both the U.S. and elsewhere have begun to move through the legal thickets of legalization, business-focussed journals and blogs are even beginning to cover cannabis stocks. Starting with Motley Fool and Seeking Alpha (although again, most of this coverage is of companies outside the United States). Specialty publications are also of course, flourishing online, particularly with the beginning of an advertising market that is also beginning to establish itself, albeit around some still thorny regulatory issues.

In general, although the Guardian has a reputation as critical of the British monarchy, with strong left-leaning tendencies, its coverage of the industry has been fairly mainstream – so far at least.

Will that begin to change? And what will really be tackled and covered? And while the ostensible focus is what is going on in the world of cannabis in California (and presumably other foreign markets) could the Guardian’s ostensible new feature also be geared to drive reform at home? The U.K. has yet to even approach the topic of criminalization.