Tag Archives: insure

Risk Management Considerations for Cannabis Retailers in New Jersey

By Eric Schneider
No Comments

Despite the US making cannabis regulations challenging to navigate, the industry is snowballing toward profitability. New Jersey legalized adult use cannabis on April 21 this year. One month earlier, The Garden State began accepting applications for Class 5: Retailers, Dispensing and Delivery.

Although New Jersey isn’t shy about its licensing requirements and standards, many people want to know how retailers can stay in the game for the long run. So, let’s talk about risk management considerations New Jersey retailers need to know.

Top Risks Cannabis Retailers Face in New Jersey

Regardless of what kind of retailer you operate —medical or adult use — it’s critical to know what you’re up against. The following are the most common risks we’ve watched cannabis retailers face daily in New Jersey, making a customized risk management strategy necessary.

Theft

Like other retailers, New Jersey cannabis retailers are vulnerable to theft. Unfortunately, theft can come from various angles, such as in-store, in-transit and insider crime. Besides cannabis retailers typically having a well-stocked inventory, it’s not uncommon for them to have more cash on hand than most other businesses.

Although the SAFE Banking Act could positively impact the cannabis industry, it’s in a notorious stall yet again. Briefly, the SAFE Banking Act would no longer allow financial institutions, such as banks and credit card companies, to refuse to do business with cannabis companies. However, cannabis retailers must operate in a cash-only environment, for now, forcing them to make bank runs multiple times a day. We probably don’t have to explain how enticing a significant inventory and fat bank bags look to criminals.

Cybersecurity

Since the onset of the global health crisis, the cyber liability landscape has nearly spun into a death spiral. In other words, cybercriminals sat on the edge of their seats during the pandemic, waiting to pounce on anything that looked slightly vulnerable. Remote workers, small businesses, and emerging industries were hard-hit.

It’s no surprise that New Jersey cannabis retailers face many cybersecurity risks through their point of sale (POS) systems. Additionally, retailers often gather and store personal information, such as email addresses, credit card numbers, shipping addresses, etc. Hackers and cybercriminals gravitate to this vital data rapidly.

Property Damage

In addition to the risk of theft, as mentioned above, cannabis retailers must protect their property from losses. Without adequate protection, damage to equipment or buildings could add up to high out-of-pocket costs. Consider the damage a weekend office fire or late-night vandalism would cause. If property damage occurs, retailers must figure out how to sustain business operations while recovering from the loss simultaneously. As a result, New Jersey retailers must protect their property and maintain business continuity.

How to Customize a Risk Management Strategy

Watch or listen to any news reports and there’s a decent chance that you’ll feel some slight sense of doom and gloom. And sure, a lot is going wrong in our world; however, that doesn’t need to impact how you perceive your businesses. Instead of casting a massive net over every possible risk that you can imagine, we recommend trying the following 5-step approach. Here’s the gist:

  1. Identify: Pinpoint high-level risks that are specific to the cannabis industry. Then, let the process trickle down to focus on company-specific exposures.
  2. Analyze: Determine how badly a particular risk could harm your retail company. How much will this hurt should the “what-ifs” play out?
  3. Evaluate: Categorize risks according to how risk tolerant your company is. Will you avoid, transfer, mitigate or accept the risk?
  4. Track: Use your history or the stats from a similar retailer to map out how you’ve handled the risk over time. Older retailers have an advantage over younger retailers, of course, but you can still get a feel for your risk management style.
  5. Treat: Make good on your evaluation promises by avoiding, transferring, mitigating, or accepting the various risks you identified.

Recommended Insurance for New Jersey Retailers

Sales totals in the first month of New Jersey’s adult use market

The New Jersey Cannabis Regulatory Commission issued detailed requirements for new cannabis businesses. That said, part of the application requirements considered is the plan for companies to obtain liability insurance. Many new retailers opted for a “letter of commitment” as opposed to a certificate of insurance (COI), stating their plans for obtaining the following coverages:

  • Commercial general liability: Protects cannabis companies against basic business risks.
  • Product liability: Protects against claims alleging your product or service caused injury or damage.
  • Property: Reimburses cannabis companies for direct property losses.
  • Workers’ compensation: Covers employees if they are injured on the job and can no longer work.

In addition to the required insurance coverages, we recommend New Jersey retailers customize their risk management package with these policies:

  • Crime: Protects your cannabis company against specific money theft crimes.
  • Cyber: Protects your cannabis company against damages from specific electronic activities.
  • Directors & officers: Protects corporate directors’ and officers’ personal assets if they are sued.
  • Employment practices liability: Protects cannabis companies against employment-related lawsuits.
  • Professional liability: Protects cannabis companies against lawsuits of inferior work or service.

With more states in the US entering the marketplace soon, New Jersey is doing its fair share of the heavy lifting by spearheading the onboarding process. Remember, doing your due diligence at the start pays off in the long run — New Jersey retailers are proving that. Consider teaming with a commercial insurance broker calibrated to the cannabis industry, so you get the most out of your broker, marketplace and the cannabis industry as a whole.

New Insurance Risks as Cannabis Lounges Open Across the US

By Jason Scheurle
No Comments

In a growing number of communities around the U.S., new cannabis lounges are offering a social setting where guests can openly use cannabis products. Colorado and New Mexico both saw their first cannabis lounges open in April, Michigan’s first cannabis lounge is set to open this summer, and officials in Nevada are currently discussing how the recently approved class of businesses should be regulated. In West Hollywood, California, where the state’s first cannabis lounge opened in 2019, multiple new lounges are now in the works after two years of slowdown due to the pandemic.

The bar-like establishments add a new dimension of potential revenue — and risk — to an industry that is expected to add almost $100 billion to the U.S. economy this year. This new and emerging segment within cannabis isn’t happening in every legal state, but more are starting to enact regulations to provide for some type of on-site consumption.

These new ventures need insurance policies tailored to address the risks of serving cannabis products, which could be looked at similarly to liquor liability for bars and restaurants.

Whether it’s alcohol or cannabis, these products impair people’s judgment, meaning everyone reacts differently to them. But how do you know when to cut someone off?

Cannabis lounges could be held liable & run risk of being sued for overserving

If a cannabis lounge faced a lawsuit alleging that it overserved a patron, leading to a third-party bodily injury, the business’ Commercial General Liability (CGL) Insurance and Products Liability Insurance could potentially cover costs such as legal defense, medical expenses and settlement amounts. Until such a case occurs, it is not yet known how exactly these lawsuits would be covered by insurance.

Because of the short history of cannabis lounges in the U.S., something like this is largely untested, making it hard to speak to exactly how a scenario would play out. Many of the existing cannabis insurance policies are highly exclusionary, meaning it could exclude a loss that is deemed to have arisen out of the use of cannabis.

Recent liquor liability lawsuits have shown the potential for a significant loss is clear. In early April 2022, a $20 million lawsuit was filed against a nightclub in Houston, Texas, alleging it overserved customers and allowed underage drinking, contributing to a drunk driving crash that killed a teenager.

In December 2021, a jury in Texas awarded the family of two drunk driving victims over $301 billion after a lawsuit alleged the driver was overserved at a bar before the accident; though largely symbolic, the settlement marked the largest personal injury award in U.S. history.

The Barbary Coast lounge in San Francisco

With these cannabis lounge establishments more or less encouraging intoxication of patrons on their premises, it’s very similar to a liquor liability type situation. If someone overindulges at a lounge, leaves and causes a crash resulting in injury or death, that could come back to the establishment.

While it remains to be seen how cannabis overserving lawsuits could play out in American courts, it’s worth noting Canada forbids on-site consumption of cannabis products and any loss or damage will not be covered by their insurance policies – despite it being legal country-wide.

Lawsuits possible over product issues, budtender advice

Even cannabis operations that do not allow on-site consumption can face liability related to the products they sell, making Products Liability Insurance and Product Recall Insurance necessary for growers and retailers. They should also consider Employment Practices Liability (EPL) Insurance to cover staffing-related allegations such as discrimination and ask their insurance broker whether budtender liability is included in their CGL Insurance policy.

Budtenders must walk a fine line between giving advice versus general information on products.

Budtenders, or individuals who work at cannabis retailers, are not allowed to offer medical advice to consumers. They must walk a fine line between giving advice versus general information on products. Although we are not aware of lawsuits that have been filed over a budtender’s advice, it would ultimately be up to the courts and lawyers as to how those proceedings would play out.

Budtender liability is not very different from professional liability insurance, and it’s more like an incidental coverage based off the budtender’s informal advice. There are, indeed, insurance carrier partners today that offer that service.

CGL Insurance can also cover in-store slip-and-falls and other third-party injuries and property damage. Because most cannabis retail stores are fairly small, these incidents have been rare, but GCL cannot be overlooked. Businesses must be prepared for anything to happen – and need to know that no risk is too small.

Theft, vandalism among top threats to cannabis businesses

Whether or not a cannabis business includes a lounge for cannabis use, any business in this industry may be more vulnerable to certain risks, including theft and vandalism.

In the U.S., where many cannabis companies operate on a cash-only basis because of banking difficulties tied to recreational products being federally illegal, a recent surge in cannabis shop robberies has led to calls for a new banking bill. Some of these incidents have even turned deadly, including an April 30 dispensary robbery in Los Angeles, California, during which one man was reportedly shot and killed.

Many insurance carriers require retailers to install alarm systems, video monitoring equipment or safes

Large amounts of cash are on-hand daily at these premises, and workers might have to make multiple bank runs throughout the day, leaving a heightened exposure and risk for robberies.

From robberies and vandalism to fires and flooding, Commercial Property Insurance is a key protection for cannabis retailers. Equipment Breakdown Insurance may also be needed, particularly when the stores contain expensive refrigeration equipment. The potential loss is large in this industry, especially at growing facilities, and there’s a lot at stake with such high-value equipment.

Security systems, employee training can help reduce risks

Many insurance carriers require business owners to install alarm systems, video monitoring equipment or safes to help reduce potential property losses, and employees should be trained to use the alarm systems consistently. Policyholders and business owners should also know there is a lot they can do to curb some of the risks, such as businesses doing background checks on every hire and taking steps to ensure they are hiring individuals they can trust.

Installing bars on glass windows and doors is another loss prevention measure that is strongly encouraged because it adds an additional layer of security to get through – it won’t be an easy or quick process to break-in and will trigger the alarm system.

The importance of working with an insurance broker

Working with an insurance broker who is specialized in the cannabis industry can help business owners better explore available coverage options. With cannabis or any type of risk, you should always work with someone who has knowledge and expertise in that area. When you work with someone who knows the ins-and-outs of the regulations, you can have more peace of mind.

You might have a risk warranty that always requires two drivers in that vehicle, or GPS monitoring on the vehicle.

Understanding your policy in its entirety is also essential, as these policies have any number of different limitations and exclusionary forms that could preclude you from collecting if you had not understood and followed the language of the policy.

In a transportation situation, for example, you might have a risk warranty that always requires two drivers in that vehicle, or GPS monitoring on the vehicle. In the event of a claim, if the investigation determines the business did not have those items present at the time of loss, that claim will not be covered.

In a rapidly growing and changing industry, business owners should not underestimate the value of working with a team of insurance experts who keep a close pulse on the quickly evolving industry. Brokers are aware of the different legal environments in each state or even each city or county. Cities and counties can add different levels of compliance matters, so as a buyer, you can be confident that you have the most recent information and are in compliance with state law and any insurance requirements that may be present. Being able to explain the differences between the markets and the coverage options is beneficial to any business owner in this ever-changing industry.

Cannabis Businesses Need D&O Coverage; What Does The Insurance Landscape Look Like?

By Benjamin Sibthorpe
No Comments

Cannabis continues to be a hot sector across the United States; buoyed by its ‘Essential Business’ status during the pandemic, a surge of plant touching and ancillary service providers have set up shop in the past 12 months to capture a share of this burgeoning growth. The cannabis industry is currently the leading job creator in the country, employing almost 430,000 workers according to a recent report from Leafly. Estimates on the overall size of the industry vary depending on the source, but projections of over $100bn in value by 2030 are not uncommon, while M&A activity continues to gather pace after a downturn in 2019. Clearly, investors and the public are bullish on the industry as a segment, with further state legislation to expand the number of adult use and medical markets to come. So why is the directors & officers (D&O) and management liability insurance market not embracing this growth industry?

At its core, a good D&O policy will protect the individual directors, officers and executive teams of companies, including their personal assets, in the event of suits and allegations filed based on their running and oversight of their business. For private companies, this also extends to balance sheet protection and coverage for the entity; for public companies, coverage for securities suits and claims.

The cannabis industry, despite the macro factors propelling its growth, faces numerous challenges when trying to procure D&O insurance. Very few D&O and management liability carriers are willing to entertain cannabis and related risks; even fewer are specialty underwriters willing to provide meaningful, expert coverage which truly addresses the exposures faced by executives and operators in the cannabis industry.

Cannabis D&O premiums can cause sticker shock, typically priced 4 to 10 times higher than non-cannabis businesses. Some operators have an air of invincibility and forego the purchase, believing it is not worth the cost. Meanwhile, the ability to attract and retain talented executives and directors away from other industries typically depends on having this coverage purchased and in place. Yet the outlay can be a burden in an industry which already faces fierce competition for market share, and a disparate tax treatment at a state and federal level.“The value of a D&O policy cannot be overstated.”

Even those carriers and underwriters who do entertain cannabis risks are constantly evaluating the nuances of the space: an ever changing complex state regulatory environment; the relative immaturity of the industry and the hyper-focus on growth; the lack of standardized valuation and accounting; the lack of access to institutional financing; the continued uncertainty of insolvency or restructuring in lieu of federal bankruptcy protections for plant touching companies; the operating inefficiencies for MSOs across state lines and the lack of interstate commerce; in short, the cannabis industry certainly poses its own unique and evolving risks for D&O insurers.

Ultimately the market will continue to evolve for cannabis insureds, as the data matures and the regulatory landscape become clearer. The value of a D&O policy cannot be overstated. Most public companies purchase D&O as a matter of course, but even for private cannabis companies, the right coverage is invaluable. Not having the protection afforded by a D&O policy can be ruinous for a cannabis operator, particularly in a niche area where defending claims and circumstances is complex, time consuming and ultimately expensive – typically much more so than the upfront cost of the D&O policy.

Partnering with the right broker who specializes in both management liability and cannabis is step one to getting the best value coverage. Step two is securing a policy from a dedicated market with underwriters who truly understand the cannabis space and tailor coverage to protect the executives, boards and companies that are driving this exciting growth industry.

Top Five Insurances Cannabis Businesses Need in 2022

By Eric Rahn
No Comments

Cannabis remains one of the fastest growing industries with no signs of slowing down. According to a recent article in Forbes Magazine, the legal cannabis market is poised to grow 20-30% per year to the tune of $50 billion by 2026.[1]With great opportunity comes numerous risks. Claims and lawsuits against cannabis businesses are increasing in frequency and magnitude. As an insurance broker who specializes in the cannabis industry and works with a wide variety of cannabis, hemp and CBD businesses in every state where cannabis laws are established, our recent analysis has unveiled the top five insurances your cannabis business needs in 2022.

  1. General Liability

General liability is the most essential coverage your business needs to protect you from a variety of claims including personal injury, bodily harm, property damage and other situations that may arise including slander, libel, copyright infringement and more.

Since general liability is not always required to obtain a cannabis license, many businesses are tempted to forgo the expense. This is one of the biggest mistakes you can make as one single lawsuit has the potential to cripple your business. With a comprehensive, cannabis-specific general liability insurance policy in place, your insurance company, not you, will pay medical expenses and property damage claims from third parties, in addition to hefty legal fees and fines.

  1. Property & Casualty Insurance
P&C insurance is an important part of your security and protection plan.

If you own a dispensary, grow operation, warehouse, testing facility or any other type of cannabis business with inventory, you need to protect your assets from potential loss or damage. Property & casualty (P&C) insurance safeguards your business against common and costly perils such as a fire, lightning, explosion/implosion, and even less common – but still possible – risks like riots, strikes and terrorism.

P&C insurance not only pays for damages to your business property resulting from a covered loss but it also covers the contents within your place of business, including office furniture, computers, inventory and other assets essential to your business operations. There are policies that will also provide the funds required to keep your business afloat until the damages from the loss are repaired. Any cannabis business with a physical property and location(s) should have a comprehensive property and casualty P&C policy in place.

  1. Product Liability/Product Recall

Recently, we’ve seen a dramatic influx of product liability claims, and in particular, product recalls. Lawsuits have ranged from a single plaintiff seeking damages for personal injuries to class action lawsuits where a defective product is tied to an entire group of claimants.

control the room environment
Preventing contamination can save a business from extremely costly recalls. Having the right insurance can prevent a recall from becoming costly in the first place.

As a cannabis business owner, you can be sued for any damage resulting from products that cause harm to others, this includes false advertising, mislabeled or defective products. No matter where you are in the supply chain, your business could be held liable. The process of defending litigation or reaching a settlement agreement can completely drain a company’s resources. You’ll have to deal with regulatory compliance, producing and distributing product warnings, recalling products, claim investigation, product testing and additional risk assessment.

Product liability insurance is often overlooked, especially by small to mid-size businesses. However, your cannabis business needs this type of coverage if you sell any goods or products that end up in the hands of the public. In fact, your business may be contractually obligated to have product liability insurance. One such lawsuit is enough to fold a business due to costly legal fees and fines, as well reputation damage beyond repair.

Product liability insurance is designed to protect your cannabis company from claims that can happen anywhere along the supply chain, including product contamination, mislabeled products, false advertising or defective products. With proper coverage, your insurance company will pay for damages and legal expenses if you are sued, up to your policy limits. Your product liability policy will also cover any medical expenses for those who are harmed by your business. Making sure your insurance policy includes product liability insurance should be a top priority in 2022.

  1. Cyber Defense/Data Breach Insurance

Cyber fraud and data breaches are two of the greatest risks facing cannabis companies in 2022. With so much cash pouring into the space, cannabis businesses of all sizes are bulls-eye targets for cybercriminals. Even the smallest of cannabis businesses are at risk of data breaches because they are part of a larger interconnected network of seed to sale vendors. These types of crimes can have detrimental effects on your business in numerous ways. In the case of a data breach resulting in the disclosure of a third party’s private information, the third party could sue your business. The SEC could also find your company negligent in cyber fraud cases and impose significant fines.

By forgoing cyber defense & data breach insurance, your business will be solely responsible for expensive legal bills, significant revenue losses and hefty fines and penalties from regulators. Cyber defense & data breach insurance is a must-have coverage in 2022, and beyond, to protect your business from cybercrimes.

  1. Directors & Officers Insurance

If you are looking to secure venture capital or funding from investors in 2022, and/or attract and retain qualified leadership, you need directors & officers (D&O) Insurance. D&O protects corporate directors and officers, as well as their spouses and estates, from being personally liable in the event your company is sued by investors, employees, vendors, competitors, customers, or other parties, for actual or alleged wrongful acts in managing the company. In the event of litigation, your D&O insurance will cover legal fees, fines, settlements and other expensive costs.

D&O is often the most overlooked coverage because many cannabis businesses are independently run, and no one foresees the potential for operational failures and mismanagement. However, businesses with any sort of vision for growth should make D&O a top priority. It not only protects your current executives and board members but is critical in attracting leading talent in the space, as well as drawing in new investors to scale up your business. In fact, we’re seeing more prospective investors and board members requiring D&O insurance prior to engaging with a company to ensure they are fully protected in the event of litigation.

When it comes to mitigating risk in this business, the stakes are sky high. Cannabis companies that have not incorporated risk management into their business/operational plans will need to in 2022. It all boils down to the THREE P’s: being “Proactive, Prepared and Protected.”

2022 Cannabis Industry Outlook: Your Business’ Future Depends on its Risk Management

Cannabis risks have always outpaced the availability of insurance, in large part because of its status as a federally illegal substance and the dangers in extraction and production. But it now shares many of the same risks as other industries — catastrophic crop damage, cyber risk and a shortage of skilled workers.

With legalization becoming more common, the industry is positioned for enormous growth despite these challenges. However, enterprises that will benefit the most are those best positioned to manage risk.

Here are four obstacles to growth in the industry in 2022 and how enterprises can combat them:

Cybercrime will be the top manufacturing risk

Both cybercrime and cannabis have experienced major booms since the start of the COVID-19 pandemic. Cannabis companies watched as healthcare and pharmaceutical organizations were hit hard by cybercriminals in 2020, and now the threat could be headed their way.

For retailers, the vulnerability often lies in their POS tech

For cannabis retailers, the vulnerability lies in their dependence on point-of-sale tech, while the threat for cultivators exists within their strong use of intelligent automation to manage the grow environment. Across the industry, the lack of sophisticated IT security systems is like a beacon for bad actors.

Nearly 60% of cannabis businesses say they haven’t taken the necessary steps to prevent cyberattack, but the winds are changing. Due to these concerns and the growing attention on cybercrime in the industry, cyber coverage is expected to rise 30% or more in 2022, which puts the onus on risk management practices that will help prevent cyberattacks and ensure coverage from insurers concerned about risk.

Barriers to business growth may result in more M&A

As of summer 2021, 18 U.S. states have legalized adult use and 37 states have legalized medical cannabis.

While this is opening opportunities for many cannabis businesses, the U.S. remains a complicated market. Federal regulations continue to hinder even more cannabis industry growth by restricting lending to the industry from traditional banking and financial institutions. While it’s not illegal to do service with the cannabis industry, many institutions stay away due to its high risk.

Smaller cannabis companies are impacted most heavily by this barrier and await passage of the Secure and Fair Enforcement (SAFE) Banking and Clarifying Law Around Insurance of Marijuana (CLAIM) Acts to allow easier access to capital. Together, these two acts of legislation will provide guidelines on how to work lawfully with legal cannabis businesses and prohibit penalizing or discouraging institutions from working with them.

In the meantime, M&A activity is expected to increase in 2022 as large cannabis businesses have the means to access capital and acquire these small companies. This includes Canadian cannabis companies, unburdened by federal restrictions, who are expected to increase their cross-border mergers and acquisitions.

Severe weather isn’t easing up

Extreme natural catastrophes are no longer rare, and they have only added greater uncertainty to the industry which has always had difficulties securing crop insurance.

NASA’s Aqua satellite took this picture of the smoke over California in 2017
Photo: NASA

For example, policies that transfer wind and hurricane damage risk in Florida or wildfire and smoke taint in California are virtually non-existent for cannabis — and for outdoor growers, a single weather event can wipe out an entire crop with no recourse.

One possible solution for cannabis companies that cannot secure traditional crop insurance is parametric insurance, which pays out in full when a weather element reaches a threshold, regardless of the actual damage.

Growers with indoor operations, or those considering moving that way, must cope with energy conservation initiatives. Measures like the one in California that would require indoor growers to use LED lighting by 2023 could cost the industry millions and present a direct threat to small operations’ viability. This makes it important for cannabis producers to institute conservation measures and undertake risk mitigation measures like improved safety measures at indoor growth facilities ahead of 2022 renewals.

As a continually emerging market, cannabis risks are great. Adding to these pressures is the growing impacts of climate change and cybercrime raising the bar even further. Growth for the cannabis industry in 2022 will depend upon strong risk management solutions and the ability for cannabis companies to implement them.

HUB International Announces New Cannabis Specialty Leader

By Cannabis Industry Journal Staff
No Comments

HUB International, a leading insurance brokerage serving the cannabis industry, just announced today their new U.S. cannabis specialty leader. Bradley Rutt, senior vice president at HUB and Cannabis Industry Journal contributor, will now take the lead on cannabis insurance for the brokerage.

Bradley Rutt, senior vice president and U.S. cannabis specialty leader at HUB International

Rutt will work alongside Jay Virdi, another frequent CIJ contributor and chief sales officer of cannabis specialty at HUB to support the practice strategy on a national level. Rutt’s role will put him in charge of expanding HUB’s growth in the cannabis space as well as “enhancing cannabis insurance solutions and risk services, further developing cutting-edge resources for clients to support their needs, and attracting and retaining talent to deepen knowledge and expertise to help cannabis clients thrive.”

Rutt’s role as senior vice president has been to specialize in cannabis executive liability, working with public and private management services organizations to develop insurance and risk management programs. “Brad is an industry leader, and his diverse experience and deep understanding of the cannabis industry to insure its unique risks will play a critical role in continuing to strengthen our practice,” says Jay Virdi. “More importantly, we continue our commitment as trusted advisors to our clients to provide them with relevant support and solutions to help them continue to grow.”

Support Grows for Federal Cannabis Legislation with the SAFE and CLAIM Acts

By Jay Virdi
No Comments

Things are about to change for cannabis and cannabis-related businesses, as landmark legislation to reform federal cannabis banking and insurance laws is just around the corner with the SAFE and CLAIM Acts now making their way through Congress.

The Secure and Fair Enforcement (SAFE) Banking Act, which already passed in the House, would allow financial institutions to do business with cannabis companies without facing federal penalties. There are high expectations the proposal will make its way through the Senate and onto President Biden’s desk.

The Clarifying Law Around Insurance of Marijuana (CLAIM) Act was introduced in Congress in March and is in the first stage of the legislative process. If it passed, it would allow insurance companies to service cannabis businesses without the threat of federal penalties.

For years, fear of sanctions kept banks and credit unions from working with the cannabis industry, forcing cannabis businesses to operate on a cash basis which made them targets of crime and created complications for financial regulators. This is a significant first step for cannabis businesses toward conducting more legitimate and safe operations.

The SAFE Banking Act: Providing a Legitimate Avenue to Banking and Loans

With 37 states and D.C. having taken action to legalize cannabis in some way, it is clear the federal cannabis regulatory model has shifted and the path forward for the SAFE Banking Act shows promise.

The bill creates a safe harbor for banks and credit unions to the extent they would not be liable or subject to federal forfeiture action for providing financial services to a cannabis-related business.More competition means greater capacity and lower premiums for all. 

The bill would prohibit a federal banking regulator from:

  • Recommending, incentivizing or encouraging a depository institution not to offer financial services to an account holder affiliated with a cannabis-related business or prohibit or otherwise discouraging a depository institution from offering services to such a business
  • Terminating or limiting the deposit insurance or share insurance of a depository institution solely because the institution provides services to a cannabis-related business
  • Taking any adverse or corrective supervisory action on a loan made to a person solely because the person either owns such a business or owns real estate or equipment leased to such a business. 

The CLAIM Act: Backing Cannabis Businesses with the Right Insurance Coverage

Should the CLAIM Act pass, it will protect insurance companies that provide coverage to a state-sanctioned and regulated cannabis business. It would also prohibit the federal government from terminating an insurance policy issued to a cannabis business and protect employees of an insurer from liability due to backing a cannabis-related business.

The CLAIM Act will be a boost for the insurance market and drive more underwriters to write cannabis policies. More competition means greater capacity and lower premiums for all. The act would also have a notable impact on currently hard-to-source policies like Cyber coverage, Directors & Officers (D&O) insurance, Errors & Omissions (E&O) and other management liability policies that have been extremely limited to cannabis businesses.

Cannabis Sales Still Growing Strong Globally 

The cannabis market is not slowing down in the United States or globally. Recent forecasts have U.S. sales reaching $28 billion in 2022.

As was the case in Canada where cannabis was made federally legal in 2018, there’s going to be a steep learning curve industry-wide for financial services and insurance vendors who don’t yet understand the risks and liabilities of cannabis operations, even if the SAFE and CLAIM Acts pass this year. And yet this is one giant step in the right direction toward the safe and equitable sales of cannabis country-wide.

Why You Should Consider Parametric Insurance to Protect Your Outdoor Cannabis Crop

By Evan Stait
1 Comment

In May 2019, there were 4,400 reports of tornadoes, hail and high winds across the U.S. That’s the highest number of similar weather incidents on record since 2011. This increasing number of weather incidents has a huge effect on the cannabis industry, which has turned more frequently to outdoor cultivation since legalization.

While outdoor cultivation can develop the flavor of the cannabis crop, much like wine, it also brings with it some unique challenges. Each component of the weather – wind, rain, temperature – plays a role in whether a crop succeeds or fails. While conditions one year may easily lead to a bumper crop, the conditions the following year may not be as favorable. And as the weather becomes more volatile due to climate change, growers are ever more at risk, especially when they aren’t insured.

Evan Stait, author and commercial account executive for HUB International

Unfortunately, traditional crop insurance isn’t available for outdoor cannabis cultivators, primarily because of a lack of data on yield performances – and the impact the weather has on yields. Insurance companies don’t create policies until they have the data to back the policy. But meanwhile, the growers are assuming all the risk.

Enter parametric insurance. Parametric insurance is a program that pays out after a certain parameter is met. In the case of cannabis growers, the parameters are weather-related. The policy is triggered when the weather varies from the average – if there is too much rain during a specific period of time, for example, or an occurrence of large hail. Because the policy is related to average weather, it has to be tailored to the specific growing region – which means the parameters for Colorado won’t be the same as a policy for Maine.

For cannabis crops, coverage can be created for the following parameters:

  • Rain (recorded in inches of rainfall over a period of time)
  • Wind (recorded in miles per hour)
  • Early freezing (using recorded temperatures)
  • Hail (measures intensity and size of the hail)
  • Drought (for non-irrigated plots)

Once a parameter has been set, the policy starts to pay out at the strike point, or the average measurement specified in the policy. Coverage continues to pay out until the exhaust point, or the entire limit of the coverage is paid out. It works well because it’s straightforward: The further away from the average, the more the likelihood of catastrophic loss.

Parametric insurance isn’t for everyone. It’s a program designed to fill gaps that exist within the traditional insurance system. Nor is it designed to stand alone. But it can protect outdoor cannabis cultivators from weather risks that are truly beyond their control, especially given the hardening property insurance market.

In addition, it works for two simple reasons:

  1. Simplicity: Recorded weather events leave no room for ambiguity or dispute. You don’t even need an adjuster to guide the claims process. The official weather data proves what happened.
  2. Correlation: There is a high degree of correlation between measurable weather events and potential damage to outdoor crops.

Parametric coverage is not widely available. Many insurance professionals may not even know of it. But with the property insurance market hardening and a growing need to protect you and your cannabis business from weather-related disaster, parametric coverage may be your best bet. Make sure you speak to a broker who knows about it.

Cannabis Industry Journal

Cannabis Property Coverage: Understanding Risk Management & Communication

By Bradley Rutt
No Comments
Cannabis Industry Journal

For cannabis companies, property coverage can cost as much as seven to 10 times what traditional manufacturing and retail outlets pay. That is, of course, because of the inherent hazards involved in manufacturing and selling cannabis, in a difficult insurance market.

For landlords and building owners, taking in a cannabis tenant can be tricky as well. Because of the higher theft and manufacturing risks, many underwriters are unwilling to offer coverage. And, failure by a landlord to disclose a cannabis tenant is likely to result in a denied claim. Keeping property coverage in check by implementing risk management best practices and working to expand coverage and reduce premium costs can propel a cannabis business even further.  

Moreover, some landlords and building owners will require businesses to maintain occurrence-based liability coverage, which is harder to secure when running a cannabis operation. An occurrence-based liability policy is one that covers the renter for an accident occurring during the policy period, regardless of when a claim is made.

Instead, some insurance companies will only cover cannabis business’ high risks with a claims-made policy, or one in which claims must be made during the policy period only. Landlords will often stipulate their requirement for an occurrence-based policy in their lease. That means that cannabis businesses with a claims-made policy could unknowingly be in violation of their lease.

These issues and others have allowed landlords to command premium rent from cannabis business owners who find obtaining the right property coverage difficult.

To calm the rising tide of rent and property coverage costs, cannabis business owners and operators can engage in the following risk management considerations.

 Risk Management Considerations for Facilities with a Cannabis Operation 

Carriers are more likely to provide a policy to cannabis businesses that are doing what they can to minimize their risk. Here are six ways cannabis businesses can reduce their costs, minimize exclusions and obtain broader property coverage.

  1. If you are a retailer, have a plan to prevent or respond in the event of a robbery.
  2. Install and know how to use vaults and safes properly.
  3. Install central station alarms, cameras and other safeguards. Have them tied to your phone for easy access.
  4. Depending on the nature of the operations, install and regularly test fire sprinklers on site to make sure they are in working order.
  5. Consider hiring a third party, properly-insured, armed guard to safeguard your storefront on a regular basis.
  6. Institute industry-known best practices for high-risk manufacturing processes, like oil extraction.

Insurance Considerations for Facilities with a Cannabis Operation 

Risk management is critical to controlling risk, and insurance considerations can help your cannabis business obtain broader coverage and reduce premium costs.

  1. Communicate with your insurance broker.If you’re a landlord and you want to rent to a cannabis tenant, have a conversation with your insurance carrier at least 30 days before the lease begins. Even if you do, there’s a good chance that your carrier will issue a notice of cancellation (NOC) because they don’t want to engage with cannabis risk. On the other hand, if you don’t disclose the new tenant risk, should a claim be filed, it will could be denied, and the non-disclosure could cost you your policy.
  2. Engage a broker/carrier that specializes in cannabis.In such a volatile market, it is important to work with a broker and carrier that specialize in cannabis. This will enable hidden exclusions to be removed and help you procure the best policy and pricing possible for your organization.
  3. Tell your insurance “story.”Let the carrier understand your business and its risks by telling them your “story.” Tell them what your business does well, including current risk management practices and how you’ve been able to reduce claims. This will go a long way toward potentially minimizing premium costs and exclusions and obtaining broader coverage.
  4. Get another set of eyes. Most carriers will require a lengthy application from cannabis businesses in which the carrier may require the business to comply with certain requirements like having an approved safe or vault room. Your business will be held to the requirements stipulated in the application should you sign and submit it. Ask your broker or a reliable attorney to review the contract for anything you may have missed. Some carriers will incorporate the submitted application into the policy. Any changes between policy inception and a claim could cause coverage issues.

The fast-growing nature of the cannabis industry has ushered in a new set of challenges for business owners and operators. Keeping property coverage in check by implementing risk management best practices and working to expand coverage and reduce premium costs can propel a cannabis business even further.

german flag

Shakeups In The German Cannabis Market

By Marguerite Arnold
No Comments
german flag

As Germany begins to enter a summer where life seems ever more normal, there are fairly major shakeups underway in the German cannabis market. These are structural but will have a profound impact on the entire market going forward.

A Mass Of Distribution Licenses
It is an interesting metric to understand that before 2015, there were no specialty cannabis importer/distributors in Germany. As of July 2020, there are rumors that this number has now shot to close to 80 (either licensed or in the process to become licensed). That is a huge number. So was the last amazing number (40) as of the beginning of this year. Just the previous estimate would mean, literally, 1 specialty cannabis distributor for every 2 million Germans. That obviously is not sustainable. What it does indicate is the huge surge of interest in medical cannabis not to mention acceptance, as well as the amount of money actually now beginning to slosh around in the domestic market.

And that spells good news for both patients and insurers. The rest of the industry, however, will be under further pressure to reduce cultivation and operation costs to meet the challenge.How many of these distributors will survive is another question, particularly in an environment where the government is looking for just one to fulfil the needs of all of Germany’s pharmacies from what is grown domestically. This does not of course mean the end of specialty distribution. Indeed, far from it. There is not enough cannabis entering the market, presumably this fall, that is grown here to even come close to meeting demand.

No surprises here. This has been one of the enduring criticisms of the entire process, if not the bid itself since 2017.

However, one thing this does mean is that distribution fees, like pharmacy fees for processing the plant before them, are finally hitting a price adjustment phase.

This is also going to be good not only for patients, but also health insurers.

For all the standardization of the industry, including fees and mark-ups, one of the strangest things about the German cannabis market is how widely cannabis prices can differ even between pharmacies. This is as true of flower as it is of dronabinol.

The Wholesale Price Of Medical Cannabis Is Dropping
Again, no surprise here, the government will end up buying more cannabis than contracted for under the original bid. This was actually anticipated in the language of the contract that currently exists between the government and the three bid winners. Namely, an automatic 50% reduction in price is mandated for any cannabis sold beyond the 120% agreed upon qualities.

german flag
Photo: Ian McWilliams, Flickr

The growers domestically, in other words, who won the bid will be under a severe price restriction. This may have been the ultimate strategy of the government to begin with (namely to attract foreign capital and expertise but then begin to reign in the sky-high prices of medical cannabis so far.)

This means that the price of €2.30 a gram will undoubtedly fall. Where it will float is anyone’s guess, but right now it appears on course to hit about €1.87. Or about the same price that other governments across Europe (notably Italy) had previously negotiated with the big Canadian cannabis companies (notably on this one, Aurora’s military contract in Italy).

Implications For The Import Market
With domestic producers under the gun, this also means that all imports will begin to feel the price squeeze too. And that will also have a significant impact on point of sale cannabis prices.

And that spells good news for both patients and insurers. The rest of the industry, however, will be under further pressure to reduce cultivation and operation costs to meet the challenge.