Marijuana insurance is still new and things are a bit hazy. Here’s what we’re learning.
Over half the states in the U.S. allow the sale of marijuana for medical use; nearly 10 authorize its recreational use. Despite this trend among individual states, the federal government still classifies Mary Jane as a “controlled substance,” leading to a lot of fuzziness where finance and insurance are concerned.
For example, as a controlled substance, a federally regulated bank is not permitted to finance a cannabis business or even loan to landlords who rent to weed dispensaries/factories. Similarly, from an insurance standpoint, the use of a controlled substance may negate coverage claims under many insurance policies, regardless of whether the insured individual was at fault or not. Worker Compensation benefits can also be denied if a “buzzed” employee violates the employer’s drug policy, although it seems courts are lightening up.
As to marijuana operations themselves, the industry is booming. We have heard of large-scale “weed factories” (growing, baking, processing, selling, etc.) renting up long-standing vacant buildings for up to three times the going rate.
When it comes to marijuana insurance for the growing pot industry, there’s a lot to consider. It’s a new market, so it hasn’t all been figured out yet. Insurance Business shared some important insights from America’s pioneering marijuana insurer, San Diego-based Next Wave Insurance. Their CEO, Jeff Ward, said that the largest claims for marijuana insurance come from vandalism and theft, along with electrical fires from growing lights overheating and equipment breakdowns.
But in addition to these potential problems, Next Wave says the biggest risk cannabis companies face is not having enough or the right kind of insurance coverage. Ward discusses the poor policy language surrounding marijuana insurance, saying, “even though [insurers are] offering coverage, they have a lot of ways to deny coverage.”
Charles Pyfrom, senior vice president of commercial programs at Next Wave, stressed the need for clarity in new markets, like marijuana insurance. He said, “we want to make sure [policyholders] are not being misled or having so many exclusions they’re not going to actually have coverage by the time they have a loss.”
Insurance Business also spoke with Denver-based legal firm Vicente-Sederberg and founding partner, Brian Vicente, who explained that in the states that allow medical marijuana and/or legalized recreational cannabis, two sets of rules apply for any marijuana-related business from both state and local government.
The bottom line is that marijuana insurance is still a developing market with its own new issues and complications. Whereas coverage for a cannabis operation was available only on a surplus lines basis, there are a small number of admitted carriers providing specialized coverage. The message to agents is be on your guard. Know the laws that impact you and your client and read specimen policy exclusions.
As the legal marijuana industry continues to grow, change, and shift, insurance must adapt as well. With this in mind, the Department of Insurance’s Commissioner called on AAIS (American Association of Insurance Services) to create a Cannabis Specific Business Policy, and they did just that. This new policy, deemed CannaBOP, is designed for dispensaries, storage facilities, processors, manufacturers, distributors, and other cannabis-related businesses operating in the state of California.
AAIS developed a California specific business owners policy (BOP) program for the cannabis industry, complete with forms, rules, and rating information to better help insurers wading or wanting to dip their toes into covering the legal marijuana industry.