The cannabis industry is known for its complicated business structure. From state to state, the regulatory and financial solutions differ and cause headaches to business owners. But the same goes for insurance.
The challenges that cannabis business owners face when it comes to insurance can bear a great burden. Between the immediate upcharge that comes with owning a cannabis business to all of the additional coverage needed with protecting crops and employees, it can be hard to figure out exactly the type of coverage you need or where to turn.
Duane Morris attorneys Steven B. Davis and Seth A. Goldberg share their insights with Cannabis Regulator on everything cannabis businesses should know about insurance.
Find the Right Broker
One of the biggest problems Davis has seen in the insurance space is the lack of sophisticated brokers that understand the cannabis industry. “They’re often great sales people who want to help, but when you’re talking about a relatively less developed industry that’s less mature, getting the right insurance requires that you have the right market access and understand the business as a broker,” he says.
Davis suggests that cannabis business owners shop around when it comes to finding the right broker. While there are a lot of really nice ones out there, you need to make sure you’re with someone who is experienced in the cannabis space. It can make all the difference in making sure you’re getting the right insurance coverage at the right price.
“You really need to have a good broker who can deliver good policies and be really careful about the policies that you’re getting to make sure they truly will provide the right coverage if there’s an issue down the line,” adds Goldberg. “Most of the policies that I have seen in the industry have exceptions that can really render them useless should a problem arise.”
Insurance Coverage Needs
Whether you are a plant-touching business, a distributor, a transporter, a retailer or anything in between, Goldberg advises that all businesses need to have a certain level of property coverage.
“Then, there’s a question for grower’s and crop insurance of just the actual product itself,” he says. “Whether and to what extent you want to purchase coverage for that, if it’s even available, can also be a big concern.”
Other important insurance coverage includes the standard general liability, workers comp, machinery and equipment and general product coverage, according to Davis. Although, with cannabis businesses, there can be a lot of holes in the coverage, which is why it’s so important to get an experienced broker who can help you get everything you need.
“D&O (directors and officers) coverage is another point that is becoming increasingly necessary as cannabis companies continue to grow,” adds Goldberg. “You see companies get socked with different security and fraud lawsuits, large scale product related lawsuits or even claims that a director is misappropriating funds or self-dealing. These are the types of coverage that are essential in any industry.”
Problems With Cannabis Insurance
Both Davis and Goldberg explain that one of the biggest issues plaguing the cannabis insurance space right now is the cost of coverage. Due to marijuana being federally illegal, insurance companies hike up their coverage, making it difficult for businesses to get the right coverage at a decent price.
“Insurers are really applying a premium on the premium, and the coverage itself isn’t that great,” explains Goldberg. “These aren’t your Class A insurance companies either, so cannabis businesses are being forced to pay an arm and a leg for policies that may not have the best ratings and policies that may have gaps. This is a public policy problem, in all actuality, and the federal prohibition of cannabis is really creating this challenge in the industry.”
Until federal regulatory change happens, either with rescheduling or descheduling marijuana, insurance will continue to skyrocket in price and barely cover the essentials. Getting the right broker can help you be more prepared.
