Lloyd’s of London, the UK-based insurance marketplace, has instructed underwriters not to open or renew existing accounts with marijuana companies in the United States until it’s legal at the federal level, leaving potentially thousands of cannabis business owners seeking new insurers for their crops, buildings and inventory.
“Any policies of this type that are currently in force should not be renewed and no new business should be written,” according to a memo from Tom Bolt, the director of performance management at Lloyd’s, viewed by Marijuana Business Daily.
The memo – sent to the company’s partners – goes on to say that account executives will review existing quotes issued before Friday to determine whether they will still be honored.
“Lloyd’s will continue to monitor developments under U.S. law and will reconsider this position if and when the conflict of laws is resolved,” the memo says.
The company doesn’t actually provide coverage. Rather, it operates an insurance marketplace similar to a stock or commodities exchange, and works with “syndicates” that underwrite businesses. Those syndicates transact with London-based brokers who deal with companies around the world that provide insurance to businesses, some of which offer coverage to marijuana companies.
Michael Aberle, senior vice president and senior program for the cannabis program at Next Wave Insurance Services in San Diego, said he stopped working with Lloyd’s underwriters earlier this year and instead switched to Hannover Re, a German insurer and reinsurer.
Aberle said while it’s good news for him that Lloyd’s is exiting the industry since that was his main source of competition, it will have a “huge impact” as about 2,000 business owners are going to have to start searching for new insurance companies.
Courtney Moran, a cannabis and hemp lawyer at EARTH Law LLC in Portland, Oregon, said this is bad timing since it comes on the heels of two banks — MBank of Oregon and First Security Bank of Nevada – exiting or limiting business with cannabis companies.
“We’re trying to legitimize the industry and everyone’s trying to follow the rules, and to not have the support of these companies makes it’s hard for the industry to get going,” Moran said. “I understand where they’re coming from because they have their own liability issues, but we want to be seen (in a similar fashion) as every other legitimate industry. It’s a bad sign for the industry in general.”
Doug Banfelder, a licensed agent with Premier Southwest Insurance Group and the founder of Premier Dispensary Insurance in Scottsdale, Arizona, said while it will be a “transition,” business owners shouldn’t worry too much since options are available.
Banfelder said he works with several companies that offer coverage, including Aberle’s Next Wave and Hannover Re, that can fill the void left by Lloyd’s.
“I wouldn’t be freaking out, but it’s going to be a transition phase,” Banfelder said. “You want your insurance companies to have … strength and stability just like you want your bank to have strength and stability. This just points out once again that this is still uncharted territory.”
Lloyd’s said in the memo that the company has been considering whether to work with cannabis companies – but that since marijuana is still a Schedule I drug under federal law, its syndicates shouldn’t underwrite any businesses that deal with the industry.
The Department of Justice last year was instructed in a spending bill signed by Pres. Barack Obama to abstain from prosecuting cannabis businesses that are operating within the bounds of state law.
Still, the Lloyd’s memo said, the risks are too great.
“In addition, cash generated from the sale of marijuana invariably implicates federal anti-money laundering laws (these, too, are currently subject to non-enforcement policies),” the memo reads. “Unless and until the sale of either medicinal or recreational marijuana is formally recognized by the government as legal, as opposed to subject to non-enforcement directives, syndicates at Lloyd’s should not insure such operation in any form.”
Tony C. Dreibus can be reached at email@example.com