By John Schroyer
Finding the right insurance policy – or policies – in the cannabis industry can be tricky.
Although it’s typically fairly easy to get some kind of basic coverage, the devil is often in the details. Many marijuana businesses have been burned by plans that looked good at the 30,000-foot-view but failed to provide a safety net when they needed it most.
The stakes are high, particularly for startup companies that could lose everything if they encounter a fire, a natural disaster or even a serious power outage, all of which could be devastating for cannabis companies without quality coverage.
Marijuana Business Daily spoke to several professionals who help cannabis companies find insurance about some of the potential pitfalls and issues to be aware of when searching for coverage.
Dearth of Carriers
Most companies that help marijuana businesses find insurance act as middlemen between the companies and various insurance carriers. They’re loathe to identify the carriers by name, however, because those companies want to keep a low profile given marijuana’s quasi-legal status.
There’s not even a consensus among agents as to how many carriers are willing to insure marijuana companies.
Jason Kunz, an agent at Washington State-based AAG Insurance, estimates that there are just four or five carriers willing to work with the marijuana industry. Other agents say there are even fewer than that, meaning cannabis companies don’t have many choices.
“It makes options very limiting,” Kunz said.
Even when cannabis business can find carriers that provide policies for general liability, product liability and property coverage (the most popular plans in the industry), they often can’t get everything they need from one provider.
In other words, they have to get different policies from different carriers, instead of getting a single plan that includes all three types of coverage.
“There’s a couple that will do the whole solution… but there’s very few of those,” said Patrick McManamon, the director at Cannasure Insurance Services in Ohio. “One will do just general liability, and they won’t offer you property coverage. One will do just product liability, and they won’t offer you general liability.”
Sublimits & the Risk of Becoming Unsinsurable
A big pitfall for companies to watch out for are so-called “sublimits” in insurance policies, said Doug Banfelder, an insurance specialist with Premier Dispensary Insurance in Arizona. That’s when a relatively new carrier wanting to limit its risk offers theft insurance in a general liability policy, but includes a clause that only pays out 10% or so of the worth of what’s stolen.
This is a particular risk for commercial growers who use expensive equipment and technology that might be stolen.
“If you have one of those policies, you’re only going to get…$100,000 back on $1 million worth of equipment from a carrier,” Banfelder said.
In some cases, it’s not even worth filing a claim.
Banfelder said he had a client that lost several hundred thousand dollars to theft, but a sublimit clause meant the company could only recoup $25,000 after the deductible was paid off.
In that particular case, Banfelder advised the company to simply absorb the loss and change insurance carriers.
“If they do take that little bit of crumbs that are left for them by the carrier, they’re going to make themselves very difficult if not impossible to insure with another company. That’s a Catch-22. That’s a problem,” Banfelder said.
Lloyd’s Exit Still Making a Mark
The sudden announcement in May that Lloyd’s of London will no longer work with the cannabis industry has also been hitting cannabis companies in recent months, as many have been receiving non-renewal notices of their policies.
That exit has left a major hole that has yet to be filled, since a lot of major carriers won’t provide all the services that Lloyd’s did. For example, Lloyd’s was providing coverage for cannabis consultants, and now many in that profession are having a harder time finding insurance.
But there are upsides, as well. The biggest: Some carriers are increasing their coverage limits to tens of millions of dollars for large companies, said Banfelder. And many of the companies stepping in have better pricing, by 10% or more.
John Schroyer can be reached at email@example.com