Varying state regulations and a heightened risk of theft and vandalism are among ongoing challenges in the booming cannabis industry. To learn more about Cannabis Insurance, Crain’s Content Studio spoke with Emily McDaniel, Broker, Commercial Insurance, Burns & Wilcox, Denver, Colorado, and Jason Scheurle, National Product Leader, Cannabis, Burns & Wilcox, based in Philadelphia, PA.
What are some of the greatest risks today in the cannabis industry?
McDaniel: When newer companies are getting into the marketplace, the greatest risk is a lack of expertise or not knowing the potential pitfalls of operating a cannabis business. This could mean gaps in coverage and the potential for costly claims against them as a business that, financially, they might not be able to recover from. For an entrepreneur, insurance is often the last thing on their mind. If they are just trying to check the box to get their license to become operational, they might not be contemplating the risk of a claim.
Scheurle: Tracking the different compliance matters across different jurisdictions is a real challenge; it is different in every state. As these new companies are coming in, are they aware of the different compliance matters in New Mexico versus Massachusetts, for example? That can lead to claims and, in the event of a claim, possible coverage issues or invalid coverage.
What should cannabis business owners be aware of relative to these risks?
Scheurle: Knowing and understanding the compliance in their state of operation is important. They should be aware of all safeguard requirements that their insurance policy may have, as well. Be familiar with the alarms you need, video monitoring, and the security measures that must be in place, and ensuring those systems are always operational. If they are not, you may find yourself in a situation where coverage is precluded and you cannot recover from a loss.
McDaniel: Cannabis businesses should be going to specialists for everything they do, including insurance, accounting practices and legal advice. A dispensary is not going to be able to use the same insurance broker, accountant or attorney as a bakery or other general business.
Which insurance policies can help cannabis businesses respond to these threats?
McDaniel: Commercial General Liability (CGL) Insurance can help with incidents that happen on their premises. Products Liability Insurance is usually excluded on CGL Insurance unless it is specifically purchased, and that would protect the company from a claim against it from products they are selling, manufacturing, or distributing. Those claims can be costly and devastating to a company. If they do not have Commercial Property Insurance in the event of a fire, tornado, or theft, they may not have the capital to recover from a loss and become operational. Cyber & Privacy Liability Insurance is also important, as these businesses have personal information about their customers and they need to protect themselves in the event of a data breach. Errors & Omissions Insurance or Professional Liability Insurance may also be needed for those that have a professional exposure.
Scheurle: Ancillary coverages cannabis businesses could need include Cargo or In-Transit Insurance for product that is being delivered or shipped, and cash being taken to the bank or moved around. That is certainly an area we get a lot of questions on. Another would be Crop Insurance, or coverage for a living plant that’s growing and has not yet been harvested.
What steps should businesses take to complement their insurance coverage from a prevention standpoint?
Scheurle: Be aware of your safeguards. Make sure you are doing your due diligence, including background-checking potential hires and employees. You have a significant moral hazard with not only how much cannabis is going in and out of these buildings, but also how much cash. If you hire questionable individuals, you could be looking at theft right under your nose because you did not background check someone properly.
McDaniel: It will depend upon the business, but whatever their operations are, they should be using the safest and up-to-date equipment. Grow lights have been a hot topic in the cannabis industry because of large losses and case studies. Certain lighting equipment marijuana cultivators use can overheat, explode and catch fire to a building or damage/destroy an entire crop. Make sure that what you are using to operate is favorable to your insurability and can possibly help mitigate any losses.
What are the greatest opportunities for brokers to get into Cannabis Insurance?
McDaniel: We have individuals come to us and say we want products covered — Product Liability, or products on your shelf? Get a clear picture on what we are talking about. Then, know that getting an accurate quote in a timely manner has a lot to do with the submission we receive. On every submission, I ask, what is important? Is it coverages, turnaround timeframe, or pricing? If I can get a good picture of what the insured is looking for, I can approach my markets that would be a fit for what they are looking for while maintaining a successful relationship with my markets.
Scheurle: If you are jumping in with cold feet, you need to educate yourself, first and foremost. Seek out the cannabis organizations that are out there that you can join and start receiving periodic information and attending events. It can even be as simple as online research.
What services of Cannabis Insurance are specific to Burns & Wilcox and what are the advantages of these?
Scheurle: Burns & Wilcox and H.W. Kaufman Group’s nationwide reach is top of the line. Our relationships with national retail partners and everybody we work with means things can be done quickly and efficiently. That nationwide grasp can help to speed up the process for sure.
McDaniel: The expertise does set us apart. Being able to have nationwide reach and specialists that can write cannabis coverage in many states is unique.
WHY YOUR CLIENTS MIGHT NEED IT: Vandalism and theft are just a couple examples of recent challenges in the cannabis market. Cannabis businesses are at risk for devastating financial losses if they do not have proper coverage.
PROTECTS AGAINST: Potential losses associated with theft, vandalism, natural disasters, fire, issues with a product and cyberattacks, for example.
EXPERT OPINION: “Cannabis businesses should be going to specialists for everything they do, including insurance, accounting practices and legal advice. A dispensary is not going to be able to use the same insurance broker or attorney as a bakery.”