In this Growers Spotlight, Hunter Wilson of Growers Network interviews Marc McNeely and Gerry Jones of Cannabis Insurance Solutions about insurance for cannabis businesses: why insurance is important, who needs it, and how it can help the industry as a whole.
Basic Insurance Questions
How do you generate the statistics needed to determine your rates?
Many other crops have been grown in greenhouses, and insurance risks and rates have been statistically determined for them. We can use that information to approximate risks for indoor cannabis grows while we build our statistical data.
When it comes to the retail side of the industry, the insurance risks resemble that of a jewelry store or convenience store, because cannabis is a high value, portable item, like cash or jewelry.
What are signs of inadequate or bad coverage?
Based on what we’ve seen, we estimate that roughly 1.3-1.9% of a business’s revenue should cover the premium for the year. We’ve seen multi-million dollar grows only paying about $6 thousand a year for premiums. There was no way they were being sufficiently covered.
Additionally, if you’re relying on a landlord’s tenant insurance, it’s incredibly unlikely that you’re covered. Those have clauses that deny coverage in the event that anything deemed “illegal” is knowingly produced on-site.
Do you consult with a lawyer?
First, we talk with our senior policy underwriter. They know most of the legal concerns surrounding insurance. That said, we will consult with third party lawyers for specific parts of the insurance policies. By consulting with outside lawyers, we can eliminate redundancies and strange portions of policies.
What are some factors that alter insurance premium rates?
- Building quality matters. Well-constructed buildings lower insurance costs, and vice versa.
- Another factor is revenue. Larger companies will need more coverage and therefore a higher premium.
- Business security is important. What security measures are in place? Better security means lower rates.
- Day-to-day operations can also influence prices. Are there inefficiencies or risks in the normal day-to-day operation? Are there adequate worker protections in place? Better protection means better rates.
What coverage is available?
- Normal perils, such as lightning, fire, hail, etc. Prices are based on standard risks such as the local environment and the building structure.
- General liability in case somebody decides to sue your business for something that happened during normal operations. If a worker slips and falls, you can be covered.
- Crop coverage insurance is specifically designed to protect the plants against risks of fire or theft, but not crop failure due to pests or failure to pass inspections.
- Business Income Insurance in case you need to renovate from an incident.
- Equipment Failure is pretty self-explanatory.
- Product Liability Insurance if you are selling a product.
- Extra Expenses Insurance in the event of an incident.
- Commercial Auto Insurance if there is a company vehicle.
How does the issue of cannabis being federally-illegal play into insurance?
Insurance is regulated on a state-by-state basis, meaning that every state has its own rules regarding insurance.
What are some unique problems faced by the industry?
Besides banking, there’s another issue that is often forgotten:
Bankruptcy protection is granted by the federal government in the event that a person or business cannot repay its debts. However, because it is a federal protection, cannabis businesses cannot claim bankruptcy. You are always on the hook, regardless of whether you can pay or not.
This lack of protection extends beyond the business too. Any investors can also be targeted for lawsuits, and they have the same lack of bankruptcy protection. Same goes for landlords.
“Why bother with insurance?”
The cannabis industry as a whole has a very high-risk tolerance when compared to other industries. Many will simply ask us, “Why bother?” The truth is that if we want to see cannabis become a legal, regulated substance, we need to stop acting like the black market. The black market’s only liabilities are run-ins with the law.
Standard business practices are often thrown to the wayside in order to get to the first paycheck. This seemingly rash behavior scares banks away from cannabis businesses. It only takes one mistake for a business to go under and a politician to enact draconian laws.
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This article has been paraphrased with permission from Growers Network.
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