Covering Cannabis in California
Most of the action on insuring legal cannabis in California is in the surplus lines marketplace.
The legalization of cannabis in California created many opportunities for insurers to get in on the ground floor in covering this new product. At this point, however, most admitted insurers and even some in the surplus lines space are taking a pass.
The Surplus Line Association of California is seeing tremendous interest from our members in insuring cannabis. In fact, there has been so much interest that the SLA plans to offer a continuing education course on cannabis in 2019.
It is a constant, ongoing discussion in our industry. Our members want to know about the pertinent regulations and rules, the unique risks posed by the industry, and how to insure what is still largely a cash-based business — due to the uncertainties about how the federal government will treat bank deposits for an industry that is still illegal at the federal level. Another reason this issue is so widely discussed is because it’s highly complex. There are numerous facets, all requiring their own coverage: the plants; the buildings; the transportation; and many other links in the chain.
There is also the question of the legal status for recreational cannabis, given that it remains illegal under federal law. The SLA receives no shortage of questions about what that means for insurers that might want to cover one or more facets of the business, and there have been some delays on implementing regulations in some localities. There is a lot of ambiguity, which means, as a result, a slower development of the market than might have been expected.
Between the need to determine appropriate pricing for cannabis coverage and the uncertainty inherent in the product remaining illegal at the federal level, getting multiple standard admitted insurers into this arena has been elusive, despite the best efforts of California Insurance Commissioner Dave Jones. There are a few exceptions, such as Golden Bear Insurance Co., but as a rule, commercial cannabis coverage is largely being written in surplus lines.
That said, coverage for all facets of this lucrative industry — whether it be the product itself, the distribution process or the employees involved at every stage of the cultivation and sales process — can be found in the surplus lines market where a number of insurers are already making inroads. Many surplus line brokers in California are already placing a substantial amount of insurance for all facets of the cannabis business in the state.
Some of the offerings, such as errors and omissions, directors and officers, and “key employee” coverage, which covers a business in the event that it loses crucial personnel, are being driven by the investment community.
Increasingly, coverage options are available for equipment breakdown, theft and crime for the extraction community.
Although there is no comprehensive list available at this point, the SLA does have information from its brokers on some of the markets that are insuring legal cannabis in the state. There are currently dozens of options for legal cannabis coverage of which the SLA is aware.
There are several key things to keep in mind in finding insurance coverage for cannabis business. First and foremost, there is no “blanket” or all-perils policy that will cover all facets of the cannabis business: General liability, workers’ compensation, property, auto (including distribution, certainly, but also vehicles like company cars that aren’t involved in distribution), and increasingly, cyber policies. Secondly, it is important to find an insurance broker who thoroughly understands the cannabis business and can identify where the potential coverage gaps may be.
Third, watch for exclusions. For example, a number of workers’ comp policies exclude cannabis. Working with an insurance professional who knows the business can help in this regard as well.
It is crucial to be certain that every link in the chain, from growers all the way down to retail sellers and everything in between, is covered. If anything goes wrong, there is potential liability to anyone involved in that chain. A knowledgeable surplus lines broker can help you identify an insurer that meets your coverage needs.