Massive MJBizCon in Vegas Reveals Coverage Gaps, Little Insurance Understanding
If gawking at tons of cannabis-churning pieces of agricultural equipment winding around a quarter-million feet of convention floor space wasn’t your thing, perhaps access to an abundance of pre-rolls, or whiffing jars of fresh, blazing green bud, would do the trick.
It was an early Christmas for cannabis devotees. And believe it or not, there was no shortage of those among the 33,000-plus attendees at the annual MJBizCon in Las Vegas, Nev., from Dec. 11-13, who were actually interested in insurance and financial services.
The annual show, hosted by Marijuana Business Daily, has grown from just over 400 attendees since its inception five years ago to a mega-event with some 1,300 exhibitors spanning all sectors of the cannabis industry – legal, technology, investing and marketing firms, payment processors, extraction machinery manufacturers and cultivation equipment providers, and the insurance industry.
The show also had an international flavor, with 79 countries represented. Canada had the largest international presence at the show with 2,071 attendees, followed by China (659) and Israel (135), according to organizers.
One big MJBizCon take-home for the insurance and financial sectors was this: there are thousands of businesses in need of banking – or what’s available, in light of federal limitations – and financial services, especially insurance.
The other impression one could glean from the show was that many, many people rushed into the cannabis sector without knowing much about the industry itself, or the regulations placed on those doing business in the space – such as the need for insurance, what it covers, what it doesn’t cover, and even where to get it.
“Generally, it does appear that the cannabis industry is woefully uneducated and unprepared about what to do in the event of a loss or a claim,” said Michael Sampson, a partner in the insurance recovery group and co-vice chair of the cannabis law team for in the Pittsburgh office of ReedSmith.
Sampson was at the show as a speaker on the panel, “Overcoming Legal and Financial Hurdles for Ancillary Businesses,” and he was there to take meetings with prospective clients.
Sampson spent a great deal of his time in face-to-face meetings not just talking about insurance and legal matters, but as an educator on insurance.
“After the panel and throughout the week, I got lots of questions about the types of insurance different plant-touching and ancillary businesses should consider – and why – and whether such coverages were even available for cannabis-related businesses,” Sampson said. “Folks also were really interested to learn more about how to limit their liability and their risk, whether through insurance or some other risk-transfer mechanism like an indemnification provision.”
Phillip Skaggs, assistant counsel of American Association of Insurance Services, which brought to market a CanaBop form in early 2018, was also at the show to drum up business and to talk to people about AAIS, a national insurance advisory organization.
In that capacity, he met with numerous brokers and insurers while at the show.
“I get the impression that a large number, maybe half, of the brokers currently working in this space are still struggling – like many of us – to figure it out,” Skaggs said. “A large number of brokers and carriers don’t fully understand or are still learning to appreciate the regulatory nuances, potential risks, and evolving needs of cannabis businesses. And many don’t know the quality or even the content of the policies their placing.”
It’s not that they aren’t trying, it’s that the cannabis industry is just moving quickly, making it difficult for ancillary services – think insurance, banking, legal, security – to keep up and provide consistent advice, as well as maintain effective products, according to Skaggs.
If brokers are confused, buyers may be even more so.
“Most cannabis businesses are not only unaware of what they need, but also of what they actually have after they buy it,” Skaggs said. “There is definitely a tendency for wishful thinking – younger companies buying whatever policy or package is available and within budget, and then just hoping it stands up when they need it to later. This results in most businesses being underinsured, or even completely uninsured, for a potentially ruinous loss or claim for liability.”
Pricing and Availability
Beside a lack of availability of certain types of insurance, another common complaint Sampson heard about at the show was pricing: cannabis companies feel they tend to pay more for the same insurance coverages than other businesses.
“The premium that any one cannabis-related business is going to pay for an insurance policy will depend on a number of factors, including the type of business, the size of the business, the type of risks it faces, location, and the type of insurance it is purchasing,” Sampson said. “That said, in this space generally, premiums can be costly.”
Tim Conder, chief operations officer of TILT Holdings, was one of the more sophisticated insurance buyers at the show.
Despite his focus on selling and marketing his company to high-powered buyers at the show, he gladly sat down with an Insurance Journal reporter to discuss his experience as an insured.
TILT was formed through a four-way merger and subsequent reverse takeover of a Canadian Securities Exchange-listed company in December 2018.
TILT acquired Conder’s company, Blackbird, in January 2019. Blackbird is a cannabis technology and services firm that moves cannabis product downstream through the supply chain.
Overall, Conder has seen rates for the cannabis industry begin to come down in the last few years. However, TILT is still a big spender when it comes to financing risk.
Asked how much he estimates the Boston, Mass-based company spends annually on insurance, his reply was: “Millions of dollars.”
He said some insurance products, such as worker’s compensation for TILT, which has roughly 400 employees, are “in-line with other industries,” while products like directors and officers are still sometimes difficult to find, as well as costly.
“The baseline measure for cannabis D&O is $200,000 in premium for every $1 million in primary coverage,” Conder said. “That is exponentially higher than any other industry. There are also only a few insurers willing to cover, much less than traditional industries, so your routes to actual coverage are ultra-limited. Most companies require minimum $5 million in coverage and $10 million is probably the average coverage amount.”
Exclusions
Beyond pricing and availability, his portrait of the current insurance landscape for cannabis companies is one that is wrought with exclusions.
“Lots of exclusions,” he said, when asked for his biggest insurance worry facing the industry.
One exclusion he’s seeing on insurance policies commonly put before himself and other companies he’s spoke with was a federal crimes exclusion, which potentially eliminates all cannabis businesses from coverage because marijuana is still considered illegal in the eyes of the federal government.
He’s also noticing adverse health-effects exclusions in policies, potentially a huge problem for any business that sells or deals with vaping products – there were no shortage of companies dealing in some way with vaping products at MJBizCon.
“They are often included in product liability policies, which renders the coverage essentially useless,” he said.
He’s also seeing security class action exclusions on D&O policies, and ingredients exclusions on products like chocolate, and caffeine.
Exclusions were the focus of numerous conversations carried on at the show by Tony Carastro, president of Tampa, Fla.-based Cannabis Insurance Consultants.
The highly energetic insurance professional was manning a booth at the show along with his employees while wearing a green suit spotted with marijuana leaves.
He said he got a lot of walk-up business during the show, but that he and his staff had to spend a great deal of time trying to educate prospective clients about insurance.
He estimates he picked up between 100 and 200 new clients from this show, most of whom knew little about buying insurance.
When talking to potential customers, Carastro said he likes to review their existing policies with them. During that process, he often notes they have purchased policies with exclusions that he believes void the coverage.
Like Conder, he’s seen numerous product liability, and health hazard exclusions.
“They don’t even know they have them,” he said of prospective clients and the exclusions in the policies they were sold.
Carastro said he’s recently seen numerous policies sold to medical marijuana dispensaries that were designed for a pharmacy that have an exclusion for when a pharmacist isn’t the one doing the dispensing.
“There’re so many people getting into this business, the problem is they leap before they look,” Carastro said.
Chris Boden, a wholesaler with Crouse & Associates in Sacramento, Calif., has been in the cannabis insurance business for about a decade and he has been to the past three MJBizCon shows.
His impression from his conversations at the show were that cyber coverage is tough to find for cannabis businesses, as well as products like intellectual property.
And he continues to see some of the same issues year-after-year: Many carriers don’t know the industry, too many agents are selling policies that aren’t good for their clients and cannabis businesses on the whole are underinsured.
Boden believes one of the biggest issues is too many agents rushed into the cannabis business, and either don’t know enough about the insurance they are selling or they aren’t taking the time to educate their clients.
“Agents need to do a better job explaining coverages and exclusions,” Boden said.
Around the Show
Other hot financial topic at the show was banking.
“Cannabis Banking: A Look at Promising Legislation and What to Do Until Then,” featured three experts talking about banking. They offered their perspectives on the risk that bankers face, as well as the uphill battles for cannabis businesses needing access to banking services.
Tyler Beuerlein, chief revenue officer for Hypur, a company that provides payment and banking technology for high-risk markets, explained that many banks break cannabis and cannabis-related companies into “tiers,” dealing with each tier differently – some get more or less access to banking services, or none at all.
The tiers he described are:
- Tier 1: Plant-touching businesses, such as dispensaries
- Tier 2: Companies that do direct business in the cannabis industry, cartridge manufacturers, for example
- Tier 3: Ancillary business, such as a real estate firm that leases property to a dispensary
Fellow panelist Don Childears, president and CEO of the Colorado Bankers Association, said that because the federal government continues to regard cannabis as a Schedule 1 drug – up there with heroin and LSD – that even ancillary businesses are dealt with cautiously by banks when they start doing business in the cannabis space.
“I’ve seen banks shut down customers they’ve had for 20-30 years,” Childears said.
For businesses in the cannabis sector, there lurks a risk many may not even know about.
“Shadow banning” was a topic of a panel titled “Social Media Advertising: Restrictions Will Apply.”
While not focused on financial services or insurance, the panel offered up a great deal about the topic of risk where it concerns social media and advertising on social media.
It turns out that mentioning cannabis, or including a marijuana leaf on one’s logo, for example, carries with it the risk of being banned or buried on social media, or worse, not being allowed to advertise on platforms like Facebook, and Instagram.
Companies can suddenly become unsearchable on social media, without an explanation of what happened, in a process being called “shadow banning,” which has also been called “stealth banning,” and “ghost banning.”
“You don’t even know if happened to you,” said Samantha Collins, chief marketing officer of Bhang Inc., which has a portfolio of over 100 cannabis, hemp-derived CBD and terpene products.
Amy Donohue, cannabis social media consultant with Get Hybrid Social, a cannabis social marketing agency, said she’s not only had clients get shut out of platforms, but she herself has been shadow banned, with her livelihood left hanging on a repetitious appeals process.
“I had to make 20 appeals in a row,” she said.
Jennifer Culpepper, founder & chief creative director of Brand Joint, a cannabis branding agency, said the wrong words or images can get one shadow banned on social media platforms.
“Putting prices on anything is a major trigger,” she said, adding that other triggers include using pictures of people consuming cannabis, and an image of the flower itself.
“Overall, their policy is not promoting drugs,” Culpepper said.
Culpepper said the platforms offer little explanation of what sort of cannabis-activities can get one shadow banned.
It turns out that even in the world of social media, cannabis companies must navigate a hazy landscape and hope for the best.
“They’re not specific about their policies, they’re so vague,” Culpepper said.
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