Takeaways from Our ‘What Makes a Good Cannabis Broker?’ Conversation
A broker hands an underwriter an application for a cannabis operation.
No red flags so far, but then the underwriter takes a look for himself and finds a converted residence smack in the middle of a neighborhood, complete with minors on the site, a swimming pool, and a shack being built up to become a dispensary.
Cannabis brokers deal in a frontier industry with so many rules and regulations, so many different levels of business experience and interesting personalities, and a whole lotta people stepping over – and sometimes on – a whole lotta landmines.
Following are a few takeaways from that conversation.
Distel described an instance in Maine with a “vertically integrated operation,” and the retail broker submitted a “bare bones” application.
After Distel and his team did some digging, they discovered the operation was in a residentially zoned neighborhood, in the middle of a residential neighborhood.
“We’re talking kids, pools, bike riders, just everything under the sun that you wouldn’t want near a cannabis operation,” he said. “And not only was the cultivation operation in this gentleman’s garage, but he also had a back shed that was being built up and constructed to be tons of dispensary. On top of that, he had a couple of young kids on premises, lived there full time, and also had a swimming pool in the backyard, just a risk management nightmare from top to bottom.
Ives told a strikingly similar tale.
After receiving an application, and pulling up the address on Google Maps, it turned out the exposure was in a residential area.
“They weren’t more than about 50, 60 yards from their neighbor,” Ives said. “The homeowner was living in the home where he was doing the grow operation in the garage, and the homeowner happened to have firearms on premises and was armed. That became a great big boondoggle, as you can imagine.”
Ives and Distel also listed the top three mistakes they’ve seen cannabis brokers make.
“If you’re asking me the three biggest mistakes or the most common mistakes that brokers make in the cannabis space, my list would probably look something along the lines of: number one, poor applications and poorly completed applications,” Ives said. “Number two would be failure to disclose relevant exposures or relevant operations. And the third thing is a failure to provide the important information that we need for all submissions in the insurance world. And by that, I mean loss runs or the product liability dec page if it’s an existing operation and we’re trying to maintain the continuity of product liability coverage.”
Distel’s list was a bit different.
“The first big mistake that I see especially a lot of new brokers making when they enter the E&S business is really just being price-focused, only chasing price, getting the best price no matter what and not really focusing on the coverage,” Distel said. “That’s a killer from a partnership perspective, but also from agents and individuals taking that individual seriously. Second is really asking for every exclusion under the sun to be removed from the policy, regardless of what the class of business is. That doesn’t really show a lot of thought behind the entire process. And for us, it makes it incredibly difficult to see what actually is going to sell versus what’s not in crafting the best policy for the insurance operations.”
The third, and perhaps most obvious, is when a broker doesn’t take an interest in educating him- or herself about the class of business that they’re working in.
“Specifically cannabis, it requires a really great specialty focus and not having that angle behind them and really that willingness to understand the law and the operations themselves, especially when federal legality is the reality right now, that’s a big mistake,” Distel said.
Related:
- Takeaways from Our Conversation about Cannabis Product Liability Suits Worth Watching
- Takeaways from a Cannabis Half-Year Outlook Conversation
- Takeaways from Auditable Policies and Cannabis Conversation