Reputed insurance companies are increasingly unwilling to underwrite policies to marijuana businesses as the federal government still classifies it as an illegal drug under Schedule I of the U.S. Controlled Substance Act. Therefore, lesser-known insurance brokers and carriers are stepping in to serve the cannabis industry, from crop insurance to product liability.
Cannabis Is a High-Risk Business
As marijuana prohibition falls in one state after another, cannabis sales are shifting from street corners to storefronts. Business owners in the cannabis industry need insurance for the same reasons other entrepreneurs do – protection from lawsuits, compensation for losses, cyber attacks, and product liability. But the challenges are many for the kind of high-risk, high-reward investment that cannabis calls for. No industry has come close to having a harder time than the cannabis industry to get off the ground due to a lack of investors and banking services.
Many insurance companies are skeptical as cannabis businesses are considered high-risk. An insurance broker once said that although licensed and regulated by the Oregon Liquor Control Commission, the cannabis industry is a high-risk venture, not only because of federal regulations but because the industry is new and not yet tested in court. Another insurance broker, Charles Earp agrees that not everybody wants to be associated with the cannabis industry or offer coverage. People still regard the latter industry as stoner culture. The lack of uniformity in state and federal law has led some insurance companies to stop covering cannabis-related business.
Although most major mainstream insurance carriers won't work with cannabis companies, a growing number of brokers are emerging to help the marijuana businesses find the coverage they need. According to Gerry Finley, Senior Vice President at Casualty Underwriting, niche insurance carriers are approaching the marijuana landscape with caution and are beginning to offer an array of coverage, including liability, workers compensation, health insurance for the management team and product coverage.
Charles Earp further adds that smart and wealthy business people see the cannabis industry as an opportunity rather than a risk. On the other hand, the co-founder of Oregon Cannabis Insurance, Eli Clark says that risk is an indicator of premium for an insurance broker. According to him, the higher the risk, the more premium. No wonder, the insurance company covered the Happy Harvesting Co when the co-owners, Eleanor Sauerborn and Jessica Thornhill, needed general liability and workers' compensation insurance for their Bend-based bud-trimming business. Oregon Cannabis Insurance is one of the few companies that insure Oregon and nationwide growers, cultivators, manufacturers and retailers of cannabis with quality commercial insurance products designed for the marijuana industry. Sauerborn says that general liability is way too pricey and that they don't have the equipment other businesses have. He is grateful to Oregon Cannabis Insurance for helping them at the right moment.
The U.S. Department of Justice wrote a memo indicating that the federal government will be shifting its priorities away from businesses complying with state law and toward enforcement against trafficking, cartels, and sales to minors. The memo states that it is not an effective use of resources to prosecute the cultivation, distribution, sale, and possession of cannabis in states where it has been legalized and where there is rigorous regulation.
There Are Ambiguities in Cannabis Insurance Policies
Even though the federal Controlled Substance Act prohibits the possession and production of marijuana, Oregon law is in favor of engaging in cannabis activities within limits. Because of this, general exclusionary language may not be sufficient to clearly define what is covered in a policy. The conflicts between state and federal laws are the source of confusion in some property and casualty policies that contain general public policy clauses or exclusions for illegal substances.
As a matter of fact, the Oregon Department of Consumer and Business Services issued a bulletin that instructed insurance carriers doing business in the state to clear up ambiguities in their policies. In the June 29 bulletin, the consumer protection and business regulatory agency order stated that property and casualty policies should explicitly declare whether cannabis-related activities are covered or excluded and whether the policy considers cannabis-related activities illegal. The bulletin was developed by the Division of Financial Regulation (DFR) as a means to promote clarity between insurers and the insured when it comes to policies that may cover losses, damage or liability associated with marijuana items and activities.
The department spokesman of the Recreational Marijuana Advisory Committee, Jake Sunderland stated in an email that the above bulletin appeared after the review of insurance contracts, and not from any specific case of a denied claim or coverage. Prior to the issuance of the proposed bulletin, the DFR had already received form filings that proactively clarified the coverage status of marijuana items and activities.
Change Is Inevitable
The growth and continuing mainstream legitimizing of the marijuana industry will inevitably lead to more insurance carriers and brokers into becoming involved with the marijuana industry. This will, in turn, bring about an increase in the types of policies offered along with more competitive pricing.
The Californian Insurance Commissioner Dave Jones is working towards change by educating major carriers and convincing them to start insuring the multi-billion dollar industry. According to him, both the consumers and business owners are at risk when there isn't sufficient coverage. He believes that emerging industries and ones that carry a higher risk, like the cannabis industry, merit state-level mandatory coverage. Jones has been monitoring the availability of insurance to the medical marijuana industry ever since he was sworn into office in 2011.
With so many advocates arguing in the favor of covering cannabis businesses, we can only hope for a positive change in the future. When more and more insurance companies are willing to cover the marijuana industry, competition will increase, thus resulting in better quality products.