The marijuana industry has faced many challenges since California became the first state to legalize medical marijuana in 1996. Regulatory compliance and the threat of federal prosecution have been two of the biggest hurdles. But getting insurance, which no reasonable business owner wants to be without, has been nearly as challenging. After being turned down by major insurers, many marijuana businesses simply operate without insurance and hope that they can ride out any issues that arise. But with California set to require proof of insurance when the state begins licensing its cannabis businesses on January 1, 2018, that’s almost sure to change.
Issues with Transparency
For marijuana entrepreneurs, the need to maintain a certain level of secrecy has historically been a barrier to getting insured. Growers, in particular, are understandably hesitant to divulge the amount of information insurers want. What’s more, the insurance industry as a whole is still hesitant to write policies for marijuana entrepreneurs. So those who have insurance get it “almost exclusively” from the “surplus line market,” according to California Insurance Commissioner Dave Jones. These unlicensed carriers are approved by the state to write policies for companies that have been turned down by major carriers. But they tend to be more expensive and have stricter requirements than big insurers, Jones says. As a result, many marijuana businesses choose to forgo coverage and assume the risk.
Landlords Lose Coverage
Marijuana distributors and dispensaries have faced another hurdle: After they rent a structure to operate a cannabis facility and present proof of insurance to the landlord, the landlord forwards it to their insurer as required. Then the landlord gets a letter from their insurance company canceling their insurance, usually within 30 days.
“Many insurance companies flat out do not have an appetite for any business related to cannabis,” said Brian Marblestone, a risk advisor with the Stratton Agency, a brokerage firm in San Carlos, California. The industry is conservative by nature, he explains. And as a rule, they want to study the trends and loss ratios of different businesses in an industry before jumping in. With an industry as new and fraught with uncertainty as legal marijuana, that data simply isn’t there.
Regulations Are Coming
Nevertheless, regulations requiring insurance for any marijuana licensee are coming, at least in California, where the state’s Bureau of Medical Cannabis Regulation just closed public comment on 211 pages of proposed rules in June. These include a requirement that licensed marijuana businesses carry a minimum of $1 million in liability coverage and, quite possibly, product liability insurance as well. The latter protects companies in the event their product causes injury due to issues such as improper labeling, contamination and the like.
To smooth the transition for California businesses, Commissioner Jones has been holding meetings with insurance executives to urge them to begin selling policies in the state, which recorded over $2.7 billion in marijuana sales last year. The outcome of his efforts, however, remains unclear.
About The Carmoon Group
Headquartered in Hicksville, New York, The Carmoon Group has been providing comprehensive business insurance to small and medium-sized businesses since 2002. Now, starting in the fall of 2017, we are moving into the medical marijuana market and offering affordable, comprehensive insurance solutions to marijuana entrepreneurs across the United States. So, why not give us a call today to learn what we can do to help you manage your risk? Or, if you prefer, just contact us online and we’ll get back to you at a convenient time.