Obtaining adequate and affordable insurance coverage remains one of the many challenges in the cannabis industry. Most large insurance carriers – adverse to the risk posed by unfavorable federal law – have so far chosen to leave millions of dollars in potential annual premiums that cannabis industry businesses are willing to pay on the table. But there is some good news to report while we wait for federal law to change: More carriers are entering the market, a growing number of insurance brokers have established expertise in procuring coverage, and a new cannabis coverage endorsement to standard commercial property policies is now available in most states.
More Competition to Cover Cannabis
According specialist insurance broker New Dawn Risk, the number of insurers underwriting coverage for cannabis-related businesses has risen from only six in 2020 to more than 30 today. More competition should put some downward pressure on premiums, even though premiums are likely to remain high even for relatively narrow coverage. Policy limits currently remain low even for large operations, with coverage for commercial general liability (CGL), property damage, and product liability coverage typically maxing out at $1 million per occurrence/$2 million aggregate.
A New Endorsement Broadens Property Coverage
A standard “Cannabis Coverage” endorsement now available in most states covers property damage to “cannabis stock” owned by the insured or in the insured’s care in a covered building, including growing plants. The endorsement also covers losses from business interruption and extra expenses incurred to mitigate a slowdown or stoppage of business related to the property damage. The endorsement adds cannabis exclusions to the standard commercial property policy, but the exclusion is not applicable to the categories of coverages the endorsement specifically provides. Covered “cannabis activity” is broadly defined as “the design, cultivation, manufacture, processing, packaging, handling, testing, storage, distribution, sale, serving, furnishing, possession, or disposal” of cannabis. The availability of a standard form is a further incentive for more insurers to consider entering the market.
Coverage You Can Count On
In some states, proof of insurance for certain risks is a requirement to do business. But even where it’s not required, making the effort now to secure desirable coverages will not only mitigate business risks and encourage investment, it could also reduce your business’s premiums in the long run. Lack of claims data is one of the reasons that insurers are reluctant to underwrite coverage and require higher premiums. Cannabis businesses with an established insurance track record will be better positioned for broadened coverage, higher limits, and lower premiums when the uncertainty about federal law is abated. Establishing a relationship with an insurance broker knowledgeable in the industry can help ease the process.
Other than the new cannabis property endorsement, there is no standard policy wording specifically geared toward the unique risks in the cannabis industry. Engaging a coverage attorney with cannabis expertise to review proposed policy language during the policy application and negotiation process helps ensure your premium dollars are well spent. Coverage counsel can identify potentially problematic terms and conditions – such as security or fire suppression requirements that are more stringent than state law – and advise about the requirements for giving the insurer notice of a claim, so an effective notice protocol can be established.
Knowing on the front end what’s covered and providing prompt notice of your claim can prevent your enterprise risk management plan from going up in smoke.