Workers trim plants at a cannabis farm outside of Salinas, Calif. on Tuesday, April 25, 2017. All cannabis businesses will soon need $1 million in liability insurance. (Patrick Tehan, Bay Area News Group)
Just like big banks, big insurance carriers have largely shunned the cannabis industry, worried about blowback from federal authorities and risk-adverse investors.
“Many insurance companies flat out do not have an appetite for any business related to cannabis,” said Brian Marblestone with the San Carlos brokerage firm Stratton Agency.
California Insurance Commissioner Dave Jones wants to change that, with both consumers and business owners at risk if there isn’t sufficient coverage. So he’s holding a series of meetings aimed at educating major carriers and convincing them to start insuring the multibillion-dollar industry.
Jones hopes that shift will happen soon. California regulators want all marijuana businesses to carry at least $1 million of liability insurance if they aim to be eligible for a license to operate once the state starts handing them out Jan. 1.
That’s not a standard requirement. While California requires businesses in some industries to prove they have insurance, in many industries the requirement for insurance comes from other parties — banks or landlords. But Jones said emerging industries and ones that carry a higher risk sometimes merit state-level mandatory coverage.
Jones said he’s been monitoring the availability of insurance to the medical marijuana industry since he was sworn into office in 2011.
Cannabis businesses have been getting coverage almost exclusively from the surplus line market, which includes carriers that are approved but not licensed by the state to provide coverage for companies that have been turned down by major insurers. Those surplus line policies tend to be more expensive and have stricter requirements than licensed carriers, he said.
“I’m a big believer in competition,” Jones said. “Through competition we get better pricing, better quality and more choice in products.”
It was encouraging to hear the state’s top insurance regulator offer state support for major carriers entering the market, said Ian Stewart, an attorney with the firm Wilson Elser in Los Angeles who specializes in cannabis law.
Licensed carriers are “actively looking at cannabis,” Stewart said, with “teams in place” working to ensure they’re ready to jump in when the climate is right.
But Stewart said he doesn’t think it’s quite there yet due to the uncertainty caused by the Trump administration, with threats of a crackdown on state-legal cannabis programs under Attorney General Jeff Sessions having “cooled the interest.”
Then there’s the fact that the legal cannabis industry is so new, Marblestone said.
“Insurance companies are conservative in nature,” he said. “Before entering any new market, they want to have the law of large numbers on their side, meaning they are able to study the trends and loss ratios of the different classes of business in the industry. This way they establish pricing models to rate the business according to the risk while still remaining profitable.
“With an emerging market like cannabis, the law of large numbers is not available.”
Many times, Marblestone said he’s helped cannabis business owners secure insurance coverage from a willing carrier. The business owner then presents proof of that coverage to their landlord, who passes it along to their own insurance company. But once that carrier sees the landlord has a cannabis business as a tenant, they drop the landlord’s insurance policy.
Cannabis business owners such as Derek Peterson, CEO of Irvine-based Terra Tech, also report getting turned down for personal life insurance due to their profession.
Link – The Cannifornian
