Cannabis Insurance 101: Navigating through the Weeds

Hi, everybody. Welcome to Cannabis Insurance 101. I really appreciate you joining me today. My name is Erin Hamilton. I am with Pavese-McCormick Agency, and I am the Cannabis Coverage Expert over here. So, our title is. Navigating Through The Weeds. I just want to start with what is currently happening in the cannabis industry. Then we’re going to move on to cannabis insurance. And where are we going from here? Lots of new developments in the cannabis industry.

Cannabis happenings nationwide. So, first of all, IBIS World cites the CBD product manufacturing part of the cannabis industry as the fastest growing industry in the US, which is pretty exciting to see. In Oklahoma, we saw that they voted down the full legalization of cannabis, but the medical still remains, which is a good sign, and a positive. The medical side of things is something we really want to see more of and something we want to see across the nation. It’s something that can really be developed. And federally, I think that’s something that needs to be questioned.

Texas Decriminalization Bill was approved by the House committee. Anything we’re seeing down South is a big plus. Pennsylvania bill to ease restrictions on the state’s medical marijuana program allowing doctors to make decisions on actual medical needs has been approved. And you’re probably seeing some dips in cannabis sales. Stocks I know are being affected. But we’ll touch back on that later. But California specifically saw cannabis sales dip in 2022.

How about New Jersey and New York? Those are the new kids on the block, right? So, New York lawmakers are looking to simplify the State’s tax structure for adult-use cannabis sales. It’s been an issue in the last couple of years. So, they are looking to make those things simpler and streamline them. New Jersey AG released revised drug testing policies as it pertains to law enforcement, which is an interesting development, and something that we want to see more of across the board.

And then just something on the retail and retail space side of things is 2 former New Jersey diners are to be converted into dispensaries. So, it’s great to see the utilization of these unique spaces. I love seeing old or unused spaces redesigned and refitted for something new. And the cannabis industry is so unique in itself and so interesting in itself that it’s great to see those spaces used and utilized for those things.

Cannabis insurance. This is something we all need to be aware of, and the main topic of our discussion today. A little bit about Pavese-McCormick as an agency. Concierge-level service, so our whole goal is to lay out the options and help you to decide what’s best for your business. Coverage is written nationwide. We have carriers and access to the majority of carriers in the cannabis industry. And we were founded in 1933.

Why do companies need cannabis coverage, and who needs it? So, basically, if you’re operating a business, you should really have coverage. Specifically, cannabis companies have to contend with risks beyond what other companies face. There are many legal uncertainties and unique hazards associated with the cannabis market. And cannabis businesses need coverage to address those risks specific to the industry. So, a lot of what I’ll be discussing, you’ll see there coverages that you might see in any kind of retail space or any kind of farm or anything that pertains to something that on an overarching umbrella pertains to the cannabis industry. But these coverages will be specifically tailored to the cannabis industry.

Cultivators, delivery and transporters, dispensaries and retailers, manufacturers, wholesalers, distributors, testing labs, processors, and harvesters. And then you have your lessor’s risk, which is your building owners. They rent out their space to others, or people who own the building where they’re operating their business. Those are big ones. And I’m seeing a lot of interesting contracts around those. Then you have your ancillary businesses. A lot of carriers who will write a CPA or a lawyer often aren’t as keen to write it if they have the majority of their files or cases as a cannabis-related business. So, that’s something we can look at for you as well.

Just some common insurance coverages that we want to address for the cannabis industry. Your general liability, commercial property, crop coverage, commercial auto insurance, product liability, worker’s comp, and excess umbrella coverage. And we’ll touch on each of those in a little bit more detail. Now, as I’m going through this, if you have any questions or think of anything, just pop them in the chat and I can address them at the end.

For your general liability. It covers property damage and bodily injury accidentally caused to others. This is not to cover employees. Employees are not included under general liability insurance. That’s something that we can find coverage for later on. It also covers legal defense, judgments, and settlements. So, that’s an important thing to note, because oftentimes, people say, “Well, I didn’t do anything wrong. I operate my business above board. There’s nothing, no reason that anybody would need to sue me or anything like that.” But we all know that false claims come about, and this is where you would find your legal defense coverage as well.

Again, to know, it’s a third-party coverage, so not intended for employees. And it’s a common loss that you might see, something that is an easy way to describe general liability. On its very surface, there’s so much more involved, but on this very surface, it’s like a slip and fall. So, if you operate a retail space or dispensary and somebody comes in, they slip, they fall, general liability is where you are going to look for coverage there.

Commercial property. So, if you own, or even if you lease a space for your cannabis business, you’ll need property insurance. So, as the building owner, obviously, you need coverage for the actual building. But the lease, if you’re leasing the space, you have your stock, you have all of the things that you use on a day-to-day basis, and the contents of that building would come under the Business Personal Property coverage.

And then a big one that I think is really important to note in the cannabis industry is Tenants’ Improvements and Betterments. So, you’re leasing a space, a lot of times, we’re seeing dispensaries leasing spaces and refitting those spaces to accommodate this new operation. So, with those improvements, those betterments, we’re seeing our clients put a lot of money into those spaces, and they don’t own those buildings. However, if there were to be a loss and you have this Tenants Improvements and Betterments coverage, you’ll be able to pull back some of your losses from that coverage. You’ll often see it combined with personal business personal property limits. So, keep that in mind when you’re looking at these quotes or when you’re getting quotes.

Business Income, also called Business Interruption is going to be extended coverage for when an actual direct loss occurs to the building. So, say there’s a fire and you have to pay out to be able to rent a separate space, but at the same time, when those repairs are made, you want to move back into that space. So, you’re paying your rent on the space that you’re waiting on, plus you’re paying rent on a second location. Those extended or additional coverages are where you would find coverage under the business income.

Crop coverage. This is when we see a lot of, especially with growers. It can help protect your business from financial loss if your crops are damaged or destroyed due to a covered loss. That’s important wording, “covered loss.” It can cover your cannabis from seed to harvested plants. Potential covered losses include severe weather, fires, theft, and employee error. I want you to note that this coverage is not intended to cover just overarching crop failure, which can often occur in the traditional AG market, and that obviously trickles down to the cannabis market. A lot of these carriers are still wanting to see growth facilities and greenhouses. They’re not as keen on the outdoor crops, but there is still recourse for those coverages.

Commercial auto insurance. If you have any kind of business, or even if you have any vehicle, you would be familiar with auto insurance. However, if vehicles are being used by owners or employees for business purposes, personal auto insurance will not cover this exposure. So, if you’re driving your personal vehicle to run errands or make deliveries, your personal insurance can deny any claims that occurred during business hours while operating for your business. So, business owners should obtain commercial or business auto insurance. And this comes in several different forms, depending on what exposures or risks apply to you or your clients as business owners.

If you’re using a third-party transport company, there are a whole host of exposures to address there. And if this is something that you think applies to you, definitely, please let me know and we can discuss that further. But even if you have no scheduled vehicles and you have no vehicles that are owned under the business name, commercial auto insurance can still apply to you if you’re borrowing vehicles, or if you’re hiring vehicles. Anything that comes across that way, there’s coverage available there too.

Product liability insurance is a big one, especially in the cannabis industry. It’s going to cover your legal defense cost if a product you grow, sell, manufacture, or distribute causes harm to someone else. So, this can be due to user error, or something like pesticide contamination leading to illness. So, again, it’s outside of your scope of control, but it’s still something that, if somebody wants to sue or come to you for medical costs or anything like that, you’re going to want to have some kind of coverage in place for those exposures. And that’s where this product liability comes into play.

Now worker’s compensation, this is where we’re coming back to. Under general liability, I said it covers third-party bodily injury. Worker’s compensation is where you’re going to find employee coverage for medical expenses. Now, most employers are required by law to purchase worker’s compensation if they have employees. In fact, every US State but Texas mandates companies purchase worker’s comp coverage for their employees. So, if they have employees, it’s mandated. Different levels for different States and different requirements come into play, but in general, this is something that can be said.

This coverage protects the employer from being sued for work-related injuries and provides coverage for employees injured on the job. So, worker’s comp is not intended to cover employees’ pain and suffering and therefore helps to keep claim costs to medical expenses. This is not to say there isn’t recourse for this type of loss from the vantage point of the spouse or family member, but overall, worker’s comp is to pay for medical expenses for an employee injured in the course of their work.

So, you also have your excess liability, also referred to as Umbrella. Different words, and slightly different meanings, but those are the general terms used. So, excess liability extends the liability of the underlying coverage, meaning that if you have a 1 million per occurrence general liability, 2 million aggregate, meaning 2 million you can use for the year, or the policy term, if you have a 1 million umbrella on top of that, it extends those coverages by $1 million. Especially seeing it being required over general liability for the cannabis industry, there are some carriers that won’t put it over any other carriers or any other coverages because it’s in the cannabis industry. But we often see these requirements in lease or contract agreements. And we’re seeing higher limit requirements in the cannabis industry. Especially, I’m seeing a lot under the lease agreements, where I would see a 1 million or 2 million requirement from a vendor, I’m now seeing 6 million, 8 million, 10 million. So, Umbrella is coming into play a lot when it comes to the cannabis industry and renting or leasing spaces.

So, there’s obviously a whole host of other information and coverages that we can look at, but I wanted to just touch base on the basics there. And if you have any questions about that, please let me know, or we can discuss it offline.

So, where are we going from here? Where is the cannabis market headed? So, consumption lounges, both in retail space and separate from the retail spaces, are something that we’re looking out for. There’s obviously a lot of talk about those, a lot of developments there. So, that’s an exciting development. Increased competition for non-cannabis companies entering the cannabis space, so farms already set up for everything else, are pivoting into a cannabis space. Retail spaces, there are online retailers, and all kinds of places that we’re seeing increased competition by entering early is obviously going to help with the success long term.

Cannabis is also not escaped inflation. We’re seeing inflation has increased the cost of cannabis across the board, from seed to sale. So, we are seeing those industries being affected. And, hopefully, we can see that ease a bit in the coming years. This is a really exciting one, cannabis use for both medical and recreational has become more widely accepted, especially as it’s become legalized more and more in more and more states. But there’s still that stigma, right? So, education is important. Talking to your clients, talking to business owners, webinars like this, any kind of information we can get out to the general public that cannabis use for both medical and recreational is not to be treated like the war on drugs was, and something that should be accepted across the board. And it’s coming. We’re getting there.

A report, I mentioned earlier the dip in sales, especially in California in 2022. This is a bright spot. A report from the New Frontier Data, I’ve seen these reports across the board, but specifically from the New Frontier Data stated that the legal cannabis market is projected to reach 73.6 billion by 2027, with the majority of that revenue coming from adult-use sales. So, the more States we see legalizing adult use, and recreational use across the board, that number is just going to increase. And we’re seeing rises rather than ebbs. Ebbs and flows in the industry, so hopefully we’ll see things on the rise.

And so, the future is bright, right? We have. A lot to look forward to, a lot of changes to see, and a lot of interesting developments across the board in the cannabis industry, as well as things like mushrooms, and legal mushrooms along those lines as well. So, it’s definitely something to look out for and something to watch.

Again, I want to thank you for your time. I really appreciate you joining me today. My name is Erin. I’m the Cannabis Coverage Specialist here at Pavese-McCormick agency. I’m going to leave my information on the screen. If there are any questions, I would love to address those now.

Tom, do you have any questions? Let’s see, “What should I look for when choosing a cannabis insurance provider?” That’s a great question. So, a lot of it has to do with your specific industry. So, with us, we do have access to a lot of carriers. And having a trusted agent I think is going to be a big first step. With the licensing, with the licensing requirements that are coming out, a lot of them are requiring you to have a plan for insurance. So, getting that early, and finding an agent you trust early is a great first step. That way, they can kind of be with you the whole way, and they’ll understand the business, your business a lot more. And someone who understands your business is a big help.

So, “How much does cannabis insurance cost?” That’s a good question. And it varies. Honestly, it varies. Ancillary, you can have something that’s $5000 that covers your entire business. If you have a large retail operation, cannabis sales can be in the millions. You can look in double digits, thousands, and even greater. So, it really is specific to your business, like any other business insurance is. And if you want to get a better idea, please reach out to me. We can discuss it a little more and get a better idea of the size of your business operation, or the size of your clients’ operations, and that will give us a better idea of the scope of the cost.

“Is cannabis insurance available in all States?” Not all States, because it’s not federally legal yet, and not all States have legalized it. But we can find coverage in the majority of legal states. We have access to those coverages. And carriers are opening the availability as States become legal. So, it’s all new. It’s all developing. Insurance moves at a different pace, but overall places that are legal, especially New Jersey and New York, Colorado, and Oregon, we have recourse to those coverages.

“Do I need cannabis insurance if I operate a cannabis business?” Absolutely. So, I would not recommend, even if it’s small, even if you’re doing… let’s say you’re doing some kind of skincare and you’re just selling it to friends and family, it’s still something that you want to have a good policy coverage for. Because heavens forbid, if something happens, you are going to be responsible for that liability.

“The most important insurance coverage I should buy,” so to start, if you’re just starting, general liability obviously is going to be a good start. But again, this is really specific to your business. I wouldn’t recommend anyone operates a business without general liability. But if you have employees, you’re going to have to have worker’s comp. Legally required to, especially in our area, in New Jersey, New York area. If you have crops, you’re going to want to have crop coverage. If you have a specific product that you’re selling, you want to look at product liability. So, there’s all those things.

And a lot of times, what we can do is package those into a nice package for you, so you do not have to deal with or contend with all of these different coverages. And a good agent is going to go over those with you and ensure that you understand what each one entails, then propose the best option and then leave it up to you to make the best choice based on the education you received.

“Covering employees if they are heard on a job,” yes, that would come under your worker’s comp. So, if you have employees, you need to have worker’s comp, and you would be able to find coverages for injured employees under that. And then, “Cover armored transportation of money or products inventory,” you’re going to find that coverage. Those are extending coverages, especially if you’re hiring out those armored transportation vehicles. That’s one of the extended coverages I was discussing previously, saying that if this is something that it applies to you, please reach out to me offline, and we can discuss that further and see what options would work best for you.

Is that all we’re getting? I think that’s all we’ve got. If anyone has any other questions, please, my email address is here. I’m happy to answer any questions. I’m happy to assist with any updates or anything like that. I can help provide letters of intent, anything along those lines. So, I really appreciate you taking the time today, and we’re going to wrap it up now. Thank you so much. I appreciate it.