Cannabis Insurance: How to Protect Your Investment

The blossoming cannabis industry in the United States shows great promise for the future. With this bright outlook comes risk and, in the past, cannabis businesses had to forge their own path with little to no ability to protect their business and investment. However, support within the industry has helped move legislation forward in several lanes, including insurance-related concerns.

In September 2019, the House of Representatives approved the proposed SAFE Banking Act (SBA); however, two weeks ago Senate Banking Chair Michael Crapo (R-Idaho) made it clear the existing version of the SBA wouldn’t pass. In an official statement, Crapo listed a number of concerns, which include:

  • marijuana companies’ marketing tactics to minors;
  • fear of potential money laundering schemes; and
  • the need for strict interstate commerce regulations (to ensure marijuana doesn’t leave its home-grown state).

Most importantly, Crapo called for a 2% limit on tetrahydrocannabinol (THC) potency. THC is the substance in marijuana that gets users high and a 2% limit would exclude a vast majority of the products on dispensary shelves (including edibles and concentrates).

While the text remains on the table for discussion, if passed in the Senate, the SBA would provide a first round of protection to insurers. In particular, the SBA’s proposed language states that insurers engaging in business with a legitimate cannabis-related business may not be held liable pursuant to any federal law or regulation solely for engaging in the business of insurance or for further investing income derived from the business of insurance.

Meanwhile, cannabis insurance companies are getting a head start. Back in March 2019, a Santa Barbara cultivator received an insurance payout of over $1,000,000 after ashes from the Thomas Fire destroyed his plants. The insurance company calculated his payout based on fair market value of what the plants would have produced if not destroyed. If the cultivator had no insurance, he would have been left with nothing and suffered a multimillion-dollar loss.

Like the cultivator mentioned above, the cannabis industry should be reminded of the adage, “to hope for the best, plan for the worst.” Fortunately, insurance companies are now stepping in to help business-owners minimize risk for the cannabis industry. Some companies are developing actuarial tables and claims projections for the cannabis industry now that there is a recognizable and insurable risk.

In the interim of obtaining insurance, cannabis business-owners can implement preventative steps. Taking the time to do proper background checks and multiple interviews of each employee will help root out the bad weeds and could save the business money in the long-term. Another consideration is hiring a qualified alarm company to establish a constantly monitored security system that is tied to local emergency services. A strict hiring process coupled with sophisticated security measures could result in less theft and, in turn, lower insurance premiums for some companies. Utilizing such services could also lower fire risk and increase the overall safety of the business facility.

We know the cannabis industry is growing and evolving rapidly. Accordingly, business-owners are more likely to make the right decisions when they have a minimized risk and it could also encourage investors looking to help a business reach its full potential.

Skilled Hemp & Cannabis Attorneys

At JRG, we can consult with you regarding risk assessment. Our hemp & cannabis lawyers can help formulate a plan to minimize exposure and ensure longevity of your business.

Contact our firm today at (831) 228-5619 or contact us onlineto schedule a consultation.