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Many other crops have been grown in greenhouses, and insurance risks and rates have been statistically determined for them. We can use that information to approximate risks for indoor cannabis grows while we build our statistical data. When it comes to the retail side of the industry, the insurance risks resemble that of a jewelry store or convenience store, because cannabis is a high value, portable item, like cash or jewelry.

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What are signs of inadequate or bad coverage?

Based on what we’ve seen, we estimate that roughly 1.3-1.9% of a business’s revenue should cover the premium for the year. We’ve seen multi-million dollar grows only paying about $6 thousand a year for premiums. There was no way they were being sufficiently covered. Additionally, if you’re relying a landlord’s tenant insurance, it’s incredibly unlikely that you’re covered. Those have clauses that deny coverage in the event that anything deemed “illegal” is knowingly produced on-site.

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First we talk with our senior policy underwriter. They know most of the legal concerns surrounding insurance. That said, we will consult with third party lawyers for specific parts of the insurance policies. By consulting with outside lawyers, we can eliminate redundancies and strange portions of policies.

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1. Building quality matters. Well-constructed buildings lower insurance costs, and vice versa.
2. Another factor is revenue. Larger companies will need more coverage and therefore a higher premium.
3. Business security is important. What security measures are in place? Better security means lower rates.
4. Day-to-day operations can also influence prices. Are there inefficiencies or risks in the normal day-to-day operation? Are there adequate worker protections in place? Better protection means better rates.

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Cannabis-Specific Insurance

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1. Normal perils, such as lightning, fire, hail, etc. Prices are based off of standard risks such as the local environment and the building structure.
2. General liability in case somebody decides to sue your business for something that happened during normal operations. If a worker slips and falls, you can be covered.
3. Crop coverage insurance is specifically designed to protect the plants against risks of fire or theft, but not crop failure due to pests or failure to pass inspections.
4. Business Income Insurance in case you need to renovate from an incident.
5. Equipment Failure is pretty self-explanatory.
6. Product Liability Insurance if you are selling a product.
7. Extra Expenses Insurance in the event of an incident.
8. Commercial Auto Insurance if there is a company vehicle.

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How does the issue of cannabis being federally-illegal play into insurance?

Insurance is regulated on a state-by-state basis, meaning that every state has its own rules regarding insurance.

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Besides banking, there’s another issue that is often forgotten: Bankruptcy. Bankruptcy protection is granted by the federal government in the event that a person or business cannot repay its debts. However, because it is a federal protection, cannabis businesses cannot claim bankruptcy. You are always on the hook, regardless of whether you can pay or not. This lack of protection extends beyond the business too. Any investors can also be targeted for lawsuits, and they have the same lack of bankruptcy protection. Same goes for landlords.

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“Why bother with insurance?”

The cannabis industry as a whole has a very high risk tolerance when compared to other industries. Many will simply ask us, “Why bother?” The truth is that if we want to see cannabis become a legal, regulated substance, we need to stop acting like the black market. The black market’s only liabilities are run-ins with the law. Standard business practices are often thrown to the wayside in order to get to the first paycheck. This seemingly rash behavior scares banks away from cannabis businesses. It only takes one mistake for a business to go under and a politician to enact draconian laws.

Editor’s Note: Insurance relies upon the “law of large numbers” and statistics in order to predict the frequency and value of insurance payouts and then predict a premium rate that will keep the insurance company in business.

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While the legal industry is relatively new, we’re not completely in the dark about risks for grows. Many other crops have been grown in greenhouses, and insurance risks and rates have been statistically determined for them. We can also use that information to approximate the risks for indoor cannabis grows while we build our statistical data.

When it comes to the retail side of the industry, the insurance risks resemble that of a jewelry store or convenience store. The biggest risk is theft and burglary because cannabis is a high value, portable item, like cash or jewelry. As such, we insure retailers like one might insure a 7/11 or jewelry store. We recognize that some dispensaries are also growers. By analyzing each business on an individual basis, we can determine risks and rates for each one.

There are a variety of different signs of inadequate coverage, but I’ll give you an example. In Colorado, an average vertically-integrated grow or dispensary will generate about $2-2.5 million per year in revenue. We saw multiple grows of this nature only paying about $6 thousand a year for insurance premiums. That is a big red flag: If you’re only paying $6 thousand a year for a multi-million dollar business, there is no way you are being sufficiently covered. Based on what we’ve seen, we estimate that roughly 1.3-1.9% of a business’s revenue should cover the premium for the year for a fully comprehensive program, which would include General Liability, Property and Tenants Improvement Coverage, Crop Insurance and Product Liability coverage. So if you’re running a $1 million business, you should expect to spend $13-19 thousand a year on insurance. Additionally, if you’re relying upon a landlord’s tenant insurance, it’s incredibly unlikely that you’re covered. Most insurance that landlords purchase specifically deny coverage in the event that anything deemed “illegal” by the federal government is knowingly produced in the facility. In the event that something happens, the claim will be denied and both the grower and the landlord will be left with nothing.

Editor’s Note: Most large insurers typically set aside a set amount of the premiums they receive as liquid assets in order to cover any claims made by their clients (approximately 10-20% of the total insured value they offer). The rest of the money is usually moved into a variety of investments to increase the insurer’s overall profit margin.

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At this point in time, we’re building our premium volume to make sure we can completely cover every business we offer services to. Our reinsurer, in turn, is Hannover Re, the third largest reinsurance agency in the world. We estimate that 80% of the industry is underinsured or uninsured. As we start to see more businesses realize this problem, we expect premium rates to gradually drop.

We first talk with our senior policy underwriter. Generally speaking, they know most of the legal concerns surrounding insurance. That said, we will consult with third party lawyers for specific parts of the insurance policies. In particular, we usually speak with these lawyers about:

1. Tax Liability
2. Franchising
3. Workers Compensation
4. Real Estate
5. Investment
6. Directors and Officers Insurance (D&O)

The reason we speak with lawyers is because insurance forms are well known for saying something that can get removed in a later portion of the policy, which may be added back in even later via a rider. By consulting with outside lawyers, we can eliminate these redundancies and strange portions of policies. We want to demystify the whole process. As a side note: If you have insomnia, we highly recommend you read an insurance form.

When insuring a grower, building type doesn’t matter nearly as much as the quality of construction for the building. For example, a well-built greenhouse with protection against hail will often have better rates than a shoddy, poorly held-together warehouse. Construction materials, design, and more go into this consideration. Another obvious factor is revenue. The more product a company is working with, the more that will need to be covered by insurance and therefore a higher premium will be exacted. The larger the company, the larger the insurance costs.

We look at the security for a business. What security measures are in place? Do they have functional cameras, a guard, or even a robot? What about a dog? Dogs actually increase legal liability, which will raise rates. We also look into how day-to-day operations are managed. Are there inefficiencies or risks in the normal day-to-day operation? Are the floors kept clean, or are they constantly wet? Are there adequate worker protections in place? Is safety equipment easily accessible? All these factors and more play a large role in determining insurance rates.

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Editor’s Note: See our related article on cannabis business security!

There are your normal perils, such as lightning, fire, hail, etc. We offer property protection for that reason, and base it off of standard risks such as the local environment and the building structure. We also offer general liability in case somebody decides to sue your business for something that happened during normal operations, including bodily harm or property damage due to the natural course of business. If a worker slips and falls, we can help cover you.

Crop coverage insurance is specifically designed to protect the plants of a medical and/or recreational marijuana supplier. The two main coverages protect your business against risks of fire or theft, but not crop failure due to pests or failure to pass inspections. We have many more types of coverage, including:

1. Business Income Insurance (as a rider)
2. Product Liability Insurance
3. Extra Expenses Insurance
4. Commercial Auto Insurance
5. Tenant Improvements
6. Excess Liability
7. Umbrella Policies

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Editor’s Note: This document details coverages in greater detail.

Fortunately, it doesn’t matter. Insurance is regulated on a state-by-state basis, meaning that every state has its own rules regarding insurance. If a state has just legalized cannabis, we like to wait for the policymakers to catch up with the rules surrounding insurance, to prevent any mishaps.

Besides the issues that most people talk about, such as banking, there’s another issue that is often forgotten: Bankruptcy. Bankruptcy is a protection granted by the federal government in the event that a person or business cannot repay its debts. However, because it is a protection granted by the federal government, that means that cannabis businesses cannot claim bankruptcy. If you or your business gets sued, you are on the hook, regardless of whether you can pay or not.

Often this lack of protection can reach beyond the business itself. Any investors in the business can also be targeted for lawsuits, and they face the same lack of bankruptcy protection as well. The same also applies to landlords who knowingly rent their property to a cannabis business. However, insurance can help fill some, though not all, of the gap. One of the services we offer does cover lawsuits, which could protect against bankruptcy.

The cannabis industry as a whole has a very high risk tolerance when compared to other industries. Many will simply ask us, “Why bother?” when we talk about insurance to them. After all, they’ve lived and worked for many years without it, and they haven’t had any problems. The truth is that if we want to see cannabis become a legal, regulated substance, we need to stop acting like the black market. The black market’s only liabilities are run-ins with the law. There are no consumer protections, there are no bankruptcy protections, and there are no safety nets.

But with legalization comes a whole host of legitimate business concerns. Because banks very rarely grant cannabis businesses loans, most businesses start out by collecting enough money to build out the first grow. That money typically comes from friends, family, personal accounts, and acquaintances and has no bankruptcy protection. Standard business practices are often thrown to the wayside in order to get to the first paycheck. Only later when the business becomes more established, do company owners start focusing on their business needs. This seemingly rash behavior scares banks away from cannabis businesses. If we want to be a legitimate industry, we need to start acting professionally, and that means risk protection. It only takes one mistake for a business to go under and a politician to enact draconian laws. Insurance helps mitigate those risks. Our tagline is “Protecting the industry and the people in it.” If you’re good at what you do, we want to help. Don’t be afraid of being sued, plan for it.

The industry has been sorely lacking in proper knowledge about insurance. Many growers have been burned by poor coverage in the past, and we often have to spend a lot of time educating them about the value of it. We even have a whole division of our company dedicated to educating and training our insurance experts specifically on how to talk with cannabis business owners about their concerns. Another issue is that because of the way the industry works, most cannabis businesses don’t really worry about insurance until their third or fourth year of operation. We typically don’t see the demand in a state that recently legalized until a few years down the road.

Nowadays we’re regularly getting invited to speak at major conferences to help educate businesses about insurance. It’s a major boon to see that we’re getting recognized for our efforts to improve the industry. Additionally, we’re also getting referrals from major insurers to help cover some of their clients. It’s been pretty amazing to see large, interstate insurers come to us for help.

We have seen multiple instances of the same problem, which I’ll highlight with an example: We were at a grow operation one time, speaking with the owner about how they deliver their products from cultivation to stores. Right as we were talking, a young woman in her early 20s showed up, wearing flip flops, shorts, and a tank top. The owner paused our conversation to let her know that she needed to deliver 20 pounds of dried, cured bud to a nearby dispensary. The bud was held in a large plastic baggy held closed by a zip-tie. We asked the young woman what she drove and if she had any protection in the event of an emergency. She told us that she drove a small sedan and that she kept a tazer handy. Needless to say, we gave the owner of the cultivation site a deadpan stare. That was thousands of dollars of product being delivered by a small woman who would make an easy target for a robber. Not only was that an immense monetary risk for the business, it was also practically asking for the poor woman to get hurt. The owner realized what he had done and said he had never thought about it before.

And that’s kind of common in this industry. People who are really smart can do incredibly stupid things when it comes to cannabis. It can be easy to be giddy over the “Green Rush” and become complacent. You have to treat any cannabis product like it’s a bag of money and prepare accordingly.

Because the cannabis industry is complicated and constantly evolving, a general insurance company will not be able to provide the kind of plan that would keep any cannabusiness completely covered. By focusing solely on the industry we are able to cover cannabis businesses based on their individual needs. Risks are different for everybody, and we assess based on numerous factors. Unlike auto insurance, which can provide a quote in 30 minutes, we realize that every cannabis business has different risks, different liabilities, and different needs. We take the time to work through every detail of your business and give you comprehensive coverage at a reasonable rate. We work with tax specialists, realtors, investors, and more to reduce your liability and improve your business. We even offer discounts if you’re a member of a trade organization or use established seed-to-sale systems such as BioTrackTHC. We’re constantly adding new products all the time to meet people’s’ needs, and we customize policies for each business. If you’re a vertically integrated business, we can work with that and tailor a policy specifically for you. The right insurance group will have your back in times of crisis, and will protect your business when nobody else will. That is what we do.

Mark McNeely went to the University of Colorado and graduated with an international economics degree. He worked in the cannabis industry for over 3 years, with a large, vertically integrated operator based out of Denver. With his experience in hand, he went to work as a consultant. He met with entrepreneurs in newly legalized states, who had no idea how to start a cannabis business. He taught them how to cultivate, how to set up a dispensary, how to train employees and more. He quickly realized that there was an area sorely lacking in the cannabis industry: Insurance.

Gerry Jones (pronounced “Gary”) came from a background completely unrelated to cannabis. He worked in the corporate television world for 20+ years prior to his work in insurance. He was the VP for DirecTV’s commercial division, advising underperforming businesses or buying them out. He helped develop the commercial division with pricing strategies and structures. He retired to work part-time as a high school football coach, before he met a couple of insurance underwriters who introduced him to cannabis insurance. He was asked to help develop the business, and eventually met Mark a few years ago.

Well, to be honest, we saw an open niche, and we took it. Lloyd’s of London was the main carrier in the industry a few years ago, and they decided to leave it. Lloyd’s of London is frequently known as “the carrier of last resort” because they specialize in insurance for unusual or difficult-to-insure businesses and items. When they left, there were very few insurance companies in the industry, and many growers didn’t trust them because they had been burned in the past by bad coverage. We seek to make the difference with comprehensive coverage that doesn’t leave cannabis businesses hanging in the breeze.

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Gerry Jones: There are a number of different factors why I entered the business, not least of which is personal. My mother, who has bad hips and joints due to her age, has experienced major pain reduction thanks to cannabis. I want to see the industry succeed, and I’m not here to just make a buck. My hope is to protect the industry and the people in it. I want to keep people in business and out of trouble. Mark McNeely: I come from the growing side of things, and I realized how costly mistakes are for the whole industry. It only takes one mishap and a single politician to set us back years. We’re currently helping insure businesses in Colorado, Washington, Oregon, California, and Alaska, and we’re trying to get more businesses involved.