How Should Insurance Respond to the Cannabis Industry?

Depending on legalization at the state and federal levels, the U.S. cannabis industry could bring in $44 billion by 2020, according to a recent report by Marijuana Business Daily.

But for a number of reasons, many professionals in the insurance industry don’t see the value in pursuing this unique but risky market. “Insurance companies don’t love startups,” points out Patrick McManamon, CEO of Cannasure, an insurance wholesaler that works with independent agents in 25 states. “Throw that on top of a federally illegal substance, and it makes things difficult.”

And stigma is still a major roadblock, says Jeffrey Samuels, vice president of sales at Founder Shield, an independent agency in New York City that focuses exclusively on the venture-backed startup community.

“One of the biggest misconceptions is that these business owners are degenerates or so-called stoners,” Samuels explains. “But these are people who have been successful in other ventures, applying their business acumen to the next great American industry.”

Marijuana dispensaries “have the same issues any retail dispensary would have from any retail shop,” McManamon says. “Cultivators and infused product manufacturers have the same issues any food processor would have.” Cannasure commonly sees exposures associated with non-owned auto, butane usage for extraction and electrical work.

Samuels says he’s found success working with ancillary businesses, or those that don’t touch the plants, many of which are tech-based. “For challenges there, we’re talking about E&O and cyber liability,” he explains. “They work with a lot of sensitive consumer data, and a lot of these companies have APIs and the ability to plug into bigger software.”

Carrier choice in this industry is still somewhat limited, but Samuels advises talking to underwriters directly: “We’ve been able to have discussions where I say, ‘You’re great at placing disruptive tech startups, and cannabis needs to be insured. Would you be comfortable writing that?’”

And if you’re insuring the property and inventory side, keep in mind the crops can be expensive. Samuels notes, “If you have a $10-million grow operation, what is the amount you can insure up to?”

As the industry grows, Samuels expects more carriers to step in. “When you can insure something like this, it makes the business a little more stable, which legitimizes the industry,” he explains. “I think that’s what we’re hoping for.”

Jordan Reabold is IA assistant editor.