As cannabis sales increase exponentially, so too have the number and type of products on the market. As the market grows, here are four things to keep in mind.
With the worldwide cannabis market expected to grow to approximately $47 billion by 2025, according to BDSA, the leading provider of cannabis industry market research, growth opportunities for the insurance industry are vast.
As cannabis sales increase exponentially, so too have the number and type of products on the market. Combine this with increased competition from more growers, retailers and other entrepreneurs vying for a stake in what some are calling the “green rush," and it all rolls into an industry that is ripe with opportunity.
“Insurance has done a great job of saying we have non-admitted market options and we can adjust this to satisfy insurance for your business," says Tyler Cline, CEO, Cannabis Insurance Business agency. “I really am happy with what I've seen in the non-admitted markets."
But as the market grows and legislation changes, there are a number of areas agents and brokers should consider before entering the market. Here are four things to keep in mind:
1) Unexplored market products. When it comes to cannabidiol products, “there are different types coming into the market at a really fast pace," says Keith Distel, casualty team leader and marijuana liability expert, Admiral Insurance Group. “Everything from traditional edibles like cookies or gummies, candies, skin lotions and shampoos—there are all sorts of different products out there in the space for different ways to meet the needs of consumers."
While the key areas of product liability apply to the cannabis market, “realistically, cannabis is still very much the exception," Distel says. “Before entering the cannabis insurance market, it would benefit agents to see cannabis as more than simply a products account."
“I think one of the best and most unique aspects of this space is we have not even reached the full-blown extent of what the industry as a whole could be," says Max Meade, strategic insurance advisor with Brown & Brown Insurance.
2) Policy coverages. Despite being deemed an essential business during the height of the pandemic, cannabis retailers continue to be cash-only businesses, which means the security and transportation of the product is of the utmost importance.
Further, coverage gaps such as “assault and battery is a huge gap that I'm seeing with a lot of different carriers," Distel says.
Other common coverage gaps include commercial property coverage for the equipment used by cultivators and growers. “While companies might have general and product liability coverage, their money and their most exposure for any fire or real direct loss is in their equipment and inventory," Cline says.
“This is such a new industry not only for retailers, brokers and agents, but also for the insurers themselves," says Daniel Mayo, senior underwriter, Admiral Insurance Group. “You've got people who've never run a business who, all of a sudden, are opening up a dispensary and are not sure what coverages to purchase."
Operations and companies are still being created and formed and “I just think there's so much opportunity to get involved and help these businesses get formulated and to get operating, particularly on the insurance side," Meade says.
3) Delivery and onsite consumption. While onsite consumption took a hit during the pandemic, home delivery saw the same uptick that every other business has during the past year. As current touchless trends continue and more states consider going the route of non-storefront dispensary operations, delivery is a key facet of the cannabis business.
“A lot of companies are investing a lot of money in technology and ways to take their dispensary and their point-of-sale systems from storefronts to customers' front doors," Distel says. “That's presenting a lot of different risks from auto liability, to assault and battery, to theft," he says. “It's always riskier when you're taking products and you're taking cash from point A to point B, especially with something like this product," Distel explains.
Interstate commerce is also an area that will continue to be an issue until all states legalize cannabis. “What you have now are psychoactive cannabinoid components being shipped through U.S. Postal Service, UPS and FedEx. They don't know how to tell the difference between a Delta-9-THC or a hemp-derived Delta-8-THC cartridge," Cline says. “You're putting a lot of this into a legal transportation system where it can cause problems due to an educational gap."
As the industry grows ahead of the federal legal system, trucking and commercial auto, as well as the private carrier market, will be impacted on a national level.
4) State and local laws and regulations. Depending on where they are operating, “agents need to be mindful of the fact that when they're looking at a cannabis operator, there are so many specific state considerations, including what their operations are and what kind of license they have," Distel says.
In certain cases, local laws will supersede actual state laws. Taking the viewpoint that what “they're working with is unique—it's not just a general product account—will make sure clients' accounts are fully protected," he says.
Olivia Overman is IA content editor.