As we know the cannabis business is producing thousands of new jobs and putting hundreds of millions of dollars into the economy. Despite this the major carriers still sit on the sidelines, fat and happy but envious of lost premium. One writer recently suggested that the surplus lines canna insurance market will prevail for the next 10 years: good news for us. But that may not be true of all lines as worker comp or auto liability which are somewhat easier to underwrite although Kanna Knowledge has written about stoned drivers making deliveries.
The truth is, most insurers do not understand the legal, mostly state, regulations and the Federal tax issues confronting the canna business. These entities are often set up with multiple named insureds, multiple business entities and a polyglot of locations. This industry is still in its infancy and conservative old line insurers like clearly defined lines of what they cover.
One area that is most confusing to all carriers is extraction and verification of product purity. There are a few accepted national standard organizations like ISO, but do they really know if the development and marketing of a plant-based product turned into oils, tinctures and vapes (15 to 18% of sales), have been appropriately harvested, smashed for the oil and packaged for distribution?
Kanna Knowledge staff has visited dozens of dispensaries all over the country, bought all available type product, for the entire class of cannabis being sold, and it always says in small print that this item has not been evaluated for/by the FDA for any curative purpose. Will insurers be able to underwrite these products? Will carriers accept the cannabis’ businesses VERY small words on paper as the gospel? We doubt it.
As wholesale brokers, please be sure that you have samples of what is on the outer layer of the packaging that you are insuring and send photocopies to the underwriters. We have written about the southern Cali business that almost went out of business because the FDA challenged the exterior wording on displayed sales items.
The policy language in a cannabis insurance policy is, according to the NAIC (National Association of Insurance Commissioners) mostly filled with coverage shortfalls and inadequate limits. The biggest risks here are product and general liability. Norman Ives, cannabis practice leader at NutraRisk has written that while most brokers spend time explaining the need for cyber and other products, in the canna space too often too much time is spent trying to explain the holes in the coverages being sold.
Lastly, low-risk health hazard endorsements often remove coverage for health-related claims that are not categorized as trip and fall: uh oh, does product liability step in? And another area that needs attention is assault and battery by security guards/employees in a retail location. Misconduct of both as in an alcohol serving business, often result in costly lawsuits.
To some of these issues there is no answer for now. What Kanna Knowledge does know is that the E&S market will be good for years to come, as complex coverage issues are settled in the courts.