Insurance Companies, Not Laws, Are Preventing Widespread Cannabis Insurance

Marijuana Insurance Cannabis Now

In the aftermath of the deadly California fires, the lack of insurance in the cannabis industry became devastatingly clear.


Not long ago, the marijuana industry had some of the best insurance coverage in the world.

Cannabis firms were doing business with Lloyd’s of London, one of the oldest names in the underwriting world, until May of 2015, when the firm abruptly quit. Existing policies would not be renewed, and new policies would not be taken, Lloyd’s announced in a May 29, 2015 letter to its partners.

Lloyd’s cited the most obvious and well-worn justification as reason why — the age-old conflicts between state and U.S. federal law on marijuana — but observers in the insurance world were still left scratching their heads at the suddenness, and at the reasoning. Something was off.

At the time, the Obama Administration’s Justice Department had announced it would not prosecute financial institutions offering services to licensed businesses in states with medical-marijuana laws.

It seemed insurers were in the clear. Did Lloyd’s receive a secret, off-book warning from the feds, or did the firm reassess risk and decide insuring marijuana simply wasn’t profitable? “Nobody knows,” Sacramento, Calif.-based Mike Aberle, senior vice president of Next Wave Insurance Services, told Insurance Journal at the time.

“That’s the really curious part right now,” he said. “Nobody really knows what’s going on except the guys in London.”

It’s worthwhile to revisit this incident when considering the situation now, following the deadliest and potentially most costly fires in California history.

Damage is still being assessed and the full extent won’t be known for months, but it’s obvious the fires in Sonoma, Mendocino and Napa counties have dealt a considerable blow to the still-emerging marijuana industry in the region.

At least three dozen marijuana cultivation operations have been burnt out completely or withstood damage from smoke and ash possibly tainted with toxic chemicals like benzene. And unlike the thousands of homeowners whose houses and personal effects were reduced to ash, most cannabis businesses did not have any kind of insurance coverage.

“We’ve lost millions of dollars of product for sure,” Ned Fussell, CEO of Santa Rosa-based CannaCraft, one of the state’s biggest producers of cannabis oil and vape-pen cartridges told Marketplace. “And we have no insurance.”

Most reporting on this situation has repeated a similar line: marijuana businesses aren’t eligible for insurance covering their crops, their harvests, their equipment and their buildings. That’s not wholly true.

It’s not entirely accurate to say that marijuana growers can’t get insurance. They can. It’s just not very good — and it’s not necessarily affordable. That’s not the insurance companies’ fault — and it’s not the federal government’s fault, either. Not directly.

Before the fire, some measure of coverage was available to marijuana businesses, but it was limited and it was expensive, and it wasn’t available from any of the major commercial carriers active on the state’s regulated insurance marketplace — obvious problems brought up by California state Insurance Commissioner Dave Jones numerous times before the blaze. (Warning: insurance wonkiness ahead.)

As Jones noted in June, the coverage that was available was bought on what’s called the “surplus-line market,” an insurance exchange for high-risk ventures already rejected for coverage by mainstream, major carriers.

This was a known problem and one state authorities and the marijuana industry were both trying to correct — to no avail.

For months, Jones has been publicly exhorting carriers to enter the state-regulated insurance marketplace and cover marijuana, and has gone to great lengths to do so.

He’s organized tours of weed businesses for insurance executives. He’s reminded them than cannabis is a $6 billion business now, and could be a $25 billion business in four or five years. There are great gobs of money to be made, Jones is saying to anyone who will listen.

But then and now, major insurance companies have declined.

“Insurance companies are conservative in nature,” Los Angeles-based attorney Ian Stewart explained to The Cannifornian at the time. “Before entering any new market, they want to have the law of large numbers on their side, meaning they are able to study the trends and loss ratios of the different classes of business in the industry. This way they establish pricing models to rate the business according to the risk while still remaining profitable.”

Put another way: The cannabis sector wanted insurance. And the state’s regulated insurance marketplace, which oversees and sets ground rules for policies covering Californians’ cars, homes, lives, boats — you name it, welcomed the largest insurance companies and others to underwrite marijuana operations, but it was the insurance industry who decided weed was too costly, too difficult or too new to underwrite — a negative declaration never made officially, but made collectively.

Then the fires came, a worst-case scenario that made the scope of the problem obvious — if not its causes.

Jones believes that marijuana operations can be insured in the same way he convinced auto insurance companies to start writing policies for Uber and Lyft drivers. Maybe he’s right — but he’s yet to make an argument compelling enough to make the first big firm take that first giant step.

TELL US, do you think insurance companies should support cannabis companies?

Chris Roberts has written about medical cannabis, drug policy, and legalization ever since spending a few months in Humboldt County in 2009, with bylines for the San Francisco Chronicle, San Francisco Examiner, and SF Weekly. Follow him on Twitter and Instagram @cbloggy.

1 Comment

  1. Gerry Jones

    November 1, 2017 at 10:25 am

    Chris, thank you for the article, as off base as it was, it does highlight the need for proper insurance coverage. However, I can’t decide if you’re trying to hurt, or in some misguided way, help the cannabis industry. I’d like to address a few, what’s the word we use now in today’s political climate…..”falsehoods” in your article.

    1. You can get insurance, “It’s just not very good”. I’m not sure what you’re referring to exactly, I will say that there are outstanding insurance products available today for the industry, General Liability, Property & Building coverage, Product Liability, Indoor Crop coverage, transportation and more. What we may not be “very good” at is proper marketing to the new legal States of the benefits of the various policies. Insurance is typically the last thing a new cannabis operator thinks of as they are launching their new business.

    2. “not necessarily affordable & expensive” Again, not sure what your basis is for this statement. We cover hundreds of thousands of square feet of cultivations (grows), dispensaries, manufactures, extractors and ancillary companies. In an average grow & dispensary the insurance premium runs between 1.2%-1.8% of your annual revenue. It does move up or down depending on the individual risk at business wants to cover. These figures fall well within the averages for other commercial businesses.

    3. Your characterization of Surplus lines insurance, “an insurance exchange for high-risk ventures already rejected for coverage by mainstream carriers” is way out of line. Excess & Surplus lines cover the vast majority of “mainstream” commercial businesses, over $6.4 Billion in premiums written in California alone last year. They are lines that often specialize in a commercial segment that understands the business and risks, developing policies specifically for that market. We are doing the same for the cannabis industry, where your so-called “mainstream” carriers often have built-in exclusions for cannabis. If a business was to use one of these carriers, coverage could be denied due to that exclusion. This is where our industry has to be better, agents need to fully understand the various challenges in cannabis operations and make sure policies offered do not include such exclusions. One area where there is not current coverage is outdoor crop insurance as most outdoor crop insurance is Federally backed. This is an area we are all exploring as outdoor presents unique risks, security, pesticides, weather and value of the crop relative to other non-cannabis crops.

    Many of us work closely with Commissioner Jones and his great team to educate the State, the Legislature, the Cannabis Industry and consumers of how insurance plays a key roll in the current adult use States and how those experiences can support California and a well regulated Cannabis Industry. We are also working with other carriers to bring them to the market as well. After three full years in Colorado, Washington, Oregon, Alaska and now Nevada, we have the metrics needed to have those conversations.

    Can the Insurance Industry do better, of course, but we’ve made big strides in the last three years, California and all the new adult use States can benefit from those experiences. We’ll continue to bring new products and carriers to the industry. In addition, we’ll continue to train agents that specialize in Cannabis coverage, my suggestion for the industry would be to seek out those agents, Cannabis is hard, not one Cannabis operation is the same and it needs focused agents. Please have Mr. Fussell of CannaCraft give us a call and I will direct him to one of the several outstanding agents in California specializing in Cannabis coverage.

    Finally, the Cannabis Industry has enough headwinds; regulations, 280E, the current Attorney General, pressure on margins, compliance expense and many others. However, Cannabis Insurance is not one of them, we are here to support and keep them in business when something unforeseen goes wrong.

    Gerry T Jones
    Cannabis Insurance Solutions
    “Protecting the Industry and the People in it”

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