The CLAIM Act and Insurance Policies for Cannabis Companies
Every business venture faces risks that encompass more than shifting market conditions and changing consumer sentiments. Fires, floods, robberies, spoiled inventory, and other threats can stop a business venture in its tracks. It wasn’t long ago that insurance for cannabis enterprises was a pipe dream.
Coverage policies were limited and the insurance industry didn’t fully appreciate the needs of the cannabis industry and premiums were set at rates that were unaffordable for most operators. Few insurers wanted to enter the market for fear of legal repercussions and the uncertainty around federal marijuana legalization. The grey zone that the cannabis industry operated within kept players out of the market.
Growing Insurance Options
Fortunately, the air has cleared quite a bit and insuring cannabis-related businesses has become more of a reality. Still, there are currently only about 25 carriers covering the industry, most of which are wholesaler (non-admitted) firms. The issue with non-admitted insurers, however, is that if they become insolvent, the state won’t cover the insurance claims.
Despite a lack of federal approval, insurance options are evolving at a pace that’s just now starting to keep up with the needs of the cannabis industry. Insurers are beginning to expand their insurance options. This includes coverage for marijuana crops, inventory, and indoor/outdoor growing equipment. It’s also possible to secure insurance for tenant improvements, commercial delivery vehicles, and business income stemming from marijuana growing and sales operations.
Insurance availability, premiums, and coverage options are still highly variable, however. And many policies are not available to operators in every state where marijuana is legalized for medical or recreational use.
Below is a mere summary of some of the larger cannabis industry insurance providers.
The CLAIM Act
Yesterday’s problems are beginning to dissipate as more and more states are legalizing marijuana at both medical and recreational levels. As such, state regulators, trade associations, and industry professionals are working together to clear the air over what is needed, what is legal, and what is possible for the future of the industry. Consequently, more and more insurance options have become available for cannabis businesses.
As part of a bipartisan effort in the U.S. Senate, New Jersey Sen. Robert Menendez has proposed a bill aiming to open up business insurance opportunities for state-legal cannabis companies. This new proposal, the Clarifying Law Around Insurance of Marijuana (CLAIM) Act, was written to give the insurance sector explicit approval to serve cannabis-related businesses. Menendez indicated that the measure would “ensure businesses can fully operate just as any other small business would.”
— Cannabis Biz News (@CannabisBizNews) September 18, 2019
The CLAIM Act would prevent federal agencies from:
- Prohibiting, penalizing, or otherwise discouraging insurers from engaging in the business of insurance in connection with either cannabis-related businesses or states or territories that exercise jurisdiction over cannabis-related businesses;
- Terminating, canceling or otherwise limiting the policies of an insurer solely because the insurer has engaged in the business of insurance in connection with a cannabis-related business;
- Recommending, incentivizing or encouraging an insurer not to engage in the business of insurance with a policyholder, or downgrading or canceling the insurance services offered to a policyholder solely because the policyholder is involved in cannabis-related businesses; and
- Taking any adverse or corrective supervisory action on policies to: (a) cannabis-related businesses, (b) individuals involved as employees, owners or operators of cannabis-related businesses, or (c) other businesses that lease real estate or equipment to cannabis-related businesses.
Who’s Asking for It?
Lose a crop, lose your income and potentially your farm. That’s how risk works in the cannabis industry today. Without things like crop insurance, cannabis companies bear yet one more risk to doing business in the space. Understandably, cannabis operators are eager for cannabis insurance solutions and backing of the CLAIM Act.
— A&L Cannabis Labs (@alcannabislabs) October 3, 2019
At the same time, some insurers are eager to jump into the market. Jodi S. Green, a partner at Nicolaides Fink Thorpe Michaelides Sullivan LLP, said her insurance company clients have increasingly expressed interest in the cannabis business. “Many of my clients, they’re interested,” Green said.
In September of 2018, two globally-recognized insurance companies, Lloyd’s of London and Hub International, began underwriting cannabis-related businesses in Canada, allowing companies in the burgeoning sector to grow their operations while reducing risks and liabilities.
But big companies like those have the ability to absorb losses. Meanwhile, others, still fearing federal uncertainty, say the reputation for cannabis business losses is another reason they haven’t entered the market. Operating solely in large amounts of cash has proven hard to tract and attractive to criminals. “The biggest losses that insurance companies have seen, based on the people I have spoken with, are property losses associated with theft,” Green said.
Cannabis banking, therefore, must precede any full-fledged cannabis insurance industry rally. A lack of access to banking by cannabis-related businesses is what forces this cash-only operational environment along with all its consequences. Therefore, keep an eye on the SAFE Banking Act, introduced to provide protections to financial institutions that work with state-licensed cannabis businesses, extending them the same protections afforded other businesses.
While the SAFE Banking Act is designed to liberate financial services, in doing so, it’s part of the promise for more affordable and available cannabis industry insurance offerings.