In the previous article, we discussed available insurance coverages. Now, let’s look at some pricing challenges and the likelihood of working across jurisdictions.
Pricing and Other Pitfalls
While the future looks bright for the cannabis industry and the carriers and agents writing this coverage, agents will encounter some pitfalls. First, they must overcome any personal ethical considerations. Some agents shy away from this industry due to their own deeply held beliefs. Other agents have concerns about their E&O exposures, and we will address those issues below. Clearly, writing cannabis coverage is not for every commercial carrier or every retail agent. Next, agents must know the coverages and the markets, which continue to be limited. Working with a wholesaling team that has expertise in designing coverage for both property and liability exposures will greatly streamline your market access.
Finally, courts have handed down few decisions regarding coverage; therefore, coverage interpretation is an emerging arena. As the courts hand down more case law, these decisions should dovetail with more predictable pricing.
An acknowledgement clause in the policies waiving the illegality defense can provide peace of mind to agents, who can in turn reassure their clients that carriers should not disclaim coverage based on an illegality argument.
Carriers are considering binding arbitration clauses in coverage and other disputes. In Colorado, the Cannabis Dispute Resolution Institute formed in 2015 to offer arbitration of conflicts between various laws and jurisdictions. Arbitration in this industry makes sense because the cannabis business continues to operate on the fringes of society. Cannabis operators may be reluctant to turn to the courts for redress. According to an article in The Records in September 2017, once “a regulator gets their hands on that lawsuit, which they very well could, someone risks losing their [cannabis] license altogether.”
Agents’ errors and omissions carriers may balk at defending cannabis-related E&O claims. Make sure coverage is as comprehensive as possible and that you have covered all the bases with your clients. Bear in mind that even though those in the cannabis industry are by nature risk takers, they are also much like any other business you insure. If a coverage gap occurs in any area, they will ask you why you failed to advise them of available coverage.
Working Across Jurisdictions
In the cannabis industry, what is legal in one venue may well be illegal in another. Usually vendors will closely scrutinize state law. However, these laws are changing rapidly as more states seek the tax revenues generated by the cannabis industry. For example, California, which has had legal medicinal cannabis for over two decades, still experiences isolated incidents of law enforcement action against cannabis operations.
The trend of mobile grow and testing labs and other facilities means an operation that begins in Colorado may expand to another state if recreational cannabis passes there. Agents should work with wholesalers who know the available markets in each state where cannabis is currently legal or may soon be. Retail agents should be familiar with the state laws pertaining to the cannabis industry and be aware of how the laws in each state affect their clients. Additionally, both federal laws and laws of interstate commerce may affect your clients.
Despite the recent memo by the US Attorney General, the majority of Americans support the right to use recreational cannabis. The incredible profitability of states like Colorado, where they cannot seem to find enough ways to spend the $72.8 million in tax revenue generated from cannabis as of October 2016, means that this growing industry will not burn out. According to Pew Research, young people have disproportionately driven the shift toward public support of cannabis.
Young people are an agent’s newest, and soon, its largest demographic, surpassing Baby Boomers by 2028.
For the retail agent who has few or no personal qualms about writing these exposures, now is the time to enter this market. Forms will continue to improve, capacity will increase, needed coverages such as kidnap and ransom will undoubtedly emerge, and revenues for retail agents and carriers will continue to grow. Venture capital for this industry is increasingly available, meaning the market is poised for rapid growth.
One of the biggest problems retail carriers will face is access to markets. For some lines of coverage, only one market may be available. A wholesaler who has deep relationships with these markets can help retail agents write even smaller risks, which are more difficult to place.
Rely on Worldwide Facilities
We offer unmatched tools, resources and strategies to help insurance agents and brokers expand their corporate accounts to include the rapidly growing cannabis market.
For more information, contact Ruth Boozer at firstname.lastname@example.org or (206) 538-5074, Jeff Conley at email@example.com or (213) 236-4534, Justin Lehtonen at firstname.lastname@example.org or (213) 236-4536, Jake Macer at email@example.com or (213) 236-4577, Morgan Moore at firstname.lastname@example.org or (213) 236-4566, Stacy Pointer at email@example.com or (213) 236-4575, or Brian Savitch at firstname.lastname@example.org or (415) 625-1287.