Insuring Cannabis-Related Businesses

Posted on October 18, 2019

Since the legalization of medical marijuana in Florida in November 2016, the industry has grown rapidly, with sales expected to reach $1.3 billion by 2021. The number of patients in the state who qualify to use medical marijuana has surpassed 168,000. The medical marijuana industry is expected to continue its upward trajectory, particularly since the governor recently removed the ban on smokable marijuana and may also remove the ban on edible marijuana.

Because of this substantial growth, marijuana-related employment is expected to reach 25,000 jobs in the next several years, nearly ten times the number of such jobs in 2017. The increase in the number of jobs associated with the medical marijuana industry comes not only from marijuana growers and distributors but also from cannabis-related businesses that provide services to those growers and distributors, such as testing labs, transportation companies, and security firms.

A market with vast reach and potential

Tier I marijuana-related businesses (MRBs) are those that manufacture, distribute or dispense marijuana or are involved in packaging and/or transportation. Since the bill legalizing medical marijuana passed, Florida has issued at least 14 licenses to firms planning to sell medical marijuana in cities that have not banned dispensaries. These vendors, known as medical marijuana treatment centers, are vertically integrated, meaning they are responsible for everything from growing the product to manufacturing, distributing, and selling it.

Medical marijuana treatment centers are much different from the seedy head shops many people imagine when they think of marijuana vendors. The businesses must adhere to strict regulations, and the treatment centers often have high-tech security systems and on-site security guards.

With their mission being to educate consumers and because they are subject to strict oversight, medical marijuana treatment centers maintain a high level of professionalism. All applicants for treatment center licenses must provide financial statements and undergo background checks, and their employees also must undergo criminal background checks.

Coverage for Tier I and Tier II MRBs

In addition to Tier I MRBs, many established businesses work tangentially with the industry. These Tier II MRBs, as they’re called, do not grow, dispense, or process medical marijuana, but they provide services and products to companies that do. Examples of Tier II MRBs are landlords, staffing companies, medical professionals, transit companies, specialized professionals like accountants and engineers, and more.

Because so many businesses are involved, the medical marijuana industry provides a vast potential market for insurance carriers, agents, and brokers. MRBs need general liability (including product liability) and property insurance to follow best business practices and protect themselves from alleged negligence, product defect, theft, and damage.

The businesses that require general liability coverage are not limited to the Tier I businesses, growers, dispensaries, and processors. Every business involved in the cannabis supply chain—from seed to sale—should have some level of cannabis-related general or professional liability.

For example, when the transit services company picks up and transports cannabis from the warehouse to the dispensary, cannabis-related coverage is needed. A psychiatrist who performs medical marijuana evaluations will need cannabis-related coverage. The firm that provides security services for the medical dispensary will need unique coverage associated with cannabis. Even accountants who prepare tax returns and perform bookkeeping services will need GL coverage related to cannabis.

The list goes on, including firms that sell rolling papers and/or vaporizers and other smoking devices. And if a state legislature legalizes the sale of medical marijuana edibles—one of the most popular products in states where medical marijuana is legal—companies that make those products will need specialty cannabis insurance.

Bridging the Insurance Gap

At the National Association of Insurance Commissioners 2018 summer national meeting, California Insurance Commissioner Dave Jones encouraged insurers to provide specialty coverage to businesses involved in the cannabis supply chain. “Cannabis businesses face various insurance gaps—which means cannabis customers, workers and business owners may not have access to insurance to help them recover if there are accidents, injuries, property damage, or any of the things commercial insurance typically covers,” he said.

“I will continue to ask insurers to expand insurance coverage for the cannabis industry so that they have access to the same insurance coverage as any other business,” the commissioner added. Jones recently helped to increase the availability of insurance coverage for MRBs in California.

Over the past few years, several insurance providers throughout the country have helped bridge the medical marijuana industry’s vast insurance gap by offering MRBs seed to- sale coverage. Aspera, for instance, provides coverage for all stages of the process, including cultivation, harvest and manufacturing, quality assurance testing, prescribing, and dispensing.

Given the medical marijuana industry’s rapid growth, Florida insurance professionals will need to determine whether to provide coverage to MRBs, particularly existing clients who participate in the cannabis supply chain and require specialty coverage. Although medical marijuana is illegal at the federal level, which makes insuring MRBs more complicated, I believe it is well worth becoming educated about the industry to meet the needs of a growing market.

The author

Trish King, assistant vice president at Aspera Insurance Services, has substantial experience working in property and casualty admitted markets and excess and surplus lines. Aspera Insurance Services acts as an underwriting manager for personal lines and hard-to-place commercial casualty risks. For more information, email or call (804) 774-2101.