Insurance can be a challenging and stressful issue for many businesses and individuals, however, it is an entirely different problem for CBD, cannabis, and hemp companies. Several cannabis and hemp operators find themselves insecure for their assets from a lack of carrier to prohibitive premiums. Mr. Aaron Cohen, the commercial broker of the HUB International, was interviewed by us to throw some light on the strategies that cannabis and hemp companies make to tackle this issue. Insurance challenges in the CBD, Cannabis, and Hemp Industries is the main concern of this article.
Table Of Contents
- Risk management and insurance in the Cannabis and Hemp Industries
- Risks hemp companies facing in obtaining insurance
- Insurers Offering Services to CBD, Hemp Businesses
- Strategies to get insurance by more Companies
- The 2018 Farm Bill effect on Insurance
- Insurance landscape may be changed by USDA Regulations
- Insurance and Banking in the Cannabis Industry
- The Cost of Insurance
- How Hemp and Cannabis Companies Can Get the Best Coverage
- Cannabis, hemp insurance and HUB International
- Common Insurance Claims in the Industry
Risk Management And Insurance In The Cannabis And Hemp Industries
Due to continuous change in the rules and regulations, it’s very difficult to find insurance in the cannabis and hemp industries.
We spoke to a commercial broker at the HUB International, Mr. Aaron Cohen, to estimate the situation of the space.
The HUB International is providing insurance to cannabis and hemp companies since 2014.
In our interview with Mr. Cohen, we inquired about the intrinsic risks which the insurers may have to face with cannabis and hemp companies, which carriers are providing insurance to these companies, the way in which they can get the best coverage and the services which hub international is providing .
RISKS HEMP COMPANIES FACING IN OBTAINING INSURANCE
CBD Insider:
What are the biggest risks and obstacles facing CBD and hemp companies in regard to obtaining insurance?
Mr. Cohen:
That’s a great question.
Although there are many similar risks, like crime, theft, and the standard perils, associated with other average business, the case is somewhat different in the business of cannabis and hemp.
For instance, with hemp farmers, they are at the risk of harvesting their crop in “hot,” or at THC level above%.
It happens if farmers do not actively pull the male seeds to avoid cross-pollination.
The risk has reduced, once the crop is harvested and dried.
Having the right insurance coverage is just as important as having a sound risk mitigation process.
A multi-dimensional risk management perspective having a mixture of property, employment practices, liability, workers compensation, employee benefits, directors and officers etc. in insurance is required in Cannabis, hemp, and CBD operations.
Insurance carriers may differ in defining the policy, coverage language, and exclusion with these lines of coverage.
It is necessary to figure out a broker with a good understanding of the policy’s fine print.
Insurers Offering Services To CBD, Hemp Businesses
CBD Insider:
We know it’s an alarming situation for insurers to provide their services to hemp and CBD companies.
So, which insurers are currently offering their services to insurance to these companies?
Mr. Cohen:
However, there are only a few companies offering insurance to hemp business, but according to my opinion more and more companies are ready to take over.
The emerging nature of industry, and deficiency of the actuarial data to access the frequency and severity of the potential aims is the main reason for the lack of market availability.
In addition, the auto markets and property markets are raising the premiums, and these lines are written by some carriers for standard businesses; the property and auto markets are increasing premiums, and fewer carriers are writing these lines for standard businesses; it’s solely amplified within the hemp and cannabis industries.
To differentiate between the normal that a cannabis manufacturer takes versus the normal that a widget manufacturer takes for insurance
The widget manufacturer will require 15 to 30 carriers to quote their business.
In contrast, cannabis manufacturer may require only four to six carriers in case of liability coverage.
It’s become more limiting when it comes to potential carrier options, and become even more limiting when you need coverage that doesn’t have detrimental exclusionary language.
It’s up to the broker to find the right carrier as many hemp and cannabis carriers have very limited policy forms.
Strategy To Get Insurance By More Companies
CBD Insider:
What should be the strategy by CBD, hemp, and cannabis companies to get the insurance easily?
Mr. Cohen:
Legal hemp and cannabis operators need to do their duties with care from a compliance perspective.
Carriers wants the businesses to reduce risk actively by applying safety programs like vehicle loading/unloading procedures, injury/illness prevention plans, driver selection programs, active alarm systems, interior and exterior cameras, and fire sprinklers, etc.
If cannabis and CBD businesses are increasing the capital, they should assign investor agreements, cap tables with the necessary coverage to facilitate investment in their companies.
We’re no longer in an era where handshake treaties will serve us.
If we make the case that the cannabis and CBD companies care about their risk management, brokers can be more powerful in trading with underwriters.
The 2018 Farm Bill’s Effect On Insurance
CBD Insider:
What differences and effects have you observed on insurance for hemp and CBD companies Since the 2018 Farm Bill has passed?
Mr. Cohen:
We started to observe more carriers entering the market in case of market and carrier availability, but it’s been pretty slow for the most part.
It is difficult to assume how quickly the mainstream carriers will come into the CBD marketplace and the hemp fold.
In 2019, there are zero carriers writing Federal Crop insurance and only one carrier doing hail insurance.
The USDA division, which runs Crop Insurance, didn’t have sufficient time to update the guidelines and provisions for the 2019 Crop year with a December change.
As a result, the marketplace is left under-resourced and flat-footed to make programmatic choices.
Moreover, there is a very less chance to have enough data to implement an impressive program by spring 2020 when Crop Insurance decisions need to be made.
Hemp farmers have a few options for private product crop coverage. However, some overages are cost-prohibitive for them as they have have a significant price point.
The addition of industrialized hemp to crop rotation can likely affect the farm’s liability and property insurance.
According to our carrier partners, they are comfortable when hemp is cultivated as a secondary crop by the farm operations, but they are not longer comfortable due to unknown risks, once it becomes a dominant crop.
We are told a part of the attractive inconvenience exposures.
Before planting, it is necessary to discuss all the above with your broker.
Insurance Landscape May Be Changed By USDA Regulations
CBD Insider:
Is this industry waiting on the USDA to issue regulations?
And after their execution, do you think there will be any rise in banking, insurance, and things like that?
Mr. Coheni
It’s my opinion that a lot of farmers are waiting for that to happen.
Even though the Farm Bill passed in 2018, that doesn’t mean that these laws and regulations will be executed in the near future.
It may take up to a year or two to have those regulations implemented.
At the same time, I have heard some awesome anecdotal stories of hemp farmers who get bank accounts at standard, household name institutions.
There are a handful of credit unions and small banks on the cannabis side that are ready to have specific cannabis clients with good capital and company of worth a certain amount.
However, from an insurance viewpoint, it’s a slow process to get to where we’ll see State Farm starting to write hemp and cannabis coverage.
Insurance And Banking In The Cannabis Industry
CBD Insider:
We’re observing that the SAFE Banking Act started to gain traction in Congress, which would protect banks from any federal prosecution for working with federally illegal cannabis-related businesses.
What is the situation now for cannabis businesses?
Mr. Cohen:
Many of them do not have formalized banking with cannabis businesses.
Limited banking options are accessible to the larger cannabis mostly at high-interest rates, making it cost-prohibitive for many.
Because of this problem, cannabis is creating a significant risk from a crime perspective as it is one of the last industries that are cash-dependent
Many of these operators are putting themselves into risk by having that much cash.
It’s my advice to make sure that the cash is protected and well secured if they have that much cash on hand.
They should store it in an approved safe or vault, while also limiting the employees who have direct access.
From an insurer’s perspective, they want to make sure that the operators are doing their job with the responsibility to protect assets that the carriers are going to be insuring.
However, risk management is another factor that can lead to increased claims and premiums.
Carriers are still getting comfortable with some specific risks, so they are not only more concerned and have tough underwriting criteria but also more expensive than they would have been.
The Cost Of Insurance
CBD Insider:
we’ve seen some minimum premiums as high as $10,000, after doing some research, .
Is operators should expect to pat that amount?
Mr. Cohen:
Amongst other factors, it’s all depends on anticipated revenue of the business, on the line of coverage, and payroll.
Cost-effective options are also available there and the coverage can be strong depending on cost.
For the most part, the insurance costs are high especially for large operators.
HOW HEMP AND CANNABIS COMPANIES CAN GET THE BEST COVERAGE
CBD Insider:
What should hemp and CBD companies anticipate while seeking coverage?
Mr. Cohen:
First of all, they should make sure that they’re working with a broker that has experience in and knows the industry well.
They should make sure that there are no harmful exemptions, warranties or anything else which limit or void coverage while looking at an insurance policy.
You should try to find the policy that is as close as you can get as no policy is perfect.
Moreover, businesses required to be clear with their carrier about their operations.
I’ve seen many cases before where a cannabis operator may be hesitant to say that they’re in a business of cannabis.
As a cannabis or hemp business, if you are not revealing the full scope of the risk to the carrier they’re going to insure, this may results in declining potential claims and non-renewing policies by the carriers.
Cannabis, Hemp Insurance And HUB International
CBD Insider:
Tell us about the services and method of operation of HUB International.
Mr. Cohen:
HUB International is one of the largest insurance brokerages in the world where our main focus is cannabis and hemp.
Our practice has teams in both the Canada and US.
In our standpoint, we’re one of the only brokers in North America who are able to handle a significant cross-border operation with one service team.
We build one team and can handle the whole deal in a unified way. In contrast, our competitors would break a cross-border deal into two parts by allocating the task to two separate teams.
This capability is the reason for our uniqueness in the marketplace and is a tremendous potential for HUB and our team of cannabis experts.
What’s great about HUB is we are offering something unique to our clients by developing proprietary insurance programs for the cannabis and hemp industries.
As I said, not a lot of carriers will write cannabis or hemp businesses, so our ability to offer proprietary programs is evidence of our investment in the industry and the offers we can provide to our clients.
In my opinion, if you’re dealing with a broker that doesn’t have the capacity to spend sufficient time in cannabis and hemp, they may not be able to guide you.
Common Insurance Claims In The Industry
CBD Insider:
What are some of the issues which you have observed hemp and cannabis companies facing regarding claims?
Mr. Cohen:
Luckily, I haven’t seen a lot of claims, and that’s good.
However, I’ve heard stories that some lawyers have filed class-action suits against brands and dispensaries for not showing the Prop 65 warning properly.
Improperly ventilated growers is a big area where claims are starting to increase.
For example, You have to properly ventilate the room in case of indoor cultivation.
If you violate, the residue of THC that comes from the cannabis flower will cling to the walls, glow lights, and everything else, making them highly flammable.
So, a spark may be due to someone tripping on a wire or an electrical surge, could set the room off.
There are a handful of landmark cases in terms of product liability, such as a consumer having an adverse reaction to products.
We have seen some claims with a vape pen in one place.
It’s similar to the Samsung phones that had shown battery problems.
The vape pen components may not be of standard quality if a manufacturer is purchasing these components outside the US.
Both in the CBD and cannabis industry, some cases of vape pens explosion have also been observed.
We’ve observed that this results in damage to the faces and hands of consumers.
Luckily, generally, it’s been pretty clean,
CBD Insider:
Thank you for all this knowledge, Aaron, we really appreciate it.
Mr. Cohen:
Thank you, I acknowledge the time. It was certainly fun.
