United States: An insurance company designs an insurance policy specifically for the cannabis industry

Global insurance brokerage Hub International Limited (HUB) now offers comprehensive insurance for the cannabis industry. It applies to all branches of the industry, from production to distribution, and for both medical and recreational cannabis. It includes :

• general and product liability insurance
• personal liability insurance for directors, officers and employees
• crop insurance
• insurance against the costs associated with workplace accidents and safety management
• transport safety insurance
• crisis coverage, including crime and cyber-attacks
• assistance with risk management and regulatory compliance
• an assessment of operational risks and site safety
• claims and advocacy management services
• strategic planning and compliance assessment of employee benefits

This insurance formula is part of the Special Practices of the company, which is based in Chicago, Illinois. It's a godsend for cannabis professionals whose activities were previously only partially or not at all covered by conventional insurance.

The choice of insurers

As a result of the federal prohibition of cannabis, insurance companies just like the banks, The insurance industry is becoming more explicit about the fact that traditional insurance does not apply to cannabis risks. Seth Row, an insurance advisor in Portland explains that «the insurance industry is making it increasingly explicit that traditional insurance does not apply to cannabis risks and is sometimes taking an aggressive approach to disavowing these claims, even where the laws are unclear.» He points out that insurance companies are refusing to apply basic coverages, particularly when it comes to products, and advises companies to make sure beforehand that their insurer will respond positively in the event of damage or incidents.

In practice, insurance companies are free to choose whether or not to cover cannabis. The insurance company Tracy v. USAA said that due to federal policy, individuals who grow cannabis at home, even if they do so legally under state law, cannot be insured. Instead, the company Green Earth Wellness Center, LLC v. Atain Specialty Insurance has ruled that, due to the ambiguity of state and federal laws, the insurance is valid. At federal level, nothing has yet been done to resolve this schism.

In the courts, insurers refusing to cover damages and claims related to the cannabis industry have all been successful, regardless of whether cannabis is legal in the state in question, thanks to a law which stipulates that if the subject of the contract has an illegal status, the insurer has the right to refuse to cover the case. This justification has been applied in many cases, such as that of owners of premises housing cannabusinesses, and could even apply to medical malpractice. A court in Arizona has even ruled that all contracts drawn up by cannabis companies are null and void. This applies to sales contracts, employment contracts and insurance contracts. Generally speaking, judges are divided on the issue.

A fragile industry

In addition to the lack of insurance, the cannabis industries have to operate on a cash basis, as they are unable to deposit their money in the bank for the same reasons. As a result, a market that generates billions of dollars federally is deprived of effective risk management, and its entrepreneurs can lose everything overnight. Visit California's devastating wildfires, for example, can cost Californian growers millions. Last year, a solidarity system was set up to support them.

A possible alternative is captive insurance: companies can insure themselves by setting up their own insurance company. However, this alternative is not available everywhere, and depends on state legislation. In any case, it's the government that decides whether or not to grant a license to the company, and most insurance departments refuse to do so, so as not to stir up controversy. Some states don't allow captive insurance at all, whatever the industry, as in California and Washington.