The rapidly growing medical marijuana industry in certain US states needs insurance and captives could provide a solution to companies in this space – if, that is, the small problem of marijuana being illegal at a federal level can be overcome.
That was the nub of a discussion held at the CICA International Conference Session, ‘Alternative Risk Transfer for the Cannabis Industry -- Opportunities and Risks’ which featured speakers Joe Holahan, attorney, Morris, Manning & Martin; Greg Fanoe, consulting actuary, Merlinos & Associates; and Camille Dixon, director, State of California - Department of Insurance.
Captives could offer a perfect solution for the cannabis industry, largely due to coverages being hard to place.
“It’s no secret now that cannabis is big business,” said Holahan. “We have some 29 states that have legalised medical marijuana. Of those, nine states allow recreational marijuana in some capacity or another.”
Legal cannabis sales were worth $9.7 billion dollars in 2017, he said.
But although cannabis-related businesses in the US can operate at a state level, their operations are still illegal under federal law.
That means there is uncertainty as to whether these businesses will be prosecuted at a federal level – this could extend to insurers and captive insurers.
However, Holahan said that a captive insurance company might make an odd target for a federal prosecutor. “We can’t say it with certainty, but it does seem far-fetched,” he said.
The panel stressed that businesses that are operating legally need insurance. “It’s not just a question of protecting the industry, it’s a matter of protecting the public,” said Holahan.
Fanoe added: “A cannabis growing operation does not necessarily have be viewed differently from other types of business.”
These businesses are responsible for growing the product, converting the crop into the final products, cooking it into an edible or smokable version. The types of insurance they need are typically property, workers’ compensation, and general liability.
California, which is leading the way in this space, already has a few insurers involved in cannabis, but not captive insurers - one such example is Golden Bear Insurance, the first admitted market to write marijuana coverage in the state.
However, the coverage is somewhat limited, Dixon noted. For example, that while there is indoor crop insurance available, outdoor crop insurance isn’t, and the risk appetite had been hurt by the California wildfires of 2017.
CICA 2018, Marijuana, Captive insurance, Cannabis industry, State of California Department of Insurance, Alternative risk transfer, US