Understanding Insurance: Peace of mind with high risk business
Jim Clodfelter
Green Leaf Insurance
With Missouri’s state law legalizing medicinal cannabis, regulation of the insurance market in the state of Missouri was authorized. Carriers are now able to provide coverage across the state. However, with cannabis still being illegal at the federal level, it has created barriers for those looking to protect their business with commercial insurance policies. Due to the reluctance of national banks to enter the market because of federal laws, the cannabis industry has a larger loss of exposure of cash. With cannabis being illegal and the federal level and the cash-oriented nature of the business, large national insurance carriers aren’t expected to enter the cannabis marketplace quickly. Where does this leave those seeking commercial insurance for their cannabis-related business risks?
Cannabis business owners are left with a couple of options. First, to seek insurance through a brokerage where policies are pieced out through several carriers. In this scenario, one insurance brokerage might underwrite the property while a second insures the liability and possibly a third insures the directors and officer’s professional liability. This can create some issues in the event of a loss as each carrier might disagree with who is responsible for payments of certain claims. Typically, coverage through a brokerage can also come at a higher cost, and they are not regulated in the same manner as admitted direct carriers by the state. This can come in the form of numerous policy exclusions. The second option is to find a direct carrier. Direct carriers are insurance companies that have decided to develop insurance policy options directly for cannabis-related risks. Direct carriers are willing to package a majority or all of a cannabis-related risk under a single package policy that is tailored specifically to the business exposures. Unfortunately, there are only around 26 direct carriers worldwide that are willing to insure cannabis-related business risks. Finding an agent who represents one of these carriers can be very difficult. Even when you do find an agent willing to help insure your business risk, the application process and security requirements can be very stringent and difficult to understand.
Cannabis risks also present some unique loss exposures that may require coverage that is not typical of other businesses. For instance, the state of Missouri has five areas of insurance that are listed on the applicant scoring process. They are as follows:
Will the business have professional liability for its principal officers? Typically, this coverage is referred to as directors’ and officers’ liability coverage. The wording in this scoring section needs better clarification from DHSS. Professional liability is for business professionals that are advising or acting in a professional capacity to advise their clients. For instance, a doctor that performs the wrong surgery on a patient would be covered through professional liability. Whereas, an officer on the board of the hospital may be sued for hiring the doctor that performed the wrong surgery. In the latter example, coverage would be provided through directors’ and officers’ coverage. The officers are not acting in a professional capacity to be covered through professional liability, but making decisions that could affect the indemnity of the business that should be covered by directors’ and officers’ coverage.
Will the business have product liability? Product liability is very important for those in the medical or recreational cannabis industry. Should a customer or client claim to become sick or injured as a result of a product, product liability will cover your business and the defense cost of a lawsuit. It will also cover for an actual injury or illness as a result of a product.
Will the business have business interruption insurance? Business interruption insurance can also be called Business income and Extra expense coverage. This coverage protects your business from financial loss in the event of a covered peril. Covered perils include items such as fire, theft, wind and hail damage that cause property damage that results in temporary shutdown, or relocation to a temporary facility while your building is being repaired. This coverage would cover your loss of income during the shutdown, allowing you to continue to pay your key employees, have the finances to start the business back up and build your clientele back to pre-loss levels of income.
Will the business have property insurance? and Will the business have property insurance to cover cannabis loss? There are several types of property insurance that are available to cannabis risks. Like any typical commercial business risk, coverage for building and contents is necessary. These limits should be reviewed frequently with your agent. Any equipment purchases, building additions or expansions can quickly change the loss exposure of your business. As your business grows and evolves, having a working relationship with your insurance agent will be very important. Crop coverage is also listed in the states scoring system. Since cannabis is not legal at the federal level, it is not eligible for federal crop coverage like commodity crops. However, it can be covered for a number of perils by some insurance carriers. Most carriers break cannabis crop coverage into three areas- living plants, goods in process and finished stock. Living plants are plants that are still attached to the roots and in medium. Goods in process are harvested crops that are in the drying process. Finished stock are crops that have been packaged.
Outside of the coverages listed in the applicant scoring process, there are several other loss exposures that should be considered. This includes worker’s compensation, product recall, commercial auto liability, cyber liability, employment practices liability and inland marine.
At Green Leaf Insurance, a DBA of Clodfelter Insurance, our agency has contracts with direct carriers and brokerages that will provide insurance for the cannabis marketplace. Our agency can cover dispensaries, cultivators, manufacturers, laboratories, armed guards and secured transport. We have several licensed agents and certified insurance counselors that are able to guide you through the process making it simple and painless to obtain the coverage you need to protect your business. Our insurance agency is located in Missouri and has been in business for over 36 years specializing in covering unique commercial insurance risks. We are licensed to write insurance in Missouri, Colorado, Oklahoma, Illinois, Arkansas, Iowa, Nebraska, and Kansas. We can cover your cannabis business risk in all the areas listed in Missouri’s applicant scoring process, and provide you with several other options to make sure you are fully insured. Our agents regularly attend several trade association meetings, expos, and conferences across the country. Green Leaf Insurance are members of the MoCannTrade Association and frequent monthly meetings. We pride ourselves on the working relationships with our clients and going above and beyond on customer service. Our agents have quoted very competitive pricing and coverage for hundreds of cannabis risks in Missouri, and we wish the applicants best of luck in the scoring and licensing process. For more information or to speak with one of our licensed insurance professionals, visit us at www.greenleafins.com or call (660)744-5385.