By Kristen Bacon

The 2020 election season saw a 100% win rate for state marijuana legalization ballot measures. As more states legalize marijuana, the market for cannabis insurance is rapidly expanding. Additionally, states are transitioning from legalization to their first sale must faster than ever, as detailed in a recent Marijuana Business Daily article. With eleven active adult-use states and four more (Arizona, Montana, New Jersey and South Dakota) that legalized recreational use on November 3, here are our top tips to prepare for these new opportunities.

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New to the Industry?

The cannabis industry is unlike any other. Our top three tips will help you navigate this new territory.

  1. Know the cannabis supplemental application(s).
    Yes, they are lengthy, but they are also necessary. Our markets will not quote off ACORD forms, and they require a lot of information to underwrite these risks. The more familiar you are with the Cannabis supp app, the better equipped you will be to assist your clients while completing your submission.
  2. Always ask for specimen forms.
    Most carriers have endorsements that significantly limit coverage.
  3. Stay in touch with your client throughout the policy term.
    These operations can change drastically over the course of 12 months, especially compared to other industries, and you need to make sure you are aware of any changes in exposure.

Challenges to anticipate:

The marijuana and hemp industries are unique and present their own sets of challenges. As long as you factor these into your process, they won’t take you by surprise.

  • Some states only award a limited number of licenses.
    This means that your client might not be awarded a license, and you may experience an initial lack of success through no fault of your own or the client’s. Stick with it, as the more you commit to the Cannabis industry, the more success you’ll enjoy.
  • Expect higher rates than what you are used to seeing with other industries.
    Because the risk is greater, the rates for this class of business are higher. Also, most programs are offered only on a Non-Admitted basis, therefore, you’ll have to explain Surplus Lines Taxes & Fees to your client.
  • Know the carrier requirements for theft coverage.
    For example, a central station burglar alarm is always required, and interior and exterior security cameras may be required depending on the carrier. Also, completed stock must be securely stored in an approved safe or vault room. For a safe to meet the requirements, it must be at least 800 pounds with a one-hour fire rating. Anything under 2000 pounds must be bolted to the ground.
  • Crop coverage is only available for indoor grows and greenhouses.
    Any plants growing outdoors are not eligible for coverage, unless the client wants to buy a separate E&S policy that is very difficult to find and very expensive to place.

Transitioning Clients from Medical to Adult-use

If you’re currently working in a medical state, you’ll want to ensure that your clients are properly insured for the transition to adult-use.

  1. Check with the carrier to see how the client’s policy will change if they add recreational exposure.
    Some carriers have different endorsements for recreational exposures compared to medicinal exposures that could limit coverage. The sooner you talk to your carrier or broker, the sooner you can decide if it makes sense to shop for replacement coverage.
  2. Some carriers will have higher rates for recreational exposure than medicinal exposure.
    If your clients already have insurance coverage in place for their medical marijuana operations, find out if adding recreational operations will affect their rates.
  3. Some Products Liability carriers will only offer coverage for specific products.
    For this reason, you should always notify the carrier of any planned changes in exposure, such as moving from medicinal to recreational operations.

When a state changes from medical to adult-use, there is usually a large increase in the size and number of operations in that state. This is a great opportunity to find new clients and build your cannabis insurance portfolio.

Interested in working with Cannasure and growing your marijuana insurance practice?

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