Cannabis entrepreneurs increasingly seek business insurance

Business owners in the cannabis industry need insurance for the same reasons other business owners do: protection from lawsuits, compensation for losses, cyber attacks, worker's comp, product liability, etc..

Although mainstream carriers, like State Farm Insurance, Wells Fargo Insurance Services and George Petersen Insurance Agency have yet to touch that market, there is a fairly long list of national and local agencies that are providing coverage to cannabis business owners. Some offer it alongside auto and home insurance, while others are niche carriers.

John Ford, of John Ford Insurance Agency in Eureka, has been in the insurance business about five years. He reached out to the cannabis industry two years ago when he 'saw a need.'

While Ford also offers auto and home insurance, 80 percent of his clients, or about 130, are cannabis business owners. He insures all aspects of the industry from dispensaries, to distribution operations, and indoor and outdoor farms. In two years, his business has grown 62 percent, and policy applications are backlogged, taking twice to three times as long to process as they used to.

'Mainstream carriers are looking in from the outside, but salivating as well,' Ford said.

The cannabis industry is a different animal for the insurance industry as it comes with different risks. Your average restaurant or body shop probably doesn't have to think about having search and seizure insurance, for example.

However, there is no more risk insuring a cannabis business than any other, said Nick DiNicola, of Nick DiNicola Insurance Services, in San Francisco. DiNicola has been in business since 1989, and has been insuring those in the cannabis industry for the last 10 years. Beginning in 2016, he devoted a new agency, CBZ Insurance Services, to cannabis businesses. The company provides comprehensive services including employee benefits, payroll processing and Affordable Care Act employer reporting. They also offer Seizure and Confiscation Coverage.

Although not riskier, the policies issued in this industry are definitely stricter, Ford and DiNicola agreed. Businesses are required to have security cameras that cover 'every square inch of the property,' a safe or vault room, growers need to have back-up power systems, and dispensaries in some instances are required to have a double buzz-in system.

Ford purchases his insurance through wholesalers, who purchase their insurance from the two underwriters in the U.S., Knight Specialty Insurance Company, in Los Angeles, and the international Hannover RE. They were preceded by Lloyd's of London who, in 2015, stopped insuring marijuana industry firms due to conflicts between U.S. federal and state laws over their legality.

Ford said his rates are comparable to other industries. Worker's Comp is about 14 percent of a cannabis business owner's payroll, whereas contractors pay 18-20 percent of their payroll.

'Rates are not as expensive as most people believe they are. The biggest challenge for the cannabis industry is there are not enough players out there,' DiNicola said.

As these kinds of businesses becomes more mainstream, more carriers will get on board, and the price will go down.

'Right now, they don't really understand it and hope it will go away, and it's easier to concentrate on their core business. There is also the fact it's illegal at the federal level,' said Bobby Uppal, Uppal Insurance & Financial Services in Citrus Heights.

As the industry is still emerging from prohibition, business owners themselves are not always savvy about what they need as far as coverage and where to find it.

Uppal has been in the insurance business for 18 years, and for several years has been holding seminars up and down the state educating business owners in the cannabis industry.

Some owners haven't known it exists, and some have concerns about their information being kept confidential. It probably will be, but should the federal government come knocking on the agency's door for some reason looking for that information, there 'would probably be some legal wrangling going on,' Uppal said.

Misclassification has also been an issue. Some cannabis businesses, due to erroneous information given by the owners, have been classified as something similar, like a nutrition shop. The problem is, if a claim is filed it would be denied. Also, some carriers send an inspector to check out the verity of policy information, in which cased the policy would be canceled, Uppal said.

As cannabis businesses are becoming more legitimate, however, they are taking it more seriously DiNicola said.

Things are changing, Ford agreed. In the beginning, clients concerned about privacy would have him sign non-disclosure agreements.

'People are much more open now that Humboldt County has their regulations in place,' he said.

Cynthia Sweeney covers health care, hospitality, residential real estate, education, employment and business insurance. Reach her at Cynthia.Sweeney@busjrnl.com or call 707-521-4259.