Complex And Convoluted: Obtaining Coverage For The Cannabis Industry

By Kenny Russell

Marijuana, the long-time illegal and stigmatized substance, has experienced a shift in the perception of its benefits and accessibility for adults.

As more states continue to legalize this substance for medical or recreational use, this somewhat complex industry has become the fastest growing in America —with New Frontier Data reporting the industry’s current worth at $13.6 billion and estimates of exceeding $30 billion by 2025.

But although momentum for this product is increasing, given the presidential and congressional changes from the 2020 election, there is still no shortage of difficulties surrounding the cannabis business.

Convoluted, Complex And Complicated

With the current federal restrictions, a variety of barriers to entry and other regulations may exist for those operating in the cannabis industry. Some banks and other financial institutions are unable to provide loans or lines of credit, meaning hopeful entrepreneurs often must attempt to secure private investing.

Additionally, the federal legality issues have kept large pharmaceutical companies and other “vice industry” monoliths (such as tobacco and alcohol companies) from dominating the marketplace. Given this, holding companies are growing in their value and dominance, but many independent operations exist — funded solely by these private investments.

The hurdles established by federal regulations not only prohibit financial institutions, such as banks, from offering services to these businesses — but traditional insurance companies also are unable to provide necessary products to those operating within the cannabis industry. Regardless as to whether these insurance companies are “champing at the bit” to begin offering protection to (and taking premium from) those in this industry — they cannot. However, coverage may still be obtained by a select few specialty Lloyd’s of London carriers.

Minimize Exposure To The Business

Regardless of public opinion about cannabis, this ever-expanding industry needs the same protections that are so readily available to just about any other business. It is estimated that the industry would pay $1 billion in insurance premiums, if adequate coverage were available. Even though traditional carriers cannot cover those in the cannabis business, does that mean they are sheltered from the risks that threaten any other client or business?

No. There are a variety of financial risks to address: a buy-out required due to a death or disability, investors needing insurance on the owner, the business needing to protect itself from the lost revenue if a key person dies or is disabled, and securing a contract between a merger of two holding companies.

Specialty carriers are able to write policies specific to individual business needs. Typically, the insured must hold ownership — but certain key-employee situations may be available if the insured is critical to the business, and that justification can be explained with a cover letter. The business death benefit policies are available without any underwriting requirements — no labs, exams or medical records are requested.

Benefits can be upward of $20 million per insured, if justifiable. Although approval is not guaranteed, underwriting usually takes only a couple of days (coverage exclusions or ratings may be added for pre-existing issues). Any disability option is subject to full underwriting. All policies are written on a term basis, often with a two-year maximum for the life option and five-year maximum for the disability.

Make It Simple

These solutions are intended to streamline and simplify the process for providing necessary and adequate protection for companies that already face a variety of complexities or difficulties to simply operate within this marketplace. The marketplace is continually evolving, and it's important to check-in regularly to stay on top of all the options available to meet unique client needs.

Kenny Russell is director, disability sales, for the Disability Solution Center at Crump Life Insurance Services. He may be contacted at [email protected].