Although the sale and consumption of medical or recreational marijuana is now legal in more states than illegal, the federal classification of this drug as a controlled substance has made it hard for cannabis entrepreneurs to gain financing and insurance.
Banks that are backed by the Federal Deposit Insurance Corporation (FDIC) are expressly prohibited from lending funds to businesses engaged in activities prohibited under federal law, and even smaller or local banks are subject to stringent regulations that can constrain them from offering loans or lines of credit to cannabis-based businesses.
However, the advent of at least one insurance company that's focused on offering products and coverage to cannabis-based businesses may begin to turn this tide of prohibition. Read on to learn more about how cannabis business insurance has historically been treated and the types of coverage available.
History of Cannabis Insurance
The insurance industry, like the banking industry, requires its providers to adhere to a number of state and federal laws and regulations. Because marijuana is still decidedly illegal under federal law, businesses that propose to cultivate, sell, or otherwise deal in medical or recreational marijuana are barred from seeking the protection or benefits of federally-regulated industries like banking and insurance.
In the banking context, some states have innovated "weed banks," or non-FDIC-insured credit unions or banking systems that exclusively lend to marijuana-based businesses. The insurance industry has jumped on this trend as well with the advent of a company that offers a wide range of liability, crop protection, and loss of income coverage for cannabis-related ventures. This insurance company is licensed and able to offer cannabis insurance in every state in which cannabis is legal to sell and consume.
As time goes on and more states pass ballot measures legalizing or decriminalizing marijuana, it's likely that more companies will discover that the world of cannabis financing is surprisingly lucrative despite its murky legality under federal law.
What Types of Insurance Coverage Does a Cannabis Business Need?
Once you've found an insurance company willing to provide a cannabis-based business with coverage, it's important to evaluate the type (or types) of coverage you need. This can vary widely depending upon the activities your business performs; for example, a company that solely cultivates marijuana and sells it to wholesalers is likely to have very different insurance needs than a dispensary that receives marijuana from a wholesaler and sells it to an end user.
Some of the most common types of coverage available include property liability, product liability, and insurance against damage to or destruction of crops. Depending upon the state, you may also be able to purchase workers' compensation insurance through a cannabis-exclusive insurance company, providing any employees with protection against lost wages or medical costs after an on-the-job accident.
When you're considering purchasing insurance, you'll want to spend some time thinking about your needs; specifically, the types of losses against which you can self-insure compared to those against which you can't self-insure. If you're growing a fairly hardy strain under secure indoor conditions, you may decide that crop loss insurance isn't something in which you're interested. On the other hand, someone growing outdoors or who is dealing with an especially finicky strain may need this insurance to protect against unexpected weather conditions or other complications that can compromise the size of a harvest.
If you're interested in insuring your current cannabis venture or have thought about starting a company but are concerned about incurring liability, you may want to speak to an insurance wholesale agent. An agent can evaluate your business structure and help you identify the types of coverage most relevant to the way you operate.
