The cannabis industry, just like any other industry, requires insurance coverage. Insurance is often required for plant-touching businesses such as growers, processors, and dispensaries and is well-advised for ancillary cannabis businesses, such as real estate brokerages, transportation companies, and payment processors. While the cannabis industry is rapidly making its mark on the U.S. economy as more states pass laws to legalize its use (both medicinally and recreationally), the cannabis insurance industry, by comparison, has been slow to adapt to the expanding need for cannabis insurance. As a result, cannabis businesses are oftentimes left with spotty coverage, high premiums, and more questions than answers.
Insurance Basics
Insurance products are generally offered in two markets: the admitted market and the surplus lines market.
Insurance products offered in the admitted market are typical, also known as “off the shelf” products, e.g., insurance for personal use vehicles, residential housing, life and health, travel, and more. These products are easily accessible, and most national insurance companies sell these products to the general public with ease of marketing.
The surplus insurance market, in contrast, is meant to fill the gaps for insurance products and offerings that are not readily available in the admitted market. Products in the surplus lines market can cover unique items of value or certain risks that require individualized underwriting to determine the value. Tom Brady’s arm during the many seasons in which he played and Beyoncé’s voice are examples of unique “risks” covered by a specialized insurance product not offered in the general marketplace for insurance.
In order for an insurance product to be considered in the surplus lines market, most states will require that at least three insurance companies turn down writing this type of coverage in the general admitted market.
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