There is much buzz around the cannabis industry as it continues to grow (and bring in millions in tax dollars). The federal prohibition keeps cannabis-related businesses from accessing resources that legitimate businesses usually have access to, like banking.
Banking isn’t the only service that is hard to come by when you’re a cannabis-related business. Insurance has been another need for the industry as states want there to be layers of protection from liability, but it has been hard to come by. California has been making progress in that arena thanks to Dave Jones, California’s Insurance Commissioner.
Starting in 2017, Jones set out to make business insurance a possibility for cannabis businesses. Over 18 months of connecting with insurers and encouraging them to come on board have paid off. In the summer of 2018, Jones approved the first Cannabis Business Owners Policy (CannaBOP) in the state.
The American Association of Insurance Services created the CannaBOP, and this cannabis insurance is not just for one section of the industry. Property and liability coverage is available for farmers, distributors, dispensaries, manufacturers, storage facilities, and other related businesses that can now operate in California.
Not only is this a good sign for the state, but also for the business. Any person who walks through the door of a dispensary could trip and fall, injuring themselves and costing a cannabis business potentially millions. Liability insurance is crucial for a healthy business to survive (especially in a litigious state like California!).
Jones didn’t stop at CannaBOP. Just a month before the announcement of CannaBOP, Jones approved the first provider in the state (California Mutual Insurance Company) for lessor’s risk coverage, so property owners leasing their commercial property to cannabis businesses can protect their assets. With California being the largest insurance market in the country, Jones has been working overtime to bring more carriers into the cannabis market.
Why this big push recently? Jones capitalized on reports stating the Trump Administration would keep the federal nose out of state cannabis programs that are legally operating within their state’s rules for medical and adult-use cannabis. After the Cole Memo from the Obama Administration had been called into question, there was apprehension to get involved. Now that the current administration seems to have taken a position, the world adjusts.
California’s new voter-passed laws that opened up adult-use cannabis and also required businesses to obtain a $5,000 surety bond. As anyone who has tried to apply for a state license knows, obtaining that surety bond has been a feat on its own. Surety bonds are in place to ensure licensed cannabis businesses comply with the costs of regulation: a surety bond might cover the cost of destroying contaminated cannabis, for instance.
Surplus line insurers had been handling these bonds, but as of February 2018, the Continental Heritage Insurance Company was approved to offer surety bonds to legal cannabis-related businesses in California.
California has taken its experience insuring ride-share drivers and companies (another newly regulated industry) in its efforts to get cannabis covered, and more is in the works. Great strides have been made in California, but there are still gaps that are hard to fill. Crop insurance for farmers has been hard to come by, and that is one of the next targets for California’s Insurance Commissioner.