When you’re running a marijuana business in California, getting insurance can be a challenge.
Nearly all of the insurers that offer coverage are smaller carriers that aren’t regulated by the state and often are reluctant to enter the industry. California Insurance Commissioner Dave Jones plans to change that.
Jones announced Monday he has approved a program to provide property and liability coverage for marijuana dispensaries, storage facilities, processors, manufacturers, distributors and other cannabis-related businesses operating in California.
“Cannabis businesses need insurance coverage to help them recover when something goes wrong just as any other legalized business does,” Jones said in a statement. “This first-of-its-kind Cannabis Business Owners Policy, or CannaBOP program, will make it easier for more insurers to enter the market and fill coverage gaps for cannabis businesses.”
Momentum has been building
The policy — complete with forms, rules and rating information — was developed by the American Association of Insurance Services (AAIS), a not-for-profit insurance advisory organization. It comes on the heels of an initiative Jones launched last year to encourage commercial insurers to step in and fill coverage gaps for the cannabis industry.
That initiative resulted in the first filing and approval of commercial insurance for the cannabis industry Golden Bear Insurance Co, a state-regulated carrier. The first surety bond program for the industry was announced in February and the first coverage for commercial landlords in the industry and a product liability and product recall program were announced in May.
Phil Skaggs, an assistant legal counsel for AAIS who also help craft the CannaBOP program, said it’s designed as a one-stop shop for marijuana-related businesses in need of coverage.
Pesticide, quality control issues
“We wanted to make sure this provided a fairly robust product liability package,” Skaggs said. “In California, there are lots of pesticide and quality assurance issues that have arisen with cultivation, for example. And when you have a product liability lawsuit you sue everyone in the chain, all the way from the farm to the business that’s selling the product. This provides protection for them.”
Skaggs said CannaBOP is designed primarily for smaller mom-and-pop operations and startups that need coverage but don’t know where to find it.
The U.S. maintains a federal prohibition against marijuana. But as long as California courts can enforce insurance contracts, marijuana businesses will likely be allowed to operate, Skaggs said.
Auto, workers comp not included
Ken King, vice president of commercial casualty for Stockton-based Golden Bear, said his company doesn’t provide auto or workers compensation coverage for marijuana businesses as those are specialty lines not directly related to the other things the company insures. But many of the smaller non-regulated insurers do offer those coverages, King said.
“A business would have to go somewhere else for that,” he said. “But we offer property coverage, which includes the building, personal business property and business income and stock. We also offer general liability, product liability and some crime coverage for things like robbery and burglary. At this point, we have issued policies to over 100 marijuana-related companies.”
Golden Bear is an “admitted” carrier, which means the California Department of Insurance must approve all of its forms and rates. It also means the company is subject to audits to ensure the business is economically stable. When customers have complaints they can call the Department of Insurance and also get financial assistance through the California Insurance Guarantee Association in the event that an insurer goes out of business.
