Cannabis insurance is no easy task, as any operator will tell you. Most insurance decision makers in the space have heard the reasoning behind inflated premiums, limited coverage terms and difficulty finding options.
Cannabis is an emerging industry operating in a legal gray area without the historical data and federal backing insurers require to confidently price and compete in the marketplace. While the redundant message has become cliché, operators must be deliberate in their efforts of obtaining proper insurance and risk management, which in turn drives the industry forward in many ways.
How does a cannabis business owner secure proper coverage?
The first and perhaps most important step is for operators to align with an insurance professional that specializes in insuring the cannabis industry. Ideally, this insurance professional will have the experience and education to guide them in navigating the insurance process and making smart insurance and risk management decisions.
The cannabis industry is flush with seasoned entrepreneurs and executives with backgrounds from across the board, yet many are accustomed to a similar commoditized, transactional insurance process from their prior experience in more accessible industries.
While a transactional approach may work in an industry where insurers must compete with aggressive pricing and policy coverage terms, it leaves cannabis organizations exposed to adverse financial events that could be detrimental to the profit and long-term viability of the business and its stakeholders.
Aligning yourself with a true cannabis insurance professional may seem obvious and easy, but similarly to the limitation on insurance carriers, there are few insurance agents that dedicate most of their time toward insuring cannabis operators.
As a result, many agents claim to have the ability to help, but they may not have the actual knowledge and experience to make sure the cannabis operation is properly covered. Here are a few questions I would recommend asking an insurance professional to gauge their level of expertise:
Is your agency a member of any cannabis trade or support organizations? What cannabis-specific insurance carriers do you represent? Are any of these direct appointments or are they all accessed through an intermediary?How are you addressing the common limited policy terms in the policies such as product liability, property, and directors and officers liability?Courtesy POWERS Insurance & Risk Management How can an agent give wrong advice or leave me uncovered?
It’s financially unrealistic for most cannabis operators to purchase all lines of insurance coverage that “should” be in place to cover all business exposures, so sacrifices to coverage and overall insurance product quality must be made carefully. Choosing the right areas to cover with your insurance program vs. self-insuring exposures is paramount and a risk advisor that specializes in the cannabis space can help an operator navigate those difficult decisions.
An inexperienced advisor will focus on saving cost, which is much less complicated compared to securing a complex and robust cannabis insurance and risk management program. It’s easy to save money, but you are almost guaranteed to have significant gaps in coverage if not thoroughly understood. For example:
A Product Liability policy that saves 10 percent or more in cost will typically come with significant drawbacks, such as a Health Hazard or Cannabis Impairment exclusion. That exclusion essentially makes the policy only worth the paper it’s written on, and self-insuring would be the better option to save money.Property insurance, which covers everything from the physical facility, contents, equipment, cannabis crop, inventory and loss of business income, is one of the most nuanced insurance products a cannabis operator will purchase. When coverage falls short (whether it’s from the carrier’s limited coverage or co-insurance penalties for having insufficient limits), operators must resort to financial reserves, an untimely cash call, or even folding the company. Property insurance is not immune to exclusion-heavy policy terms, just like General and Product Liability. If an organization’s Property policy excludes butane extraction but this wasn’t explained or vetted in the data collection and policy placement process, a cannabis processing and manufacturing operator is spending tens or even hundreds of thousands in insurance premium but have no coverage if there were a butane extraction-related explosion and fire. Business Interruption coverage, a key component to a Property Insurance policy, must be carefully designed and understood otherwise the ongoing expenses after a covered loss can keep an operation from reopening its doors. Directors & Officers liability is one of the costliest insurance policies for a cannabis company and is often overlooked or forgone, or the lowest cost option is purchased. The purpose of a D&O policy is to protect the directors, officers (and typically the company), from claims made against them while serving in their capacity for the company. Exposures include claims by investors, customers, competitors or vendors for mismanagement, misrepresentation or breach of duties that cause financial consequence.
Unless the insurance decision makers are familiar with reading the policy form fine print, a transactional approach to insurance will result in purchasing policy contracts with significant coverage shortfalls or missing key coverage altogether. Insurance decisions makers must be weary when solicited with insurance expense savings as the leading reason to engage.
Why are the insurance applications so important?
Each carrier has their own underwriting appetite, unique conditions and subjectivities that serve as contract and coverage warranties. The policy contract will frequently cite information disclosed on the original application as a condition or limitation of coverage. If the application states no in-house security but the operation, after submitting the application and binding coverage, decides to hire armed security, you can count on the policy’s “armed security exclusion” being cited for the declination of an assault and battery lawsuit.
If at the time of construction planning, a fire sprinkler system was intended but later forgone, a cannabis facility operator must be aware there are many cannabis property policies that require active, functioning fire sprinkler systems for coverage to extend in the event of a fire.
Safe and vault construction specifications are another example where the policy will have set requirements for theft or fire coverage. Typically, a safe must be a certain weight or be bolted to the ground, feature a certain fire rating such as one- or two-hour, and a vault must have a certain fire rating, video surveillance with a specific period of recorded history and certain construction specifications to deter forced entry.
Proper documentation is even more important when it comes to contract alignment with business-to-business relationships. Read more about the importance of contract alignment for cannabis operators.
All too often, cannabis operators are learning these insurance lessons the hard way. Fortunately, there are a few experienced insurance and risk management professionals who specialize in insuring cannabis operations. A great place to find a cannabis insurance expert is a cannabis trade association, such as Missouri Medical Cannabis Trade Association (MoCannTrade) or National Cannabis Risk Management Association (NCRMA).
By taking a big picture approach, a proper insurance and risk management program not only ensures the long-term viability of the organization, but also encourages competition from insurers which drives the industry forward through safety, profitability and sustainability.
Members of both MoCann Trade and NCRMA, POWERS Insurance & Risk Management specialize in Cannabis Insurance. Call (314) 725-1414 or visit POWERSInsurance/ChrisSullivan.com.
Original Source: hightimes.com
Rhode Island Rakes In $1.6 Million in First Week of Recreational Pot Sales
Rhode Island’s new adult-use cannabis market opened for business earlier this month, and so far, business is good.
Local news station WPRI, citing the state’s Department of Business Regulation, reported this week that “Rhode Island’s six marijuana dispensaries — five of which are currently authorized to sell to recreational customers — collectively sold just over $1.63 million worth of marijuana from Dec. 1 to Dec. 7.”
“Less than half of those sales were for recreational marijuana, at about $786,000. The rest, about $845,400, were sales to medical marijuana patients,” the station reported. “For comparison, during the last week of October — the most recent full week available prior to recreational sales — the dispensaries collectively sold $1 million worth of medical marijuana.”
Rhode Island legalized recreational cannabis use in May, when Gov. Dan McKee signed a bill that was passed by lawmakers in the state General Assembly.
The law made it legal for adults aged 21 and older to cultivate and possess marijuana, while also establishing the regulatory framework for cannabis sales.
“This bill successfully incorporates our priorities of making sure cannabis legalization is equitable, controlled, and safe,” McKee, a Democrat, said in a statement at the time. “In addition, it creates a process for the automatic expungement of past cannabis convictions. My Administration’s original legalization plan also included such a provision and I am thrilled that the Assembly recognized the importance of this particular issue. The end result is a win for our state both socially and economically.”
Additionally, the law “will give courts until July 1, 2024, to automatically expunge past convictions, and those who want their expungement sooner may request it,” the governor’s office explained in a press release at the time.
Late last month, McKee and the state’s Department of Business Regulation’s Office of Cannabis Regulation announced that “five licensed medical marijuana compassion centers have received state approval to begin selling adult use marijuana on or after December 1.”
The five “compassion centers” that were given approval to begin adult-use sales are: Aura of Rhode Island (Central Falls); Thomas C. Slater Center (Providence); Mother Earth Wellness (Pawtucket); Greenleaf Compassionate Care Center (Portsmouth); and RISE Warwick (Warwick).
“This milestone is the result of a carefully executed process to ensure that our state’s entry into this emerging market was done in a safe, controlled and equitable manner,” McKee said last month. “It is also a win for our statewide economy and our strong, locally based cannabis supply chain, which consists of nearly 70 licensed cultivators, processors and manufacturers in addition to our licensed compassion centers. Finally, I thank the leadership of the General Assembly for passing this practical implementation framework in the Rhode Island Cannabis Act and I look forward to continuing our work together on this issue.”
Matt Santacroce, who is serving as interim deputy director of the Rhode Island Department of Business Regulation, said last month that the state was “pleased with the quality and comprehensiveness of the applications we received from the state’s compassion centers, and we are proud to launch adult use sales in Rhode Island just six months after the Cannabis Act was signed into law, marking the Northeast’s fastest implementation period.”
“We look forward to continuing to work with the state’s cannabis business community to ensure this critical economic sector scales in compliance with the rules and regulations put forward by state regulators,” Santacroce said.
The launch of recreational sales on December 1 was only one change to Rhode Island’s existing marijuana policy to arrive this month.
WPRI reported that, on the same day, “the state also stopped charging medical patients to obtain or renew their medical marijuana cards,” adding that “there is an expected revenue loss from the pending plan to expunge marijuana possession charges, which will eliminate court fees from those crimes.”
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D.C. Council Approves Cannabis Bill To Promote Equity, Provide Tax Relief And Eliminate Medical Marijuana License Caps
On Tuesday, lawmakers in Washington, D.C., approved a bill that would significantly alter the city’s medical marijuana program. The bill would, among other things, remove licensing caps on cannabis businesses, reduce taxes for operators, increase efforts to promote social equity, and establish new categories of regulated businesses, such as on-site consumption facilities and cannabis cooking classes.
Additionally, it would allow current “gifting” operators, who sell non-cannabis items in exchange for “free” marijuana products, to transition into the permitted market while granting authorities the ability to crack down on those who continue to operate unlawfully.
The measure, which had been revised by the Committee of the Whole earlier in the day, was passed by the full D.C. Council by a vote of 7 to 4.
A second reading vote by the Council is still required before it can be sent to the mayor’s office.
Pro-reform lawmakers have voiced concerns that the bill’s most recent iteration may have unintended consequences for social fairness by granting preferential treatment to already established medical cannabis outlets.
Legally, adults would be able to selfcertify their medical marijuana use according to the Medical Cannabis Amendment Act.
Council Chairman Phil Mendelson (D) introduced the legislation on behalf of Mayor Muriel Bowser (D).
A note prepared for the hearing by the Committee of the Whole states that the most recent print “retains a majority of the adjustments and additions made by” the Committee on Business and Economic Development (CBED), which passed the measure last week.
It had progressed out of a different panel before.
Dispensaries’ Cashless ATM Transactions Get The Ax
Cannabis dispensaries in several states were left scrambling to find ways to process transactions without cash when a popular workaround to federal banking regulations known as cashless ATMs stopped working for many retailers beginning last week. Cashless ATMs, also known as “point of banking” systems, allow customers to use bank cards instead of cash at cannabis dispensaries, giving retailers and their patrons alike more flexibility when processing transactions for marijuana purchases.
But beginning last week, some of the biggest ATM transaction processors including NCR Corp.’s Columbus Data Services have shut down the ability of cashless ATM transaction processors to use their service, according to unidentified sources cited by Bloomberg. NCR declined to comment on the situation, according to the report.
“This is a pivotal point in cannabis banking,” Ryan Hamlin, chief executive officer of payment technology provider Posabit Systems Corp., told Bloomberg about the cashless ATM shutdowns.
Notice Given Last Year
Late last year, international payment processing giant Visa announced in a memo to retailers that it “was aware of a scheme where POS devices marketed as ‘Cashless ATMs’ are being deployed at merchant outlets.”
The system worked by rounding up purchases, often to multiples of $20, to make the transaction appear to be cash disbursements. Instead, only the change from the transaction would be returned to the customer, and the dispensary would keep the rest to cover the payment for the purchase.
“Cashless ATMs are POS devices driven by payment applications that mimic standalone ATMs. However, no cash disbursements are made to cardholders,” the December 2021 memo continues. “Instead, the devices are used for purchase transactions, which are miscoded as ATM cash disbursements. Purchase amounts are often rounded up to create the appearance of a cash disbursement.
In April, Bloomberg reported that cashless ATM transactions were able to be processed because they were disguised by listing an address of a nearby business such as a fast food restaurant instead of the actual dispensary address. An estimate put the portion of cannabis sales processed through cashless ATM transactions at 25% of the $25 billion in projected annual dispensary sales.
“Those sales could generate more than $500 million in fees for payment processors, based on average purchase sizes,” Bloomberg reported.
Banking Laws Hinder Legitimate Cannabis Businesses
The popularity of cashless ATM transactions is indicative of the difficulty federal regulations pose for cannabis businesses, even those operating legally under state law. Federal banking and money laundering laws put restrictions on the banking industry, making it difficult for financial institutions to provide traditional services such as credit card processing, loans, and deposit and payroll accounts. But cashless ATMs fail to pass muster with the federal regulations.
“The cashless ATM trend is damaging to investors, dispensaries, and consumers, as when it comes down to it, it’s blatant money laundering,” CannaTrac CEO Tom Gavin told High Times. “Instead of creating loopholes and using a cashless ATM, dispensaries should take advantage of other solutions currently on the market that are safe, legal, and transparent. A proper financial solution should be registered with FinCEN and have a money transmitter license, or be the agent of a sponsor or bank with a money transmitter license in their state.”
Hamlin of Posabit said that signs of the cashless ATM shutdown began to appear in November and increased last week. He estimated that by the end of the weekend, only about 20% of the cannabis industry was still able to use cashless ATM payments.
Cannabis dispensaries in Arizona, California, and Massachusetts have reportedly been affected by the shutdown of cashless ATM transactions, with employees at those shops recommending that they pay for their purchases with cash instead. Curaleaf Holdings, one of the largest cannabis retailers in the United States, reported in April that approximately one-third of the company’s dispensary transactions were processed through cashless ATMs.
“It’s left merchants in the lurch because it happened overnight, but the writing has been on the wall for a while now,” said Peter Su, a senior vice president at Green Check Verified, a consulting and software company that specializes in cannabis and banking.
Sahar Ayinehsazian, a partner at Vicente Sederberg LLP and co-chair of the law firm’s Banking and Financial Services Access Group, said that the shutdown of the cashless ATM system illustrates the need for the passage of legislation now pending before Congress that would allow legal cannabis businesses access to banking services.
“This shutdown further underscores the ongoing need for banking and financial reform for cannabis businesses and the passage of the SAFE Act,” Ayinehsazian wrote in an email to High Times. “While there can be no guarantee that the Act will open up payment processing for cannabis operators, the industry is very optimistic that its passage will facilitate access to legal and legitimate cashless payment options for cannabis operators.”
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