When it comes to general insurance issues, cannabis-related businesses face the same general liability and property risks faced by other industries, like workplace accidents, damage to property, crop failure and transporting their products to market. However, cannabis businesses require more comprehensive commercial insurance due to the high risks involved in transporting cannabis-related products.
Cannabis is still an illegal substance under the Federal Controlled Substances Act. It is classified as a Schedule 1 drug. Cannabis, regardless of whether it is sourced from cannabis or hemp, is still subject to Federal Drug Administration approval under the Federal Food, Drug, and Cosmetic Act.
The availability of cannabis-related transport coverage is evolving as more states make it legal. However, because it is still illegal on the federal level, insurers may be hesitant to work with cannabis-related businesses. Therefore, it is important for agents and brokers to learn as much as possible about what is available, which companies offer coverage, and most critical of all, whether the coverage offered adequately protects your client.
What to Know
The availability of insurance is evolving rapidly due to the changing market landscape, so be sure to check around for all the available insurance and coverage options.
1. Since legality varies state by state, look for a transportation insurer that works in the same state or states in which your insured operates.
The legal limbo of cannabis means these businesses are considered a risky, high value, cash operation. Licensing and insurance requirements are other important considerations. Most states require cannabis-related businesses to maintain certain levels of insurance and will require additional information about drivers, as well as owned and non-owned vehicles.
2. Since cannabis is basically a cash-only business, financing premiums may offer agents and brokers a challenge.
Roughly 70% of cannabis-related businesses operate as cash-only, according to the National Association of Insurance Commissioners. Many financial institutions stay away from cannabis-related businesses due to the legal risks. A fraction (518) of the nearly 5,000 U.S. commercial banks worked with the cannabis industry in 2021, according to the CATO Institute. It’s important to look around for options because some insurers can accommodate this cash-only business and offer legal options.
3. Cannabis transportation insurance policies depend on the type of operation your client is running.
Some cannabis-related businesses may need coverage for a single van, while others may need armored transport for cannabis products, requiring substantially more coverage than the average cannabis-related local product delivery. Other factors to consider include the quantity and value of the goods, how far the goods will be transported and how many vehicles the business will have on the road at any one time.
4. Harvested crops such as cannabis and hemp take months of cultivation before they are ready for distribution. This means that when the crop or products ship, they are irreplaceable if they are lost, stolen or damaged.
Cargo insurance covers any cannabis-related products transported by the cannabis-related business or in its custody. Coverage pertains to seeds, seedlings, harvested crops, raw flowers, tinctures, edibles, vape pens, pipes, and any other paraphernalia, and may apply to cash or securities. Cargo insurance is designed to pay out the actual cash value of the shipment and covers any loss of income experienced due to theft, fire, or accident. It should be noted that seizure of goods by law enforcement is generally not covered.
5. Cargo transportation insurance options are available to cannabis-related businesses.
The choice of type of insurance is based on who owns the vehicles. If it is the cannabis-related business, then business auto is a good choice. If the business opts for using hired and non-hired autos for distribution, it should investigate a hired and non-hired auto option. Just remember, the coverage will require underwriting including knowing how many vehicles are on the road at any time, what kind of products are being shipped, and of course, the driving records of drivers.
Transporting cannabis across state lines is illegal. However, when transporting hemp, the product must be produced lawfully under the 2018 Farm Bill, which has issued approved regulations and procedures (under 0.3% THC) within specific states.
While a driver can transport cannabis-related products within a legal state, if a driver crosses over into a state where cannabis is illegal, the business could be subject to seizure and impounding of vehicles and equipment, large fines, and imprisonment. Cannabis-related businesses will therefore need state-issued distribution licenses and will be subject to “secure transit” regulations. This means equipping vehicles with secured lockboxes, GPS tracking systems and heating or air conditioning systems to adequately maintain correct temperatures for cannabis storage.
Cannabis-related businesses that transport cannabis will need transportation insurance coverage. Few insurers offer cannabis transport insurance that includes cargo. Another important factor to consider is whether the transportation insurance includes both physical damage and cargo insurance. Can it be purchased as a stand-alone coverage, for example? Some insurers will do that and marry the cannabis transport coverage with another carrier’s liability coverage.
If your client is transporting cannabis, be sure to check if the policy covers physical damage and cargo, as well. Not all commercial auto policies will. Other issues to consider might include workplace accidents, property damage, fires from both wildfires and internal sources, theft, general liability, refrigeration breakdown, and cash in transit endorsements. Does the insurer offer higher limits — say up to $1 million? What about new ventures? Are they covered? Is there coverage for cash-in-transit? What about in-transit property for owned products?
It pays to know the insurance landscape to ensure that your CRB has the proper coverage for their risk.
WRITTEN BY Wendy Watson Watson is chief underwriting officer at GMI Insurance. GMI Insurance is a family-owned and operated commercial transportation managing general agent. Watson can be reached 610-933-4679, ext. 241.
Christopher Lewis Lewis is underwriting manager at GMI Insurance. GMI Insurance is a family-owned and operated commercial transportation managing general agent. Lewis can be reached at 610-933-4679, ext. 278.