In the wake of devastating wildfires in Northern California, many cannabis farmers were dealt a particularly hard financial blow. Cannabis businesses are generally unable to obtain insurance coverage. This is because the insurance industry is regulated by federal law – a federal law which classifies marijuana as an illegal substance. For this reason, when millions of dollars of crops were destroyed, the losses were not compensable. The wildfires also destroyed cash reserves of many businesses. Many cannabis businesses are forced to operate entirely in cash for the same reason – federal law prohibits regulated banks from offering financial services to cannabis businesses. With large cash reserves on site and many evacuation orders coming instantaneously, business owners were not always able to save their business funds. Now, the state Department of Insurance is speaking to cannabis business owners to learn about the challenges they face, and how the insurance industry can better meet the future needs of the cannabis industry.
A New Option for Protecting Cannabis Business Assets
A series of recent moves within California’s insurance industry indicate that cannabis business owners may be better able to protect their assets from future acts of force majeure. The Insurance Journal reports that, for the first time, a carrier admitted to the California Department of Insurance has filed to provide coverage to legal cannabis businesses within the state. Other carriers have expressed the desire to file with the Department to offer similar products to the legal cannabis industry. Standardized insurance forms for the cannabis industry may also be available in the very near future.
State Insurance Commissioner Dave Jones is actively studying the needs of the cannabis industry and how the Department can help remove certain barriers to coverage. At a public hearing in Los Angeles, Jones spoke with business owners about obtaining access to coverage, the availability of affordable coverage, and critical gaps in coverage. This is a particular problem for businesses lacking adequate liability insurance in California’s liberal civil lawsuit climate, which tends to favor plaintiffs’ judgments. Many business owners reported that they were able to access worker’s compensation coverage, but directors and officers coverage was reportedly more difficult to come by.
The Many Ways Cannabis Business Owners Can Protect Their Assets
Even within the framework of existing regulations and restrictions, business owners can protect their assets in many different ways. Insurance coverage may be available for buildings and structures, as well as company vehicles. Alternative financial services are available to cannabis businesses, and this can preclude the need to operate an entirely cash-based business. It also reduces the risk of violent crime faced by any business with large reserves of cash.
As the insurance market adapts, expands, and reforms itself to meets the needs of the legal recreational cannabis market, business owners must be prepared to access all necessary insurance services. It is also critical for business owners to find other means of protecting their assets when insurance coverage is not available. A cannabis business planning attorney can help business owners find and access the right tools to protect their businesses.
The Los Angeles Cannabis Law Group represents growers, dispensaries, collectives, patients and those facing marijuana charges. Call us at 949-375-4734.
Additional Resources:
Admitted Carriers, CanaBOP Coming to California’s Cannabis Industry, October 20, 2017, by Dan Jergler, Insurance Journal
More Blog Entries:
How California Marijuana Growers Are Rebuilding Their Businesses After Devastating Wildfires, October 21, 2017, by Cannabis Law Group