As the cannabis industry grows, more insurance carriers are considering underwriting coverage for these new, emerging businesses. The struggle that many cannabis businesses face is their insurability based on the controls in place (or lack thereof) listed on their insurance applications.
Another insurance issue is the cost of some policies relative to the stage of the business. Underwriters know supply is limited and they’re charging a premium when a company’s insurance application isn’t as strong.
Here’s how to buy insurance for cannabis companies by crafting a winning insurance application.
How underwriters look at companies
Our goal at AlphaRoot is to consolidate potential questions from all the carriers into a simplified web application, making the process as seamless as possible. Our underwriters then review the information and evaluate the exposure, asking the following key questions in the process:
- How likely are claims against the insured company?
- How expensive will those claims be?
- Will this account be profitable (premium > claims payments)?
In this post, AlphaRoot’s quoting team breaks down vital pieces of information underwriters require to provide a quote, as well as possible ways to save your business money.
General information required by underwriters
Background info (the easy stuff):
- Business name, mailing address, corporate structure, location schedule, etc.
As we get into the core of the application, you’ll answer questions which categorize where you fit in the cannabis industry.
What are your operations and projected revenues?
- Cultivation, processor, manufacturer, retail, lab, hydroponics, dispensary, delivery, etc.
Both operations and revenues are super important as they’ll determine your “class” or risk category. The class is what influences the total premium (cost). We want to show an accurate description of operations and a conservative revenue number that is attainable and realistic.
How is the product being used?
- Is usage recreational or medicinal? Or is the product a supporting technology (no cannabis sales)?
Are you a member of any cannabis trade associations?
We work with carriers who offer discounted packages. Here are the associations we’re affiliated with:
- The Cannabis Alliance (TCA)
- Coalition for Cannabis Sensibility and Ethics (CCSE)
- NORML Business Network (NBN)
- California Cannabis Industry Association (CCIA)
- National Financial Cannabis Association (NFCA)
- National Cannabis Industry Association (NCIA)
Cultivation & Manufacturing Cooking Operations
For those businesses touching the plant whether through a large scale grow operation, dispensary, or edible/extraction business, there are very specific pieces of information underwriters are looking for that determine insurability.
Cooking & manufacturing:
- Is there fencing around the cultivation area?
- Are there gates at all entrances of the property?
- How are you growing? Indoor/greenhouse/outdoor?
- What’s the total property size?
- Is there open flame cooking or fryer operations?
- Is there a non-combustible power ventilation hood?
- Is there a UL-300 compliant automatic fire suppression system?
- Is there an automatic gas/propane cut-off?
- Is there a regular cleaning of a grease hood?
- Is there extraction of oils? (This is a huge source of premium increases.)
For virtually anyone in the space (as well as general business), it is a strong risk mitigation tactic to be listed as an additional insured on your supplier’s policies. If you are in a state where you are operating as one part in the supply chain (not those who are vertically integrated), being added as an additional insured creates a risk transfer through which the supplier’s policy will respond first in a claim situation when your company is sued due to a supply issue (contaminated product, for example).
Consult with your insurance partner on the best way to mitigate risk through additional insured status as well as other globally accepted tactics.
Crop insurance and property
To cover property or not to cover property…that is the question! If you are a large scale cultivator, dispensary or distributor and you are in possession of valuable inventory, you need property insurance.
General Liability and Property will likely be written in a mono-line format for cannabis companies (meaning as separate policies) because of the uniqueness of the property we are insuring. Here’s a post on property and crops you can insure for further reference.
A few security features that will save you money when applying for property coverage:
- An active central station alarm
- Approved vault room
- Security personnel at all locations
- Buzz-in system
- Interior & exterior cameras
If you’re in the industry, you’ve probably heard of the Controlled Substances Act once or twice. This act is in force to regulate the manufacturing, import/export and possession of controlled substances. Compliance is mission critical to stay in business long-term and to avoid legal trouble! As mentioned earlier, insurance carriers love to see preventative measures in place to avoid potential losses which will ultimately decrease your risk and premium.
A few (obvious) prevention measures factors include:
- No distribution to minors
- No sales to criminal enterprises
- No diversion of cannabis sales to where use is illegal in specified state
Implementation strategies include:
- Programs/safeguards to prevent violence and the use of firearms applying to the cultivation and distribution of cannabis
- Programs to prevent drugged driving or other possible adverse public health consequences associated with cannabis use
- Controls to prevent possession or use on federal property
The AlphaRoot web application allows individuals to share specifics within your industry segment. Whether you are requesting General Liability, Products Liability, Crop/Property Coverage or all of the above, we’re able to get down to the nitty gritty of your business. Once we gather all the required information, we work with our team of insurance underwriters and cannabis experts to tailor a policy designed specifically for your company. Properly insuring your business is crucial to the ultimate goal: success and longevity in the cannabis space!