Placing coverage for operators in the cannabis industry is undoubtedly more challenging than traditional industries. Directors & Officers insurance, or insurance to protect the management team and company from investor suits has historically been the most challenging and capital intensive line of coverage to place. This difficulty stems from the industries’ claims activity and loss experience, specifically for Public Companies.
Due to the insurance market for Public Cannabis Companies with plant touching operations in the US, brokers often have to seek alternative options from Non-Admitted or Unlicensed carriers. Carriers that are unlicensed in Canada are subject to additional taxes and fees associated with placing coverage, which places the duty of the insured to pay these applicable taxes.
The tax breakdown typically follows this structure; a 10% excise tax/federal tax applicable regardless of province and then an additional provincial tax which varies depending on the province that the operator is registered and/or operates if there are Canadian operations. This additional provincial tax can range from 7% all the way up to 50% of the premium. It is important to understand these costs and how the filing works prior to binding coverage, otherwise the insured can be stuck with a surprise tax bill!
Another key piece of placing these policies is the policy for a Canadian based company SHOULD have the correct Canadian address associated with the named insured. This seems intuitive; however, there are a number of instances where placements involve placing the policy using the US address of the Canadian entity. This is a placement that is liable to be fined by the Canadian Government if they discover such placement and the carrier is not a licensed Canadian Insurer.
By placing coverage with a US based carrier and paying US taxes and Fees for a Canadian company, the insured would be essentially evading Canadian taxes. At first glance, this work around will often seem to be the least expensive from a premium perspective; however, there could be backend penalties/additional costs that, in some cases, could effectively make this more expensive coverage.
Admitted vs. Non-Admitted Carriers
There are admitted options available for Canadian-based operators that have operations in the US, however they tend to be much more expensive. We like to provide multiple options to our insureds and find the best available option based on their interests and risk tolerance (price, coverage, limits, etc.).
Capacity is limited in this space so to build high towers of limits, non-admitted carriers will often need to be used, but as mentioned, it is important to work with a broker who understands their placements to avoid surprise additional costs. Transparency is key and it is important to understand all the costs associated with placing a non-admitted/ unlicensed Canadian carrier.