The cannabis industry is being affected by COVID-19 much like other business sectors, but the complexities of this budding industry make its eventual recovery from the pandemic and ensuing economic fallout even harder to predict.
Yet that didn’t stop us from asking a group of experts to do their best to cast some light on what insurance professionals can expect from the cannabis industry.
Business interruption was an oft-uttered term during Insurance Journal’s April 15 webinar, “Insuring Cannabis: From the Mechanics to Seeing Through the Weeds.”
The hour-long session featured three experts taking on a variety of topics in the growing world of cannabis and insurance: Jodi Green, a partner in Nicolaides Fink Thorpe Michaelides Sullivan LLP; Norman Ives, broker and cannabis practice leader for Worldwide Facilities LLC; and Phil Skaggs, assistant counsel for the American Association of Insurance Services.
Despite the economic uncertainty on the horizon, the take-away is that things will eventually pick back up and growth in the cannabis industry is expected to be strong in the long term.
BDSA, a provider of data and analytics for the cannabis industry, recently announced an initial forecast for 2025 global cannabis sales of $47 billion. That represents a compound annual growth rate of 21% from 2019.
New Dawn Risk Group Ltd. in early May issued a white paper analyzing insurance coverage for the U.S. legal cannabis, CBD and hemp markets.
The report: “Understanding and opening up the US cannabis insurance market,” shows a $1 billion insurance gap in the industry. The pandemic will make it even tougher for cannabis producers to obtain insurance as providers further tighten terms and conditions and introduce exclusions, while insurers who may have been looking to enter the market will put their plans on hold, according to the report.
The panelists on the IJ webinar agreed the biggest fallout of the COVID-19 crisis will be unanticipated and uncovered business interruption losses.
“With regard to COVID-19 and business interruption insurance, one thing to be aware of is right now a number of the property carriers, the carriers that are offering business interruption insurance in the cannabis space, have ceased making those placements for the time being,” Ives said. “They’ve just frozen those markets waiting for things to settle out before they move forward trying to see if there was going to be some legislation come in trying to force the insurers hand in having to pay on some business interruption as there’s been some talk in some of the states.”
While some companies may have had business interruption options in the past, many carriers are now declining to offer that coverage and are waiting for the impacts of the pandemic to play out, Ives added.
When it comes to coronavirus impacts, Green is paying close attention to coverage lawsuits that don’t necessarily involve the cannabis industry but that include policy terms that might be applicable to COVID-19 losses.
“And so until those things shake out and we really [don’t] understand how the courts are going to construe the provisions that might be applicable to this virus, I’m sure carriers are going to be hesitant to issue any new policies that might involve virus, pandemic type losses,” Green said.
Green Thumbs Up
Business interruption was the consensus concern, but panelists agreed on another matter. They all gave largely “thumbs up” responses to a question of whether insurance professionals looking to specialize in the cannabis business should still do so with this crisis and the uncertainty it brings.
“Yeah, I’d give it a thumbs up definitely,” Skaggs said. “I think there’s still a huge opportunity here to do it and to do it smartly – to step into markets that are more stable and to evaluate companies that are able to weather this COVID-19 crisis and really provide quality insurance, and insurance that is in high demand right now.”
Inevitable growth was reason No. 1 for his confidence. New markets continue to open as more states legalize adult use or medical cannabis.
“We have new markets in Illinois and Michigan that are pulling in record revenues and hopeful outlooks for several states,” Skaggs said. “We had 16-plus states that were considering some sort of recreational, whether it be a ballot initiative or pending or anticipated legislation. And then on the medical side, we had another five states including two ballot initiatives that were either going to expand their medical programs or introduce new ones. And some of that still holds true.”
Skaggs said the “special attention” now being paid to business interruption coverage, in addition to increased attention on insurance offerings like product liability on the heels of the vaping crisis, have made cannabis businesses more aware of the value that insurance policies bring – and more interested in engaging with brokers on what insurance products can do for them going forward.
“And so, I think there’s many opportunities here still,” he added.
Green discussed the havoc the vaping crisis has caused.
“Again, even before the vaping crisis, product liability laws can hold any party in the supply chain responsible for liabilities caused by the product,” Green said. “For example, if you have a manufacturer of the battery that was manufactured in China and it explodes on a vape pen with a cartridge that was sold by a retailer in the United States, every single party involved in that transaction can be sued and subject to liability. And the company that sold the cartridge might have no recourse against the Chinese manufacturer because that company is not amenable to suits. So that results in a lot of problems when you’re looking at coverage for products.”
The vaping epidemic has yielded an influx of exclusions and additional endorsements that preclude coverage for anything associated with vaping, such as cartridges and batteries.
“We’ve seen things called health hazard exclusions, which are almost all encompassing, limiting coverage for any medical condition arising out of the use of a vaping product,” Green added. “They’re very prohibitive exclusions because for fairly obvious reasons, carriers are really concerned about the potential exposure and risks associated with those products.”
Ives has seen carriers respond to vape issues with health hazard forms, “which at best provide muddy generalized descriptions of health ailments” that may or may not apply to any number of illnesses.
“I’m aware of one national carrier issuing a policy without a vape or health hazard exclusion in it right now,” he said. “Another major carrier has instituted a $1 million sub-limit and tried to specify that to exclude devices from coverage so that it mostly applies to the oil, which again gets a little muddy in trying to parse somebody’s intention through legal wordings in an endorsement. But vape is very hard to cover right now.”
The one thing even harder than covering vape? Trying to cover vape in CBD products, according to Ives.
“Trying to cover vape in CBD right now is basically not available to my knowledge on the product liability side,” Ives said. “The carriers in the health, wellness and nutraceutical space that were writing CBD products that included vape products have now completely pulled out of there. The two largest insurers of e-cig and vape devices for both tobacco and CBD risk have stopped issuing policies to those classes of business altogether, including Lloyd’s of London pulling out. So, there is limited options currently in vape and that is definitely an area of concern for brokers to be aware of and to counsel their insureds on where coverage may or may not be available given what their product mix is.”
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