Commercial Insurance: What Cannabis Retailers Need to Know
Having federal approval for cannabis in the U.S. will dramatically lower this risk, but until that time it is incredibly difficult to provide any actuarial backing to these pricing options, as the marketplace is now being created.
Negotiating the legal hurdles and significant risks inherent in the cannabis sector of the real estate industry is difficult, with regulations differing from state-to-state, and especially considering the federal government still considers cannabis illegal.
Globest.com turned to Michael Shadeed, director of Franklin Street Insurance Services, for some perspective and updates for those real estate professionals that are currently or plan to service this unique sector.
Based in Atlanta, Shadeed specializes in all product types within the real estate industry including apartments, office, industrial, retail and hotels. He has also advanced a network of developer and construction clients. Through his commitment to the latest technology and client satisfaction, he has developed a portfolio spanning across the country with clients located in 48 states and Canada and has been a part of bringing major contracts to Franklin Street and placing his insurance business with competitive carriers.
Being involved in the commercial property and casualty insurance industry for more than 10 years, he began his career with BWT Risk Advisors, in Johns Creek, GA., focusing on real estate and construction clients.
In addition to its Atlanta office, Franklin Street has operations in Tampa, Fort Lauderdale, Jacksonville, Miami and Orlando.
Globest.com: What are the challenges of insuring a cannabis business while marijuana remains illegal under federal law?
Shadeed: Regulatory driven claims are the main driver of directors’ and officers’ liability insurance (D&O) coverage, which is becoming more prevalent with companies becoming public, and raising large amounts of Series A and B funds in the private equity space. D&O is driven by sides A, B, and C coverage, and the option for public companies to provide regulatory coverage or not. Regulatory coverage is imperative, as all suits will be based upon federal statutes and will most likely be class action based upon product liability and potential product recall situations. As trial lawyers begin to set case precedent in this space, coverage for professional exposures will evolve.
Globest.com: How would federal legalization of marijuana impact the cannabis business insurance market?
Shadeed: Product liability and product recall are vital coverage to protect balance sheets, and again will be driven by class action suits and federal regulatory statutes. Having federal approval for cannabis in the U.S. will dramatically lower this risk, but until that time it is incredibly difficult to provide any actuarial backing to these pricing options, as the marketplace is now being created. It takes creativity in structure to place this coverage, and trust with an insured and underwriter.
How is the insurance market expanding in the cannabis and hemp industry?
Shadeed: The market is evolving daily, and as carriers can comprehend the risk and expand their appetites, options increase in the market. Having an A- rated carrier or better is extremely important, as you want your premium dollars to deliver claim payouts in the event. Many of the current programs, and even Lloyd’s of London, have pulled coverage from states or insureds due to insurability issues and adjusting stances on cannabis risk.
Globest.com: Are there new laws or regulations under consideration that could increase cannabis insurance options?
Shadeed: Yes, the legality in different states evolves what coverages are needed, and available. Also, the difficulty in finding carriers with the correct risk appetite is still a risk, for example, if an underwriting manager wants to pull out of the space, you have 30 days to find new coverage. That is a lot of wasted time in replacing coverage, instead of growing your business.
Globest.com: What other factors should cannabusiness owners be aware of when considering an insurance carrier?
Shadeed: Here’s the key question you should ask yourself before choosing an insurance company: “Are you certain the carrier will provide you with great service when you need a claim paid?” If you have a shadow of a doubt about their reliability, then choose another insurance carrier for your medical marijuana business.