Karhlyle Fletcher   |   September 25, 2020

Insurance for Cannabis

Full disclosure doesn't come easily to a once illicit industry emerging from the shadows.
A passionate Detroit local, Karhlyle works everyday to establish ethical access to information on the national and city level. Medical, as well as technical research, is a driving passion of his, but he is also a published fiction author,…

Shifting the focus of an industry from allowing no information to escape to requiring absolute transparency is a monumental task. Even with tools to provide excellent data consistently, openness and accurate bookkeeping are yet to be normalized in the cannabis insurance world. 

Honesty and Accuracy Are the Best Way Through Uncertain Insurance 

While the explosive growth of the cannabis industry was tempting enough to draw thousands of businesses, it’s an inconsistent industry. Over the last couple of years, cannabis stock prices have proved tumultuous, as with the fall of companies like MedMen. Now investors are beginning to grow wary of cannabis claims, and many lawsuits have already been launched against CBD and cannabis brands. Many investors require companies to offer directors’ and officers’ coverage before even engaging with them now to be safe from this wave of litigation. 

One of the most common causes of legal action is accusing companies of withholding information that would otherwise let investors know about the future devaluation of a stock price. For example, in November 2019, a class action claimed that Aurora Cannabis failed to inform investors they stopped work on building an additional facility and that they would see revenue decline in the first quarter of 2020. Aurora denies such allegations, but the point is that companies are being pursued due to a lack of transparency

In an industry that grew out of garages, the soil, and basements, such information may feel awkward to disclose information, and many cultivators prefer to keep their business close to their chests. While this has worked to their advantage against unfair law enforcement practices, it’s crucially inadvisable in insurance.

Like therapy, an insurance policy will only be as effective as the client is honest and open. A therapist can’t help you with a problem you didn’t share, and as such, neither can an insurance agent. However, not only do cultivators need to make sure to be open about everything from testing requirements and potential losses, underwriters in insurance need to become informed about cannabis.

Many of those who help cannabis companies get policies have no idea how the industry works, and as such, end up creating policies that don’t hold water in court. To make sure the best policies are made, for the consumer and the agency, cultivators need to be more methodical and open with every step of their operation, and underwriters need to become familiar with the expectations of the cannabis industry.

Why Insurance is Critical

Simply put, you can lose your entire policy. If you add a new product without consulting your insurance or your agent, then you might invalidate the entire policy. While your insurance could cover everything you’re selling now, the addition of a product with B12 or melatonin could completely change the agreement. 

While most of the cases haven’t gone to court, accusations of fraud and misinformation are abundant. If companies are guilty of such actions, obviously they could lose their insurance. 

The Secret To Insurance: Just Be Honest 

While several companies are going through a terrifying situation, business owners may be worried about their futures. The best way to protect against these scenarios is to keep accurate, up to date, and open records that you share with everyone involved in your business. It may be challenging to admit projected losses and other factors to investors. Still, if they’re willing to invest after learning such information, then you’ll be legally protected, and you know that they’ve invested in you for better or for worse. The more trustworthy you are, the more trustworthy your partners are, and likely, the cheaper your insurance. 

 

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