Jessica McKeil   |   December 11, 2017

Solving the unique insurance challenges posed by the cannabis industry

For AlphaRoot, it's clear that a fully realized cannabis industry is in part legitimized through fully formed insurance policies.
Jessica McKeil is a freelance writer focused on the medical marijuana industry, from production methods to medicinal applications. She personally found relief through cannabis for the treatment of her panic and anxiety disorder. She is lucky…

Many growers and ancillary companies fail to appreciate the need for business insurance until it is much too late. All too often, even the most basic components of coverage are willfully neglected to cut costs. Other times something as benign as liability insurance is unknowingly ignored, as it's assumed insurance is of no benefit to the marijuana industry.

To explore this sizeable knowledge gap, CannabisTech recently spoke with Jeff Samuels, Founder and General Manager of AlphaRoot.  AlphaRoot, a subsidiary of Founder Shield, strives to provide legitimacy to the cannabis industry, through customized insurance solutions to all levels of the cannabis marketplace. As a retail brokerage, they provide holistic insurance packages from seed to sale, including for ancillary businesses who sell supplies, software and more.

 

 

During the interview, Samuels provided an overview of the current environment for cannabis insurance, as well as a few common misconceptions. Samuels admits that the marketplace for cannabis underwriters and carriers is thin, but he expects over the next few years that it will begin to open up. Many of the insurers for cannabis companies operate as non-admitted carriers. A state government will not step in to support a failing non-admitted carrier. Rather obviously, this is an added level of risk to the insurance policy. But for Samuels, it importantly adds flexibility. Non-admitted carrier insurers can work with non-traditional companies (like cannabis), in ways not serviced by the big national brand names. While non-admitted carriers make up the majority of the market, admitted carriers in states like CA are coming onboard with local support. In the future, this will lead to improved products and pricing.

 

A Specialized Market Requires a Specialized Approach

Perhaps not surprisingly, the cannabis industry stands in an incredibly unique position. With the high rewards, also come the high risks. The marketplace is turbulent in the best of times and is extremely challenging from an insurance standpoint. Ever changing legislation at the state level, plus the problems which naturally result from the ongoing conflict between federal and state law only add to the complexity.

AlphaRoot is firmly established in the cannabis niche insurance market, working with specific partners to develop fully formed insurance packages. Not only do they focus on the expected risks of cannabis operations, but they aim to legitimize the industry through full insurance solutions which include employee liability and health benefits.  According to Samuels, a cannabis-based business is still a business, with the same requirements as anyone else operating an office, selling a product, and supporting employees.

 

Advice for Cannabis Marketplace

Samuels offers specific strategic advice to any cannabis company seeking to reduce risk. Much of the information is common sense in the traditional business world, but all too often it is neglected in the cannabis industry.

Develop and maintain Employee Handbooks

No matter if it's a dispensary or a grow operation, employee handbooks are a vital step to standardizing processes and avoiding unnecessary risks during daily activities. Manuals should cover employee to employee interactions, employee to client interactions, safety procedures, and emergency plans, just to name a few key topics.

In manufacturing, it's especially important to establish standard operating procedures for the equipment. Ensuring employees know the necessary safety protocols and organizing machine maintenance schedules can dramatically reduce the risk of accident and the subsequent insurance nightmare.

The Unforeseen Need for Product Liability Insurance

As marijuana becomes more accessible around the country, accidents are inevitable, especially once the consumer has the end product in their hands. Product liability insurance is a logical step to avoid a financially devastating court case. As an example, Samuels cites a case in Denver, where a child ingested an edible. According to him, situations like this don’t stop at the dispensary but could reach the manufacturer and cultivator. He highly advises on product liability throughout the supply chain.

Think Outside the Box

Samuels also encourages his clients to think outside the box when it comes to insurance. Employment practice liability still applies in the marijuana industry, so too does workers compensation packages. He also recommends all businesses seek out a comprehensive package, that covers all the usual risk of operating any business but which also targets the niche aspects of the cannabis market explicitly.

 

 

For anyone still conflicted about the financial burden of business insurance, Samuels offered up a few examples of unfortunate events to serve as fair warning. First, the ongoing wildfire situation in Northern California is a major cause of concern. Many well-established cultivators have lost everything to the wildfires. According to the New York Times, as of October seven grow operations were entirely lost. The number is expected to be much higher by the end of the fire season. The "grey area" that many of the Emerald Triangles historic growers operated in (without full compliance) made the concept of insurance foreign. Even more so the outdoor grows are much more difficult to insure as the contingency plans are mostly ineffective to stop a catastrophic loss.

Samuels suggests that some growers might have mitigated the financial loss through covering the other aspects of the business ie (machinery & equipment, any physical structures, and finished product).

As a second warning, Samuels references a recent case where a  client was forced to downsize after an employee took them to court.  A negative workplace situation deteriorated until the employee took the business to court. Again, this is a logical place for insurance to step in and alleviate the financial hardship.

The need for legitimacy in the cannabis industry is stronger than ever before, which is why AlphaRoot is focused on solving the unique challenges posed by the industry. Samuels and his team seek to educate the market and push for solutions which perfectly fit the needs of each business. As a core company value, they believe “that cannabis, agriculture, and the supporting technology ecosystem is a critical part of American society.”

 

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