NEW YORK (MainStreet) - The momentum of legalizing marijuana across the nation has lead to the launch of a slew of new business in both legal and non-legal states, and insurers are developing new products to cover them.
The legal cannabis industry will likely reach $10 billion in annual activity by 2018, according to Viridian Capital & Research, and the cannabis sector overall saw 21 companies complete a total of 33 acquisitions in the first three quarters of 2014.
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"Like any commercial venture, there's a host of exposures when it comes to liability but in the stream of commerce that is marijuana, there is a unique set of exposures," said Michael Cohen with Halland Capital, an insurance brokerage firm.
Exposures include loss of crops due to pesticides, mold and other hazardous toxins that may destroy the cannabis plant. "Investing time and money into a crop and then having it go to waste is becoming more of an issue for growers trying to stay in the industry to recoup their losses," said Jason Draizin, CEO with MarijuanaInsurance.net. "By building crop insurance policy we can help those new and existing growers protect their investment."
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Policies available that cover these and other exposures include crop insurance for field and hydroponic cannabis growers, traditional commercial insurance that covers dispensary transit, medical malpractice polices for doctors who treat their patients with marijuana and gap coverage for doctors issuing recommendations rather than traditional prescriptions.
"Insurers are looking into specifically adopting their medical malpractice wording to recommendation rather than prescriptions," Cohen told MainStreet. "We're also offering malpractice policies for lawyers that represent marijuana companies."
Another exposure particular to dispensaries is cyber insurance because so many medicinal patients register online for home delivery in legal states such as Washington and Colorado.
"Doctors have to maintain and be compliant with privacy standards and also be compliant with new rules and regulations for storage of medical records," Draizin told MainStreet. "With the online threat of hactivism growing annually, our cyber policy helps regulate the marijuana industry and protect businesses."
Marijuana liability insurance is no different than traditional insurance except for the exposures it covers.
"The only difference in a liability policy for a marijuana business is having to pay more in premiums because of a higher risk factor," said Draizin.
Premiums depend upon the insurer offering coverage.
"Premiums are rated out with sales, what the business is selling and what state the company is selling in," said Cohen. "We've received no claims yet because the vertical is too new. It's our first year but inquiries we are getting from marijuana entrepreneurs are robust."
Because the sale of marijuana is regulated state by state, insurers can draft specific coverage tailored to marijuana laws in each state. For example, in New York, under the Compassionate Care Act, insurers are not required to cover medical marijuana companies.
"Coverage will be a decision that insurers make on a case by case basis," said Leo Shalit, an attorney represents marijuana businesses in New York. Insurers however may find comfort that the Compassionate Care Act was written specifically for the chronically ill.
"New York took a cautious position towards legalizing marijuana," Cohen said. "It might evolve but for now insurers will be very comfortable offering coverage to medical marijuana businesses in New York because the law is progressive and it has risk management out front."
--Written by Juliette Fairley for MainStreet