Legalized marijuana presents a long list of challenges for property insurers, from the potential for steep payouts to negative publicity to violations of federal law. Most insurers understand these risks and don’t want to take them on but have struggled to find an efficient, accurate way to avoid them.
As a result, insurers have unintentionally and unknowingly accumulated a potentially substantial amount of cannabis-related property risk in their books. That risk is likely to grow rapidly as the legal marijuana market expands and more states legalize the drug.
Legal cannabis sales were approximately $12 billion in 2019, and many businesses in the industry continued to hire workers throughout 2020, despite the novel coronavirus outbreak.1 During the 2020 election, voters in Arizona, New Jersey, South Dakota and Montana all made recreational marijuana use legal.2 Today, 15 states and the District of Columbia have legalized recreational marijuana.3
risks that are time-consuming to stay on top of.
When it comes to legal marijuana, perhaps the biggest question facing insurance companies is: how can we quickly and accurately locate the cannabis risk in our book?
Without an efficient way to identify which businesses are engaged in growing, processing or retailing legal marijuana, insurers can’t know how much risk they’ve taken on, nor can they make optimal decisions about which policies to write or renew. That means insurance companies could easily face substantial, unexpected costs.
Consider this scenario. For several years, an insurance company has insured a mid-sized strip mall. Three years ago, a gift shop in the mall closed, and a cannabis retailer took its place. The insurer was never notified of the change.
The retailer uses part of its back office space to transform marijuana plants into hash oil. This process is often dangerous and has resulted in explosions and serious injuries. One day, there’s a processing accident at the retailer that causes severe property damage to not only the cannabis retailer but also the surrounding businesses.
The insurer could deny the claim, but the customer may sue in response, leading to potentially high legal costs. The fact that the insurer renewed the policy twice could sway the judge or jury to favor the retailer-processor.
On top of the financial costs, the lawsuit could create negative publicity for the insurance company, which may not want its name associated with certain types of businesses, legal or not. For years, some insurance companies have avoided covering tobacco or firearms businesses because those industries don’t align with the insurer’s corporate values.
Similar scenarios are easy to imagine with growers and retailers without processing operations. These businesses are more likely to see theft than explosion, but the claims could still be costly. Cannabis retailers and growers tend to rely heavily on cash because the federal ban on marijuana makes finding banking services difficult. Retailers carry large amounts of high-value items. A single theft could lead to a claim for tens of thousands of dollars or more.
Processors not attached to retail operations create risk of theft and explosion, and on a potentially larger scale than small retail-processing businesses.
with our new Cannabis Check solution.
For insurers, keeping up with the relatively new risk of legal cannabis is time-consuming. Underwriting teams already need to keep pace with reviewing renewals and new applications. Reliable data on cannabis business locations is often difficult to find and may require navigating multiple states’ websites. Some states only disclose data on retailers but not growers or processors, making data hunting potentially frustrating.
Here at BuildingMetrix, we help you understand and manage emerging risks, including legalized marijuana. We’ve built a solution that gives you accurate, updated and validated data on the location of legal cannabis growers, processors and retailers in the states where recreational marijuana is legal. You get the information you need to make optimal decisions in less time. We’re adding new states as laws change and locational data becomes available.
Here’s the best part: if you’re a WSRB Subscriber, Cannabis Check for Washington state is included in your subscription. There’s no additional fee. Simply contact us. If you need access for another state, we’ll guide you through the process.
[1] Politico, https://www.politico.com/news/2020/05/09/cannabis-employees-in-high-demand-245535
[3] National Conference of State Legislatures, https://www.ncsl.org/research/health/state-medical-marijuana-laws.aspx