Why cannabis operators can’t ignore insurance in the era of climate change

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Many enterprise house owners are fascinated about local weather change as they replicate on a historic 2024 hurricane season and anticipate what a second Trump administration may imply for environmental and enterprise regulation.

It’s an particularly acute topic for hashish license holders – notably those that function plant-touching companies akin to cultivation services and medical marijuana dispensaries or adult-use shops.

Insurance coverage is obligatory for a hashish enterprise, however all too usually it nonetheless slips by means of the cracks – particularly when insurance coverage insurance policies are as tough to acquire as funding funding, payroll companies and different monetary merchandise customary in different industries.

As I’ve seen time and time once more working with Colorado hashish enterprise house owners, submitting a declare is a horrible time to comprehend your insurance coverage protection is missing.

In fact, the potential for climate-related insurance coverage declare situations is greater yearly.

Latest disasters in hashish markets

After wildfires leveled complete neighborhoods in Southern California in January and Hurricane Helene devastated southern Appalachia within the fall of 2024, it’s more and more clear that there isn’t any such factor as a local weather refuge.

Smoke from wildfires, water harm from flash floods and storm surges and harm or loss from warmth waves or sudden freezes are among the excessive climate occasions that already are impacting companies nationwide.

Previously 5 years, there have been a number of notable pure disasters which have hit hashish companies arduous from the West Coast to southern Florida.

In 2019, for instance, Colorado-based Los Sueños Farms misplaced 20,000 hashish vegetation to an unseasonably early October snowstorm.

A examine from the College of California Berkeley’s Hashish Analysis Middle discovered that wildfire and smoke publicity between 2020 and 2021 triggered $2.4 billion in damages and at the very least 25% manufacturing loss to hashish cultivators.

And the 2022 landfall of Hurricane Ian closed tons of of Florida hashish companies, broken property and tanked hashish shares.

In the meantime, even components of the nation with less-dramatic climate occasions are experiencing shifts in common temperature and humidity that might affect main points of economic hashish cultivation, akin to out of doors versus indoor operations or hashish genetics choice.

Insuring in opposition to catastrophe

Anticipating future local weather impacts – whether or not a decade down the street or subsequent hurricane season – provides layers of complexity to the already difficult facet of operating a hashish enterprise.

State licensing necessities and different laws regularly stipulate that companies carry a variety of insurance coverage coverages, from enterprise house owners’ insurance policies and business common legal responsibility to staff’ compensation.

Underneath federal marijuana prohibition, nonetheless, brokers and insurers aren’t all the time keen to subject insurance policies.

Hashish companies – particularly these in rising markets – usually are caught between licensing and leasing necessities and the provision of “admitted market” insurance coverage merchandise, aka standardized insurance policies akin to owners insurance coverage, journey insurance coverage or unintended demise insurance coverage.

Within the absence of accessible admitted market insurance policies, hashish companies regularly depend on “surplus line” insurance coverage merchandise designed to fill gaps or cowl uncommon liabilities.

Like something bespoke, surplus line insurance policies take extra time, cash and consideration to rearrange.

Some states akin to Vermont require hashish enterprise house owners to self-insure by means of funds in escrow for particular legal responsibility thresholds if they can’t acquire commercially cheap ranges of insurance coverage.

Different forms of insurance coverage are merely rising extra expensive for companies in all sectors, not simply hashish.

For example, crop insurance coverage already is getting costlier throughout the agricultural business, because of intensifying local weather occasions.

However there’s merely much less information accessible on business hashish crops because of many years of federal prohibition—and insurance coverage corporations wish to have sturdy information to tell their underwriting choices.

Hashish insurance coverage modifications forward?

There was some optimistic progress, such because the USDA’s 2021 choice to enhance crop insurance coverage for hemp producers.

The transfer gave extra choices for insurance coverage to cultivators within the federally authorized hemp business that has developed parallel to state markets for regulated medical and adult-use hashish—and importantly, it additionally established a mannequin for potential future insurance policies relevant to high-THC hashish.

Underneath the present paradigm, insurance coverage could be particularly burdensome with the slender margins on which many hashish companies function, to not point out the numerous tax burden.

However as extra states transfer to legalize—as Nebraska did throughout the 2024 election cycle—extra hashish corporations are uncovered to local weather dangers.

House owners and operators should learn licensing necessities, leases and insurance coverage insurance policies very carefully.

Already, a rising physique of authorized precedents have established that the distinction between a payout and a declare denial can hinge on particular particulars and wording that may be straightforward to miss.

Not solely can that put the enterprise in danger however it may additionally open up licensees to non-public legal responsibility for skilled exposures.

Listed below are three key insurance coverage inquiries to ask when you’re establishing a coverage:

Are you able to stroll me by means of the exclusions part?
What documentation is required for claims?
If I have to attraction a denied declare, what does that course of seem like?

In the end, insurance coverage is designed to guard hashish corporations from rising threats associated to local weather change and pure disasters, in addition to the standard day-to-day liabilities that include doing enterprise.

Overlooking this space of operations and governance is a mistake that might show very expensive—much more so than the insurance policies themselves.

Alyson Jaen is an legal professional specializing in hashish legislation, licensing and regulatory compliance in addition to common company and enterprise legislation at Denver-based Messner Reeves legislation agency. She could be reached at ajaen@messner.com.