Contrary to news reports, cannabis insurance does exist

Wildfires and hurricanes have hit cannabis growers hard

From fires in California to hurricanes in Florida and Puerto Rico, the cannabis industry has been hit hard in recent years by natural disasters.

Cannabis companies face some unique challenges in purchasing insurance and attempting to obtain coverage for losses, but insurance coverage — contrary to certain media reports — nevertheless may be available to them.

Today, cannabis-related businesses — especially those involved in medical marijuana — can and do obtain various coverages, including, but not limited to, commercial general liability, property and workers’ compensation insurance. They may also be able to obtain some coverage for damage to their crops from specialized insurers. While the market for these coverages may still be limited, there are insurers that will underwrite various types of policies for cannabis-related businesses.

Further, although under federal law it is still illegal “to manufacture, distribute, or dispense” marijuana, anyone experiencing a cannabis-related loss should check their various policies and consult with experienced insurance-coverage counsel.

In The Green Earth Wellness Center, LLC v. Atain Specialty Insurance Company, the U.S. District Court in Colorado found the insurer could not outright refuse coverage under a commercial property and general liability insurance policy for a loss suffered by a medical marijuana business when some of its cannabis plants were damaged by smoke and ash from a fire or were stolen.

Based on a specific exclusion in the policy, the court concluded the business did not have coverage for “growing crops,” but it still found that certain marijuana plants — those that qualified as “stock” — were covered. Notably, in reaching this decision, the court rejected the policyholder’s contention that “marijuana plants cannot be considered ‘crops,’ based on various definitions found in federal and state statutes.”

The court also rejected the insurer’s attempt to invoke a policy exclusion for “Contraband, or property in the course of illegal transportation or trade,” and public policy considerations, to defeat coverage altogether. After observing that “the nominal federal prohibition against possession of marijuana conceals a far more nuanced (and perhaps even erratic) expression of federal policy,” it concluded that “the policy’s ‘Contraband’ exclusion is rendered ambiguous by the difference between the federal government’s de jure and de facto public policies regarding state-regulated medical marijuana.”

While at least one federal district court has admittedly reached a different outcome and refused to find coverage for cannabis-related losses, the Green Earth Wellness Center case offers a better-reasoned approach. It is an important reminder that no business in the cannabis industry should just walk away from potential coverage, especially in light of what appear to be staggering losses as a result of natural disasters.

Mike Sampson is a partner in Reed Smith LLP’s Insurance Recovery Group. His practice focuses on addressing and resolving complicated insurance coverage matters relating to commercial general liability policies, management liability coverages and many other types of insurance, such as property and pollution liability insurance.

Cristina Shea is a partner in Reed Smith LLP’s San Francisco office. Her practice is specifically focused on representing corporate policyholders in disputes against their insurance companies. She also counsels clients on the scope of their insurance programs and advises on existing and new coverage for organizations across a multitude of industries.

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