By Doug Banfelder
True or False? Cannabis businesses attract crime and have an adverse impact on the community.
False: The presence of such enterprises has never been shown to cause an increase in crime. In fact, some studies suggest that having these businesses in an area can help reduce local crime rates, likely because the presence of lawful activity reduces the opportunity for unlawful activity.
True or False? Insurance carriers providing policies to the cannabis industry have a lot of claims, so they must charge high premiums to cover these losses.
False: While just a handful of companies insure marijuana operations, those that do have loss ratios comparable to policies for many other types of businesses, so rates should remain reasonable.
True or False? Marijuana operations require extraordinary security measures due to the nature of the commodity.
True: But only partly. Every business facility should be well-lit and secured against unauthorized entry. Many utilize local or central station alarm systems, and a great number also employ cameras. Those with high value inventory, proprietary or other sensitive information often secure vulnerable items in safes or vaults, and may assign specific pass-codes to employees to limit access to particular areas.
Such security best practices are vital for cannabis operations, and are universally included among the security requirements set by state regulators. Additional, industry-specific measures are often aimed at managing the real – or simply perceived – risks of dealing with a product long kept underground and stigmatized. Insurance carriers’ security requirements generally dovetail with state regulations.
At a minimum, carriers require cannabis operations to have a central station alarm system, with all doors and windows connected to it. Installing easily accessed panic buttons around the facility is advisable for both employee and public safety.
As for controlling public access to one’s premises, it depends upon the nature of the operation: retailers must have varying security for public and private areas; producers with indoor operations and processors must prohibit access from the parking lot or street directly into the heart of their operation. Hoop style greenhouse and sungrown operation alarm systems must achieve these same security levels.
Whether due to risks real or perceived, a fair number of cannabis business owners opt to have armed security guards on their premises; others may be unwilling to assume the potential liability for bringing lethal force into their facility.
There are certain insurance implications in either case. Accordingly, carriers will ask whether an insured intends to have security guards, as assault and battery coverage is excluded for those using contracted security personnel, because that specific exposure will be covered by the security firm’s policy. Note that carriers will require that the security firm name its client as an additional insured on their policy.
In the event that a facility’s guards are employed directly by the business owner, assault and battery will still be excluded if those guards are armed. If they are unarmed this coverage is not excluded.
Another consideration: I once quoted a building owner who was leasing to a dispensary operator; at the time this lessor was involved in a lawsuit over a very serious crime that occurred on his property. The dispensary had been robbed in broad daylight, and both the young budtender and security guard were shot. The budtender died of his injury, while the guard’s injury was minor.
The lessor said that there was reason to believe that the guard was in on the heist. Security professionals say that while certainly uncommon, such incidents are not unheard of, either. Carriers will provide a policy either way, so let your locale, budget and personal risk tolerance be your guide.
Vehicles used for cannabis operations are subject to crime too, of course, and all the same common sense security measures apply. Ask your agent how many feet away from your facility the policy covers if property is stolen from your vehicle; typical ranges are 100-500 feet.
Seed-to-sale tracking systems address the risk of a security breach from within the organization. Not only do they provide the accountability demanded by federal and public concerns, these systems also offer business operators a valuable tool for preventing diversion by employees, thereby reducing the temptation to move product out of the regulated system and into the black market.
Further, such systems provide a means for identifying batches of product in the event of a recall due to health or safety concerns.
Obtaining theft coverage for crop and/or finished stock requires carrier-approved safes or vaults. There are a few acceptable alternatives – but have your agent check with their underwriters to obtain approval for any proposed non-standard designs before making a financial commitment.
Given that insurance is among the most conservative of all industries, the mere fact that policies for cannabis businesses are available at all is remarkable. And while Reefer Madness-era stigmas may linger in the minds of the uneducated, more clear-eyed assessments of the risks associated with our industry have found that these exposures can be successfully managed with many of the same security measures utilized by mainstream business owners. Such practices, with just a few industry-specific tweaks, have become widely embraced by regulators in the majority of states with marijuana legalization programs.
Doug Banfelder founded Premier Dispensary Insurance in 2010 to support those participating in Arizona’s Medical Marijuana Act. Today the agency is a leading industry provider, serving clients nationwide with policies for the full range of cannabis business operations.