The International Risk Management Institute defines loss control as “a risk management technique that seeks to reduce the possibility that a loss will occur and/or reduce the severity of those that do occur. Also known as safety or risk control. Driver training is an example of a loss control program that seeks to reduce the likelihood of accidents. Sprinkler systems are loss control devices that reduce the severity of loss by fire.” Unfortunately, from an insurance perspective, the cannabis industry is not mature enough to identify all of the types of potential losses that a Cannabis Related Business (CRB) might experience.
One could assume that many of the risks in cannabis operations share the same risks as agriculture, food product manufacturing, or retail operations. However, there are some nuances that make it very difficult for insurance underwriters to make informed decisions about CRB insurability. Thus, only Surplus or Excess lines insurance companies are willing to provide coverages that most businesses would obtain from a standard insurance company. As a result, CRBs have much higher insurance costs and limited availability.
Unlike most other industries, there are no established standards for the cannabis industry like ANSI or Underwriter Laboratories. There are, however, companies beginning to develop standards.
Standardizing the Cannabis Industry
One group is FOCUS, the Foundation of Cannabis Unified Standards, a non-profit in Arizona that has established the beginnings of cannabis standards. FOCUS is an independent, third-party organization created to develop cannabis-specific standards to answer unmet needs in the marketplace that protect public health, consumer safety, and safeguard the environment. Through volunteer Standards Development Committees, they have completed standards in the following areas: Cultivation, Retail/Dispensary, Extraction, Infused Products, Security, Laboratory, Packaging/Labeling and Sustainability.
Per Lezli Engulfing, Founder & Executive Chair of FOCUS, “FOCUS Standards Development Committees are composed of leaders in their vocations who bring expertise and diversity to produce the balanced input required to develop accredited international voluntary consensus standards. Each member signs a charter to willingly share their knowledge in the spirit of improving public health and consumer safety, protecting the environment, and promoting integrity within the cannabis industry. By volunteering their knowledge and time generously, they instill impartiality, ensure comprehensive content and offer practical guidance.”
She also mentioned that “FOCUS is in the process of accrediting its certification inspection system through the ANSI-ASQ National Accreditation Board as a single entity accrediting body that will allow FOCUS to manage all certifications and add further legitimacy to the cannabis industry.”
Another major stumbling block for wider insurance industry acceptance, is compliance with state and local regulations. Such regulations are complex and change frequently, as state agencies scramble to promulgate new cannabis regulations. There are a few companies who are helping CRBs assess their regulatory compliance.
Overcoming Barriers
The best answer is to help insurance company risk management personnel adopt cannabis-based compliance assessment tools to determine the insurability of CRBs, just as they do with other industries. Risk management firms like Arthur J. Gallagher & Co use several tools to assess and control loss. Why not introduce the insurance industry to the new cannabis-based compliance assessment tools like FOCUS as the basis to evaluate CRBs insurability?
Just as in other industries, there are good and bad CRBs. If the Insurance Industry makes use of these cannabis-based compliance assessment tools to determine what is a good insurance risk, then the good CRBs who manage their businesses in a safe and low risk environment, should receive the same premium discounts and enhanced areas of coverage as other industries receive.