A federal court in Colorado recently decided a cannabis case that may impact the marijuana insurance industry and cannabis businesses. The case involves a cannabis company suing its insurance company for failing to pay on claims. The insurance company denied the claims that fell under their general liability policy covering the company’s crop and an additional claim for robbery and damages as a result of the robbery. The insurance company actually took a counter-intuitive approach and argued that it’s own policy was an illegal contract based off the federal Controlled Substance Act. The court, correctly, dismissed that argument and sent the parties to arbitration over the remaining claims.
From an S2S Insurance perspective, this case is absolutely infuriating. Cannabis businesses and cannabis business owners have accepted a very challenging endeavor and often have invested their own hard earned time and money. The cannabis industry is complex, involving varied business types, sometimes under one company. Business owners have to deal with owning or leasing buildings, equipment, crops, flowers, oils, edibles, cash management, transportation and more. Cannabis businesses need reliable business partners, not adversaries willing to sabotage their own interest to negatively impact their clients during a time of need.
ArcView Group, which tracks the legal marijuana markets, recently estimated that legal U.S. pot sales could reach $6.7 billion in 2016. As the legal marijuana economy has grown, insurance coverage for this emerging industry has become a hot topic. The U.S. District Court for the District of Colorado in The Green Earth Wellness Center, LLC v. Atain Specialty Insurance Company, No. 13-cv-03452-MSK-NYW, 2016 WL 632357 (D. Colorado Feb. 17, 2016) was recently faced with determining the extent of coverage under a commercial property policy for damage sustained to marijuana plants at a growing facility and addressing whether legal marijuana was even insurable.
Finally, the Court declined to follow Tracy v. USAA Casualty Ins. Co., 2012 WL 928186 (D. Hawaii March 16, 2012) and declare the policy unenforceable as against public policy citing, in particular, the “several additional years evidencing a continued erosion of any clear and consistent federal public policy in this area.”
The Green Earth decision emphasizes the need for insurers writing risks in the developing legal marijuana industry to be as explicit as possible in their policies as to what is and what is not covered.
Cannabis businesses require an insurance company that knows the marijuana industry and has intimate knowledge of insurance and how the two work together. Some insurance companies try to fit their round insurance mold into the square peg of the cannabis industry, and in doing so cannot protect their clients the way their clients need to be protected. At S2S Insurance we are commercial cannabis insurance experts who work with dispensaries, growers, cultivators, realtors, equipment manufactures, laboratories, and a number of other businesses within the cannabis industry.
When speaking to Eric Rahn of S2S Insurance about this issue he stated, “Your insurance specialist should be a key adviser to your business, just as your accountant and your attorney.” Cannabis businesses and cannabis business owners must take the time to work with an experienced team like S2S Insurance and do a comprehensive risk analysis to protect said business. Your insurance partner should be helping to protect you as you grow, not sue you when you hit a bump in the road.