If California marijuana insurance is a major topic at a wholesaler conference then you know that it is important. California saw over $9 billion in general insured losses last year over the two November wildfires alone. Also, a massive court decision known to as the Dynamex decision is shaking the industry.
The California Wholesaler Association conference is a major conference for insurance agents in the 5th largest economy in the world. California is lacking in cannabis insurance specialists but the industry is ramping up quickly after recreational marijuana became a legal regulated market in 2018. A little over a year later, California is still working out many details and has a long way to go, but the California marijuana insurance business is likely to become much larger.
A number of marijuana insurance agents were present to speak and learn at the conference and spoke with an Insurance Journal reporter. The CEO of one particular insurance company had this to say:
He said most cannabis operators seek the same kind of insurance many businesses want, such as general liability, workers’ compensation, slip and fall.
He said growing facilities with their expensive equipment and sophisticated operations need a lot of insurance.
“We’re seeing high property limits,” he said.
Brown said some businesses have been in operation long enough to have a good loss history, but many operated in grey areas before California legalized adult use, so that history isn’t always a dependable one for underwriting purposes.
Underwriting as a whole for the cannabis industry can be tough, he said, because there are also numerous companies with no loss history at all.
“The business interruption exposure, for example, is a vague and nebulous thing for a lot of startup operators,” he said.
Tatum said that because banks are regulated by the federal government, which still considers cannabis a controlled substance, that many operations have an abundance of cash on hand.
“Finding coverage for the actual cash on the premises has been a problem,” he said.
Quilici said that educating her clients on the ins and outs of cannabis coverage has become a big part of the job, as has educating herself.
“I’ve got retailers that know this business than I ever could, and I’ve got retailers that know nothing,” she said.
Cannabis coverage is essential and it is not surprising that marijuana business owners are looking for the same sort of Directors and Officers insurance, slip and fall insurance and other logical forms of coverage as mainstream industries. California has been the home of illegal marijuana grows since the 1960’s and the idea of getting any sort of marijuana insurance coverage probably never really occurred to growers.
The marijuana industry is growing rapidly and so proper cannabis insurance coverage will be as normal for cannabis companies as any other industry. Cannabis crop insurance is certainly important with the wildfires in that region of the country. Beyond that, normal dispensary insurance, marijuana lab testing insurance and other forms of coverage become that much more important the bigger the California marijuana industry grows.
https://www.s2sinsure.com/wp-content/uploads/2019/02/california-marijuana-insurance-is-very-important-considering-all-the-wildfires-burning-down-cannabis-crops.jpg6821024David Rahnhttps://www.s2sinsure.com/wp-content/uploads/2019/04/logo.svgDavid Rahn2019-02-15 16:21:322019-02-18 11:28:03California Marijuana Insurance Big Topic at Wholesaler Association Conference
Opinions on the emerging cannabis industry are so numerous that they are beyond my ability to track them. Everyone is either claiming to be an authority on the business of legal marijuana, or are striving to become the authority. The truth is that nobody is a complete authority on legal cannabis. It is still too new of an industry, and the proof is how inconsistent the rules and regulations pertaining to marijuana/hemp/CBD vary from state-to-state, and within each state! One moment Michigan has a restricted medical marijuana program, the next moment they have legalized adult-use marijuana. How can anyone be an authority, when fragmented state and federal regulations continue to evolve?
You should all know by now the largest barrier to entry into this industry is the Schedule 1 status of cannabis. This particular legal barrier unavoidably looms in our background everyday. Attending B2B cannabis conferences, from smaller more intimate ones such as C-LAB events to massive conferences like MJBiz, I consistently listen to speakers, vendors and attendees bring up the same topics. All of these cannabis conferences serve to educate and communicate, but no matter where I go people still talk about banking restrictions, merchant service problems, taxes being too steep to turn a profit due to IRS Tax Code 280E, inability to engage in interstate commerce and all sorts of marketing challenges. For us of course, it is the barriers to suitable marijuana insurance policies that we focus on the most.
How long does it take for a state regulated body to be funded, staffed, implemented, grow and stabilize? Depending how fast current laws are adopted or changed, it will take a long time and a lot of discussions as to how the cannabis Industry, the federal government and the cannabis approved states will come together to implement best in classlicensing and regulations, product quality standards, taxation and enforcement. Through this evolution of an industry, we will witness successes and failures along the way.
Look at Massachusetts, voters legalized adult-use marijuana in 2016, and it took over two years for sales to begin with only two dispensaries allowed to open by December of 2018. Florida has multiple lawsuits filed over unconstitutional medical marijuana laws that do not match what voters approved in 2016. State laws are changing on a regular basis and have not even stabilized in states like Colorado and Washington which began selling adult-use cannabis in 2014 and medical marijuana well before that.
The evolving marijuana industry is full of so many financial and regulatory uncertainties that insurance policies for cannabis companies are not consistent from one carrier to another. Marijuana insurance companies like S2S Insurance Specialists have to stay current with many state and federal regulations. Federal prohibition continues to plague the cannabis insurance industry by preventing it from operating in a free market environment. These restrictions have made most big insurance companies reluctant to enter the cannabis market place, therefore we are restricted to a couple of surplus lines carriers.
Best practices in business are still evolving in the cannabis space. The time for cannabis entrepreneurs to build, scale and stabilize their businesses is now! We have all read and heard about the growth projections of the cannabis industry. Projections that cannabis will represent the next $20 billion industry are probably conservative. We will eventually rival the multi-billion dollar snack, alcohol and pharmaceutical industries. As companies scale up, management teams become the forefront of any successful operation.
Most professionals I have met have pivoted into the cannabis Industry from other specialized professions. Like myself, they see an opportunity to do something new and exciting. We need to bring the best of our skill sets to this very young and emerging industry. Come into this industry with your eyes wide open. The opportunities in cannabis are great, but the competition is fierce. It takes more than just a love of marijuana or the passion of wanting to see the social injustice of marijuana prohibition come to an end. It takes a strong understanding of the fundamentals of business. It takes organization and constant research to understand the next big trend or new state mandated rules.
As cannabis insurance specialists, David and I stay current on industry trends, data points, cannabis research and the full spectrum of the supply/distribution chain. The biggest problem we all face in this young emerging industry is the lack of credible and actionable data. Like most institutional markets, insurance relies heavily on the data acquired across the industry in order to rate, compare and assess risk. We also follow current industry news and insurance trends in cannabis.
The most recent industry change was the passing of the2018 Farm Bill. It allows for broad cultivation of hemp, not simply pilot programs for studying market interest in hemp-derived products. Its language clearly allows for the transfer of hemp-derived products across state lines for commercial use and other purposes. It also puts no restrictions on the sale, transport, or possession of hemp-derived products, so long as those items are produced in a manner consistent with the law.* Now that hemp will be descheduled, along with hemp derived CBD, hopefully insurance for these products will be more widely available and competitive. There is hope that states will offer state sponsored crop insurance for hemp growers.
Another big trend we are seeing is the need for companies to raise capital for future growth. Many cannabis companies are looking towards the Canadian stock exchanges such as the TSX, VSE and CSE to raise funding. When companies engage in selling shares of stock to the public, there is a greater need for Directors and Officers Liability insurance (D&O). A Directors and Officers Insurance policy protects you as a director or officer of the company if your actions negatively affect the company’s profitability or if the company is sued because of your actions. The policy will pay for legal damages and fees. D&O helps preserve the company’s cash flow against expensive legal bills. These sorts of risks will become even more apparent as the number of cannabis stocks continue to grow and the amount of active investors and traders diligently following these companies hope to capitalize on the market by challenging management and business development goals.
We continue to follow various insurance claims affecting the cannabis Industry. We are seeing claims in the product sector, D&O claims from shareholders, employment dismissal issues and crop/property claims due to the fires on the west coast. California’s gray market persisted for 20 years, but over the summer it became mandatory that any cannabis product intended for commercial sale undergo product safety testing by state certified labs. A Sacramento testing facility that had serviced the industry for years was just suspended for failing to test for 22 pesticides. The cannabis was distributed to California consumers and the recall will cost many companies in legal fees, fines and potentially their licenses while the state courts figure out who is at fault for the lost revenues. Stories like this will hopefully start to weed out the bad actors in the industry.
We highly recommend that management review their insurance policies, policy limits and deductibles every six month to make sure that as your business grows, you are maintaining adequate coverages. Many things change in the course of a year, it is important to constantly manage your risk assessments. S2S Insurance Specialists are dedicated to helping you insure, from seed to sale, all your cannabis, CBD and hemp insurance needs.
Reach out Eric Rahn and David Rahn to find the cannabis insurance policies that are most suitable for your company.
https://www.s2sinsure.com/wp-content/uploads/2018/12/hemp-field-3661214_960_720.jpg720960Eric Rahnhttps://www.s2sinsure.com/wp-content/uploads/2019/04/logo.svgEric Rahn2018-12-18 13:53:072018-12-18 14:08:39The Evolution of the Emerging Cannabis Industry
The amount of new headlines popping up regularly about United States based marijuana companies going public on a Canadian exchange through reverse mergers is pretty common these days. More and more US based marijuana companies are entering the Canadian public markets to gain access to private equity and public capital markets. This year we have seen MedMen Enterprises, a very popular and quickly growing marijuana dispensary company primarily located in California and Las Vegas, go public through a reverse merger on the Canadian Securities Exchange or CSE. MJardin, a Colorado based marijuana company also went public through a Canadian reverse merger on the CSE and everyone is anticipating both Acreage Holdings and LivWell to do the same in the near future.
As often as you hear about reverse mergers they are not as simple as they may first seem and they are certainly not risk free. The appeal to entering an exchange traded equity market through a reverse merger is that it can be a quicker and less expensive way of going public than a traditional initial public offering or IPO. These US based cannabis companies find businesses trading on a Canadian exchange like the CSE, TSX or CNSX that are struggling financially for some reason, buy the majority of the shares of what would now be referred to as a shell company, and exchange the shares of the private company with shares of the shell company. While a reverse merger into a Canadian public company may be quicker and cost less than an IPO, it also comes with some additional risks that certain marijuana insurance policies can help define.
Canada’s marijuana industry is booming and expected to add another $5 billion in marijuana sales now that the Cannabis Act has been passed legalizing adult-use marijuana in Canada nationally. In fact, the commercial sale of adult-use cannabis is set to start on October 17th, 2018. Some other countries like Russia have condemned the legalization of cannabis in Canada saying that it violates international trade treaties. Recently the United States Customs and Border Protection Agency threatened to issue lifetime travel bans to the US for Canadian marijuana employees and investors. Here in the United States, marijuana is a Schedule 1 drug and authorities are suggesting that Canadians involved in the cannabis trade that are looking to enter into the US could proliferate the state legal marijuana industry here. Whether you agree with this stance or not, the financial risks to a marijuana business are still very real. How these cross border threats play out financially are still an unknown which is the very nature of risk and what marijuana insurance policies are for.
Cross border threats aside, there are inherent financial risks associated with reverse mergers no matter where they take place. Again, a shell company typically has financial troubles which is why they are targeted for the acquisition. What are those financial liabilities? Some companies that have moved forward with reverse mergers have missed certain debts and liabilities of the shell company, in particular in cases where the shell company was in the process of being sued. Perhaps an acquisition is exactly what the shell company needed to get out from under certain debts. Another risk could be that without holding periods, the investors in the shell company could dump their shares right after the acquisition causing the price of the company to fall rapidly.
These are only a few of the potential challenges that US based marijuana companies face by establishing themselves as a Canadian exchange traded company. Finding out how marijuana Directors and Officers Liability Insurance could help to financially protect you from the unforeseen only makes sense for a US based cannabis company that is considering going public in Canada. As a Canadian public company you must now comply with Canadian securities laws which adds an entirely new layer of compliance and liability to consider. Insurance for marijuana companies, such as Directors and Officers Insurance, is always a good idea and would certainly be good to have when going public in Canada through a reverse merger.
The elements of the unknown are heightened through reverse mergers, especially those that happen on an international exchange that will have rules that differ from US exchanges. That is why reaching out to S2S Insurance Specialists for hard to place marijuana insurance policies can be the solution you need. S2S Insurance Specialists focus on providing clients with this critical early stage insurance for complex cross border deals. Let us assist in guiding you through the minefield of issues required to obtain proper coverage. Here are some of the policies that your cannabis business can specifically benefit from before executing a reverse merger in Canada.
Directors and Officers Insurance (D&O Insurance for marijuana)
A D&O Insurance policy protects you as a director or officer of marijuana company of wrongful acts that negatively affect the company’s profitability. It will also protect you if the company is sued as a result of these wrongful acts. The policy also covers legal damages and fees. Excess Limit Coverage Policies are available as well. Company executives, newly appointed officers and a board of directors should want adequate D&O insurance in place prior to moving forward with a reverse merger. Investors should require that any company they are investing in must have D&O Insurance to protect their investments from wrongful acts by the directors and officers. Again, when it comes to reverse mergers, it takes a lot of due diligence to ensure that the shell company does not have some hidden liabilities. Regardless of whether a wrongful act was truly intended, the liability still falls to directors and officers.
Professional Liability Insurance for cannabis companies (PLI)
Who would be held accountable during a reverse merger if errors and omissions were discovered? As a cannabis accountant or attorney, those blames could be turned upon you. A PLI policy can cover traditional business professionals such as marijuana growers, trimmers but also marijuana accountants and lawyer.
Employers Practice Liability for a marijuana business
If any of your employees file a claim against you for discrimination including age, race, disability, sexual discrimination, wrongful termination or some other type of discrimination; Employers Practice Liability coverage protects you from these types of employee-related claims. When a reverse merger occurs with a Canadian shell company, it is likely that your marijuana business may retain some of the shell company’s employees familiar with Canadian security laws. It may be challenging to judge their particular state of mind after their company has been acquired and the threat of discrimination claims cannot be ignored.
S2S Insurance Specialists is an international insurance broker for the cannabis industry. We will help you find the hard to place cannabis insurance policies that will protect you when taking such a big step by going public. Find the D&O policies, PLI and Employers Practice Liability policies by contacting Eric Rahn of David Rahn, the marijuana insurance specialists.
https://www.s2sinsure.com/wp-content/uploads/2018/09/8715933906_961b77c60b_b.jpg6831024Eric Rahnhttps://www.s2sinsure.com/wp-content/uploads/2019/04/logo.svgEric Rahn2018-09-21 10:02:022018-11-05 09:39:35D&O Insurance For A Canadian Reverse Merger
As a member of the executive leadership team of an organization, there are certain responsibilities that fall under your umbrella whether they are explicitly stated or implied. As an owner of your business or even a board member of an organization, you are responsible for the management of your company’s affairs. That responsibility comes with the possibility of being sued if something is mishandled and leads to damage or injury. This is why we at S2S Insurance strongly urge business owners and managers to obtain directors and officers insurance. The cannabis industry is steadily growing as more and more states legalize cannabis. The growth of the industry requires more advanced risk management strategies due to the advanced risks that exist.
Companies large and small, public and private, for-profit and nonprofit all face director and officer (D&O) litigation risks. In a 2016 survey by Chubb, the average reported loss from a directors and officers judgment was $387,000. No matter how successful your cannabis related business is, the reality is that a substantial financial loss such as $387,000 could destroy your company instantly, or set you back to a point that may be difficult to recover from. If you are a director or officer at your organization, you could be sued for any number of reasons, including breach of fiduciary duty resulting in financial losses or even bankruptcy, fraud, failure to comply with workplace laws, lack of corporate governance to name a few. These suits can come from a variety of places including but not exclusive to employees, vendors, competitors, investors and of course customers.
A board member at GlaxoSmithkline is one of those being sued by the US state of Massachusetts over the US opioid addiction crisis.
The lawsuit seeks damages from 16 individuals, many of whom are members of the Sackler family, and Purdue.
“The Attorney General claims Purdue acted improperly by communicating with prescribers about scientific and medical information that FDA [the US Food and Drug Administration] has expressly considered and continues to approve,” it said.
In March a study by a federal agency found that opioid overdoses were up 30% over the previous year in the US, with Midwestern states having the highest jump in cases.
The Massachusetts lawsuit alleges that Purdue Pharma, the company behind the drug OxyContin, “created the [opioid] epidemic and profited from it through a web of illegal deceit”.
Ms Lewent was named in the lawsuit as one of those “who oversaw and engaged in a deadly, deceptive scheme to sell opioids in Massachusetts.”
No business owner wants to find him or herself in court dealing with a directors and officers law suit, but there are precautions every business owner can take to help protect him or her self and their business in these situations. It is critical that as a director or officer of your company you consider investing in D&O insurance. Directors and officers liability insurance protects your personal assets along with your spouse’s if you are sued for mishandling the management of your company. S2S Insurance specialist, Eric Rahn, states “don’t make the mistake of assuming you are protected under your general liability policy when it comes to D&O insurance.” You should always review your policy with one of the marijuana insurance specialists at S2S Insurance and your attorney. Contact us today and we can begin to assess your risk and provide options to help you maintain a successful business no matter what might occur down the road.
https://www.s2sinsure.com/wp-content/uploads/2018/08/102367736_oxycontin.jpg5761024Eric Rahnhttps://www.s2sinsure.com/wp-content/uploads/2019/04/logo.svgEric Rahn2018-09-01 13:15:442018-11-05 09:07:24Directors and Officers Insurance Integral In S2S Insurance Risk Management Strategy
A Division of Southeast Insurance Group
S2S Insurance Specialists LLC is an international insurance intermediary and brokerage firm, specializing in the placement of insurance and other risk insurance services to businesses operating in the Medical And Recreational Marijuana Industry.