Cannabis Property Insurance: Get What You Need

Although plenty of wildfire smoke has recently filled the US sky, plenty of other risks threaten cannabis companies daily. Here are a few of the most common risks we see cannabis operations navigate.

Equipment Breakdown

Many cannabis companies rely on state-of-the-art equipment that’s often hard to replace. Without the necessary equipment, many cannabis operations come to a screeching halt. What’s more, repairs can also cost your business a pretty penny.

Crop Damage

It’s potentially one of the most-feared threats, and yet, crop damage can occur in many ways, from wildfires to vandals. There are many steps between the seedling stage and stocking the finished product. Each of these stages requires specific protection to prevent your business from tanking under the weight of a failed crop.

Office Equipment Losses

In thinking of cannabis operations, it only makes sense for expensive extraction equipment or harvesters to come to mind first. However, cannabis companies usually have traditional office equipment to manage fundamental business operations like most other businesses. Consider the cost of replacing desks, computers, printers, or other office equipment after a loss; it adds up quickly.

Business Interruption

When a property loss occurs, cannabis companies must often stop operating temporarily. Whether it’s a slowdown or a complete halt, this unfortunate shift can be detrimental to your company’s balance sheet.

Property insurance helps mitigate the above risks by reimbursing cannabis companies for direct property loss. It covers property losses that your cannabis operation directly experiences and property that has value to your operations. Property insurance provides reimbursement for direct property losses, demolition expenses, and lost income from operation disruptions due to a covered property loss.

Instead of digging into your business savings to find temporary work arrangements or customer appeasement, capital from the policy does the heavy lifting for you. Property loss results in more than merely rebuilding or relocating your business. You might experience the loss of business income or accrue extra recovery expenses. This policy covers income lost and payroll during the interruption period.

Any cannabis company wanting to be indemnified for damages to their property used for operations needs property insurance. For example, the following is a list of verticals that benefit from property insurance:

• Cultivation
• Manufacturing and extraction
• Lab testing
• Delivery
• Distribution
• Financial services
• Investment funds
• Brands
• Dispensaries

Cannabis property insurance covers any property in which your company has an insurable interest. It’s first-party coverage that intends to protect the Total Insurable Value (TIV) of your operations property.

Several subsets exist in property coverage, including:

• Equipment Breakdown Coverage: the cost to repair or replace damaged equipment (i.e., AC units, boilers, electrical power panels, motors, engines, generators, security systems, specialized production, and manufacturing equipment).
• Business Personal Property (BPP): the cost to repair or replace damaged equipment (i.e., desks, computers, furniture, other office equipment).
• Crop Coverage: coverage for damage to your crop, from seed to finished stock (cannabis inventory).
• Property in Transit: specific inland marine policy, coverage for the property while transported over water or on land. If your business property is not confined to a fixed location or insured at a standard rate, this subset is something to consider.
• Loss of Business Income:  covers a company’s loss of income due to a covered slowdown or temporary suspension of normal operations stemming from damage to its physical property. Business Income insurance pays for the actual loss of business income that you sustain due to a suspension of your business operations resulting from damage or destruction to your property. (Hint: 25% of revenue is the recommended amount.)
• Extra Expense: expenses necessarily incurred to avoid or minimize the period you cannot operate.
• Tenant Improvements & Betterments (if leased building): Insure the value of improvements you have made to a building you do not own.
• Money & Securities

More often than not, the premium is a function of company revenue. Changes in revenue will often be the driving factor for increasing or decreasing costs on renewal.

How carriers determine premiums depends entirely on the industry, for example:

• Tech E&O policies may look at revenue in conjunction with monthly average users.
• Allied health/malpractice premiums will be guided by the number of covered care providers.
• A tour guide’s E&O policy may be rated on “hours”: hours per tour x number of customers per tour x number of tours per year.

It isn’t easy to give an estimated premium as many variables come into play. Other factors also include:

• Location
• Claims history
• Policy limits
• Endorsements
• Deductible
• Exposures
• Company practices

Protecting your cannabis company can seem confusing; however, we’re a full-service insurance brokerage working with carriers worldwide to offer you the best coverage possible. We’re here to help! Please reach out to us today by emailing [email protected] or calling 646-854-1093 to learn more about your cannabis insurance options.