Buying Cannabis Insurance is like Entering into a Black Hole
This article was prompted by a client who uses a rice cooker to infuse THC. I began to sweat imagining what list of conditions and requirements would the insurance carrier force upon us just to buy insurance. Think about it…its a rice cooker using low heat that can be plugged into your basic electrical outlet. Rice cookers have been around a long time. Their chances of it blowing up or causing a fire are pretty low and can even be used to make rice. But, you combine cannabis and rice cooker with insurance it gets complicated.
As the cannabis insurance industry continues to mature, I’m witnessing a perverse need by the insurance industry to load up customers with many mind numbing requirements in order to obtain insurance. The list can be exhaustive, burdensome, and nauseating for the agent and customer to meet every demand.
Some of it makes sense and some of it doesn’t, but we’re talking conditions, subjectivities, and warranties to use insurance industry jargon. Basically, these terms mean if you’re untruthful or fail to comply, the insurance carrier will seek a position to deny a claim based on the facts.
Essentially, you’re stepping into the insurance black hole that could cost you.
Now, Greenpoint is not adverse to risk management. We recognize certain requirements are good for the customer in preventing damage when it makes sense and its reasonable. We are just trying to find the right balance between meeting the needs of the insurance industry and not overwhelming the cannabis client.
Can you say warranties, conditions, and subjectivities three times?
Here’s a small list of requirements or warranties being mandated by some of our insurance providers:
- Active Central Station Alarm
- Motion room detectors
- Electrical warranty confirming the electrical was performed by a licensed electrical contractor and insured.
- Electrical warranty confirming in the next 30 days the electrical will be inspected by a licensed electrician.
- No incandescent lighting
- Confirm adequate electrical circuits and plugs for intended use
- No smoking of anything at the facility
- No open loop extractions
- Proper storage of chemicals
- Proper storage of fertilizers
- Updated roof
- Updated electrical
- Updated plumbing
- Updated hvac
- No hanging plastic dividers
- Subject to confirmation all employees using the extraction equipment are trained
- Subject to equipment being regularly maintained
- Proper ventilation/gas detection systems are in place
- Subject to providing Standard Operating Procedures and Maintenance Program Log
- Non-owned automobile coverage is available if drivers are not on a regular schedule
- Confirm your cannabis is not being sold to minors
- Confirm you cannabis product is not crossing state lines.
- Confirm your cannabis is being testing for heavy metals
- Confirm your safe meets a particular TL rating
- Confirm your vault meets specific build quality and materials.
Open loop extracting is illegal in regulated cannabis markets
Out of the list, the confirmation of not processing cannabis through an open loop extraction system seems bizarre. To our readers unfamiliar with the term open loop, think of using a solvent such as butane to extract the cannabis oils without proper equipment and ventilation. Open loop is like making moonshine in the mountains of West Virginia or Kentucky. Asking a client if they extract using open loop should have been asked 10 years ago prior to regulations.
The title of one YouTube appropriately calls it Back porch BHO blasting.
This process would be illegal in regulated markets such as Washington and Colorado. Knowing its illegal, why would the insurance carrier ask the applicant if they are using an open loop system. Makes no sense. Time would be better spent on confirming the types of safety incorporated into their closed loop extraction equipment and methods.
We strongly encourage the cannabis insurance carriers to carefully scrutinize their list. What makes sense? What is reasonable?
For cannabis or cbd operations, we strongly encourage you buy insurance from an insurance broker who has knowledge of these types of issues before entering the game of buying of insurance.