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By Wendy Watson, Chief Underwriting Officer, and
Christopher Lewis, Underwriting Manager
When it comes to general insurance issues, cannabis-related businesses (CRBs) face the same general liability and property risks agricultural and manufacturing risks face such as workplace accidents, damage to property, crop failure, and transporting their products to market. However, CRBs require more comprehensive commercial insurance due to the high risks involved in transporting cannabis-related products.
The elephant in the room is that cannabis is still an illegal substance under the Federal Controlled Substances Act (CSA). It is classified as a Schedule 1 drug which has “no currently accepted medical use in treatment in the United States”. Cannabis, regardless of whether it is sourced from cannabis or hemp, is still subject to Federal Drug Administration (FDA) approval under the Federal Food, Drug, and Cosmetic Act (FD&C Act).
The availability of cannabis-related transport coverage is evolving as more states make it legal. However, because it is still illegal on the federal level, insurers may be hesitant to work with CRBs. It is therefore important for agents and brokers to learn as much as possible about what is available, which companies offer coverage, and most critical of all, does the coverage offered adequately protect the CRB.
Here's what You Need to Know About Cannabis Transportation Insurance
The availability of insurance is evolving rapidly due to the changing market landscape so be sure to check around for all the available insurance and coverage options.
1. As legality varies state by state, look for a transportation insurer that works in the same state or states that your insured operates in.
Because of the legal limbo of cannabis itself, CRBs are considered a risky, high value, cash businesses. It’s important to remember that prior to legalization, transporting cannabis was illegal. Along with legality, however, comes licensing and insurance requirements. Most states will require CRBs to maintain certain levels of insurance to enable them to run a CRB and will require additional information about drivers and owned and non-owned vehicles.
2. Cannabis is basically a cash-only business so financing premiums may offer agents and brokers a challenge.
Approximately 70% of CRBs operate as cash-only businesses, according to the NAIC (National Association of Insurance Commissioners). Here, too, many financial institutions will stay away from CRBs due to the legal risks associated with cannabis. Only 518 of the nearly 5,000 commercial banks in the US report having served the cannabis industry in 2021, according to the CATO Institute. Look around, as some insurers are able to accommodate this cash-only business and offer legal options.
3. Cannabis transportation insurance policies depend on the type of operation your CRB client is running.
Some CRBs may need coverage for a single van, while others may need armored transport for cannabis products, requiring substantially more coverage than the average cannabis-related local product delivery.
Other factors to take into consideration include the quantity and value of the goods, how far the goods will be transported, and how many vehicles the CRB will have on the road at any one time.
4. Harvested crops such as cannabis and hemp take months of cultivation before they are ready for distribution. This means that when the crop or products ship, they are irreplaceable if they are lost, stolen, or damaged.
Cargo insurance covers any cannabis-related products transported by the CRB or in the CRB’s custody. Coverage pertains to seeds, seedlings, harvested crops, raw flowers, tinctures, edibles, vape pens, pipes, and any other paraphernalia, and may apply to cash or securities. Cargo insurance is designed to pay out the actual cash value of the shipment and covers any loss of income experienced due to theft, fire, or accident. It should be noted that seizure of goods by law enforcement is generally not covered.
5. Cargo transportation insurance options are available to CRBs.
The choice of type of insurance is based on who owns the vehicles. If it is the CRB, then Business Auto is a good choice. If the CRB opts for using hired and non-hired autos for distribution, the CRB should investigate a Hired and Non-Hired Auto option. Just remember that the insurance coverage will require underwriting, including how many vehicles are on the road at any time, what kind of products are being shipped, and of course, the driving records of drivers.
Transporting cannabis across state lines is illegal, while transporting hemp, the product has to be produced lawfully under the 2018 Farm Bill which has issued approved regulations and procedures (under 0.3% THC) within specific states.
While the driver can transport cannabis-related products within a legal state, if the driver crosses over into a state where cannabis is illegal, the CRB could be subject to seizure and impounding of vehicles and equipment, large fines, and imprisonment. CRBs will therefore need state-issued distribution licenses and will be subject to “secure transit” regulations. This means equipping vehicles with secured lockboxes, GPS tracking systems, and heating or air conditioning systems to adequately maintain correct temperatures for cannabis storage.
CRBs that transport cannabis will need transportation insurance coverage. Few insurers offer cannabis transport insurance that includes cargo. Another important factor to consider is whether the transportation insurance includes both physical damage and cargo insurance. Can it be purchased as a stand-alone coverage, for example? Some insurers will do that and marry the cannabis transport coverage with another carrier’s liability coverage.
If your client is transporting cannabis, be sure to check if the policy covers physical damage and cargo as well. Not all commercial auto policies will. What about workplace accidents, property damage, fires from both wildfires and internal sources, theft, general liability, refrigeration breakdown, and cash in transit endorsements. Does the insurer offer higher limits – say up to $1 million? What about new ventures – are they covered? Is there coverage for cash-in-transit? What about in-transit property for owned products?
It pays to know the insurance landscape to ensure that your CRB has the proper coverage for their risk.