Cannabis Insurance 101: How to Choose An Insurance Partner

The U.S. cannabis industry drove about $29 billion in revenue in 2023, with projected growth to $37 billion by 2027. That figure represents a large amount of assets to protect. With so much value comes significant risk, making insurance a critical need for any cannabis business. 

While insurance is essential to protect the cannabis business you’ve worked so hard to build, it hasn’t always been accessible or straightforward. Fortunately, that’s changing, and cannabis businesses are better able to find the coverage they need. This guide provides you with the understanding you need to navigate the cannabis insurance landscape and find the right policies for your business.

The cannabis insurance landscape

In 2012, when Colorado became the first state to legalize adult-use cannabis, there were only a handful of insurance providers serving operators. Today, the cannabis industry remains uniquely situated when it comes to insurance. Business owners have more options to choose from, and more factors to consider, than ever.

“Cannabis businesses… experience higher premiums than most other industries, but it has gotten better,” said Isaac Bock, managing director of AlphaRoot, a New York City-based calibrated insurance and risk management solutions firm wholly dedicated to the cannabis and hemp industries. “As more underwriters have decided to work with cannabis businesses, we’ve seen more favorable language on policies — coverage that’s more responsive in the event of a claim and that contemplates exposures cannabis businesses might have.”

In the past, Bock said, underwriters would include elements in their policies like “cannabinoid exclusions,” which made the coverage virtually useless for plant-touching cannabis businesses. This was generally due to a lack of familiarity and education about cannabis businesses, as well as the types of policies they actually need.

As the cannabis industry has matured, insurance underwriters – AKA the analysts who approve or deny your business a policy based on their firm’s risk parameters – have increasingly broadened their offerings of relevant, effective policies for cannabis operators. Companies like AlphaRoot prioritize educating underwriters and brokers about the realities of cannabis.

“We can act as a bridge between underwriting outlets and the industry itself,” Bock said. “[AlphaRoot] can explain certain regulatory considerations or what’s important to cannabis business operators. Having experts working as an intermediary to help improve language and communication between the businesses and the insurers taking on the risk helps the entire industry grow.”

Remaining hurdles for the cannabis insurance industry to overcome

While cannabis insurance has improved and matured over the past decade, there’s a long way to go. Many remaining challenges are the result of regulatory complexity and the state-by-state nature of the industry. If and when those barriers fall, larger insurance companies may get involved in the space. This could further drive down policy costs, which are the premiums you pay, and open up additional options for cannabis operators.

“Should a major legislative item come through, whether that’s full legalization or rescheduling, cannabis will get more interest from larger household name insurers,” Bock predicted. “They may bring expertise in the space or form partnerships with underwriters already in cannabis to expand their product offerings.”

In the meantime, doubling down on educating insurers about cannabis and what businesses need in the space remains AlphaRoot’s most important goal. 

“There’s more work to do to improve policy language, exclusions that should be applied, and so on,” said Bock. “Partnering with those focused solely on cannabis helps speed up that process.”

How to find a cannabis insurance partner

When you’re in need of coverage and looking for a cannabis insurance partner, making the right choice is critical. You need a policy that fits your budget and that will cover you in the event of a claim. You’ll want a holistic policy that supports your growth, while knowing what your options are. Shopping on Green Check’s Marketplace of providers can help, and these four tips can set you up for success.

1. Work with a cannabis-specific broker

Insurance is always complicated. Double that complexity for the cannabis industry. If you aren’t intimately familiar with how insurance policies work, you need support. Work with a broker or advisor who has demonstrable expertise in the cannabis industry. These professionals know what to look for and the red flags to avoid, so spend some time finding the right one to work with.

“The biggest thing for business owners is to work with a broker, advisor, or consultant who really understands not only the insurance industry but also cannabis,” Bock said.

Pro tip: Have your policy reviewed annually by an expert. Ideally, have this happen 120 days before it expires.

2. Understand policy exclusions

A policy exclusion is a clause that removes insurance coverage under certain circumstances. Some cannabis insurance policies include exclusions that render your coverage ineffective in the event you file a claim. You should clearly understand the exclusions in a policy and how they apply to your business before moving forward. Again, an experienced broker or consultant is critical here. They can spot exclusions that render a policy ineffective, protecting you from paying for insurance coverage that won’t apply when the time comes.

Different cannabis business structures will have different policies available to them, thus, different policy exclusions. 

“An example is a large MSO [multi-state operator] having an interstate exclusion may appear to be an issue at first, but because of the way cannabis businesses are structured and not shipping across state lines, it may not be the biggest issue,” Bock explained. ‘It all depends on how the policy is worded, so make sure the policy covers your entire operation”

3. Consider non-cannabis exposure

If your business sells both cannabis products and non-cannabis products, you’ll likely need separate policy coverage for each. Most cannabis-specific insurers won’t handle non-cannabis operations and vice versa. Be prepared to seek out policies that cover your full business. You may need more than one. 

“Your business may have cannabis products but also tobacco items, or you have had a liquor component, and so on,” Bock said. “Make sure you get coverage for cannabis-specific items, but also for anything else you sell. You may need to work with someone who will help you place things that are outside the scope of cannabis insurance.”

4. Review insurance companies with Green Check Connect

The Green Check Connect Marketplace hosts a variety of cannabis-dedicated insurance options alongside verified financial services providers, to get you connected with the services your business needs to thrive. Find reputable businesses like AlphaRoot and others on the Marketplace. 

Signing up is fast and free. Compare offers and speak to an expert if you’d like to. Whether you’re looking for insurance, banking, lending, or other industry-leading cannabis business services, Green Check Connect is the best place to shop for, compare, and lock in your business’ necessary provisions.

Trends to watch in cannabis insurance

• Declining premiums: As more underwriters enter the space and offer cannabis businesses competing policies, the cost of coverage will continue to decline. Expect cannabis premiums to remain higher than other industries, though.

• Improved policy language: As underwriters become increasingly familiar with cannabis businesses and their coverage needs, policy language should continue to improve. Underwriters are becoming more adept at including cannabis-specific language and ensuring their coverage applies. Similarly, insurers are offering more than just basic business insurance, with policies that can help your business grow. An example of this would be adding Directors and Officers (D&O) insurance to a cannabis business’ overall policy, used for attracting top executives.

• Increased participation in industry: As the cannabis industry continues on and talk of federal reform heats up in Congress, more insurers than ever are entering the market. Expect that trend to continue as cannabis becomes more normalized, providing a wider range of options to business owners and keeping downward pressure on premium costs.

• Improved reinsurance options: When insurers take on risk, they typically insure all their accounts, called their “book of business,” in a process called “reinsurance.” When reinsurance options are limited, costs are higher for insurance companies operating in the space. Thus, as more insurers get involved, reinsurance options expand and the costs to insurance companies should decrease. Those savings can be passed on, in part, to cannabis businesses seeking coverage.

These trends will all be influenced by legislative and regulatory developments. Cannabis reform at the federal level will have a profound effect on cannabis insurance. This begins with signaling from the U.S. Drug Enforcement Agency (DEA), reported on April 30th, that they would agree to reschedule cannabis to Schedule III from Schedule I. When and if those changes take effect, and to what degree, will have great significance on the cannabis insurance industry. So, keep an eye on the news and stay in touch with your insurance partners to know what’s coming around the bend. 

Protect your business with cannabis insurance

Insurance is a necessary tool to protect and grow your business. In cannabis especially, changes come at you fast. It’s important to know your hard work is covered. If you’re looking for cannabis business insurance and other key financial services, Green Check has your back. Join the Marketplace today to find out why more than 10,000 cannabis businesses trust Green Check to connect them with the services they need to thrive.