Insurance Commissioner Approves Cannabis Property Policies

May 7, 2018 by Dennis R. Baranowski, Esq.

It has been only a few weeks since the White House confirmed a statement from Colorado Representative Cory Gardner that the Justice Department would no longer be enforcing marijuana laws in states where it is legal.

That change of policy played well in the cannabis community, with many saying it signaled an end to the federal war on pot. Now, in another action welcomed by cannabis proponents, the California Insurance Commissioner announced he approved the first insurance coverage for commercial buildings that lease to cannabis businesses.

On May 1, Insurance Commissioner Dave Jones stated that California Mutual Insurance Company is the first insurer approved to provide Lessor’s Risk coverage for property owners whose tenants run cannabis-related businesses.

During a press conference, Jones told reporters that he had a duty to make sure insurance services were available to all California business owners. “I want to make sure that when consumers shop in cannabis businesses, when investors and owners invest in cannabis businesses, when vendors sell to cannabis businesses, and when landlords rent to cannabis businesses, there is insurance coverage available to cover everyone from losses. I encourage more insurance companies to follow California Mutual Insurance Company’s lead and file insurance programs to fill the gaps in coverage for the cannabis industry.”

The development paves the way for insurers to issue Lessor’s Risk coverage on commercial properties. The coverage provides liability and property insurance for owners who lease their property to commercial marijuana businesses. Under the new rules, cannabis cultivation facilities, labs, testing facilities, manufacturing, and dispensary operations can all obtain insurance coverage.

This change did not happen overnight. Last year, the Commissioner launched a campaign to allow insurers to provide “gap insurance” to cannabis companies that were lacking coverage. The campaign resulted in the approval and filing of the first commercial insurance for the cannabis industry, along with a surety bond program that was announced earlier this year.

This week’s announcement was new, in that it is the first time insurance services have been approved for landlords renting to marijuana businesses. Commercial property has been at a premium for pot shops, with many landlords refusing to rent because of the headache and expense that comes with liability insurance. This lack of property availibitly forced some marijuana businesses to disguise their operations from landlords, opening up legal problems for both the landlord and the tenant. The new availability of Lessor’s Risk coverage reduces the risk for landlords and should open up more opportunity for cannabis companies to find a workspace.

Last week, citing developments that President Trump will defer to state’s rights on legalized marijuana, Commissioner Jones urged insurers to begin offering gap insurance to cannabis companies. In meetings between California’s insurance executives and business owners, Jones hoped to educate insurance groups about the inner workings and risk management associated with cannabis operations.

The state has been scrambling to find solutions that can bridge the divide between California’s voter-approved legalization of recreational marijuana, and the federal government’s laws and restrictions based on its Schedule 1 drug status.

Early in the year, California Treasurer John Chiang instituted a roundtable of financial services executives and bankers to discuss ways in which cannabis businesses could fully integrate their operations with the national banking system.

Last October, Jones also held a public hearing to identify and discuss gaps in insurance coverage that is hampering legal cannabis businesses. Insurance executives and business owners testified as to the challenges they face when trying to obtain coverage for the cannabis industry. The hearing detailed the limited availability of insurance products and coverage, providing insight into why insurers were resisting or not willing to provide commercial coverage.

This week, AAIS (American Association of Insurance Services), a national not-for-profit insurance advisory organization governed by its member companies, has filed a Cannabis Businessowners Policy for a California business.

AAIS said they developed this policy in response to a request from the California Department of Insurance to expand their product offerings to include cannabis-related coverage. AAIS expedited the development of a state-specific business owners program (BOP) for the cannabis industry, complete with forms, rules, and rating information.

The program, known as AAIS California CannaBOP, provides a package policy containing both property and liability coverage for qualifying California cannabis dispensaries, storage facilities, distributors, processors, manufacturers, and other businesses participating in or supporting the California cannabis industry.

While these developments are a good start and welcomed by pro-cannabis groups, we will have to wait and see how long it will take for other insurers to get on board by developing policies that expand coverage and offer a much-needed service to California’s growing cannabis market.