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Exploring Lessor's Risk for Cannabis Operations

By Pathpoint


Our previous article delved into the importance of Lessor's Risk (LRO) in the Excess & Surplus (E&S) market. LRO remains a top agent priority, with abundant commercial properties in most U.S. cities and towns. However, agents must tailor their approach to finding LRO coverage based on the unique characteristics of each building and tenant operations. In today's competitive and fast-paced world, policies must be thoroughly assessed and promptly presented to clients. In part one, we explored the demand for short-term rentals as a tenant class. Let us pivot to the other hot commodity, the escalating need for LRO packages in the cannabis operations sector.

The Growth of Cannabis: Changing Perceptions

If you were to ask a millennial 20 years ago whether they believed that marijuana would be legal today in 24 states and continuing to expand, their likely response would have been a resounding "NOPE." While marijuana had a significant presence in colonial America, it was in the 1930s that the process of criminalizing the plant began. Anti-drug campaigners capitalized on public concerns surrounding Mexican immigration and job scarcity, effectively demonizing marijuana. The infamous "Reefer Madness" campaigns continued well into the 1980s with the "war on drugs" and the DARE program, which aimed to persuade America's youth to "just say no!". However, after decades of comprehensive research into its medicinal benefits and critical reflection on the socio-political ramifications of classifying cannabis as an illegal controlled substance, American perceptions have undergone a substantial shift toward recognizing the positive aspects of cannabis. Today, 70% of Americans support the legalization of cannabis, a significant increase of 50% since the 1980s (Saad, 2023). It is worth noting that medical marijuana has been legalized in 38 states in various forms, paving the way for a blossoming green wave of cannabis-related businesses (Hudak, 2022).

The Cannabis Conundrum: Opportunity with Obstacles

According to projections, sales of legal cannabis in the U.S. are expected to increase 14% by year-end, and the global market is expected to reach $59.6 billion by 2027 (Jergler, 2023). Talk about a growing opportunity! While state governments and their insurance departments have the flexibility to adapt legislation and underwriting guidelines for cannabis swiftly, federal regulations related to the Drug Enforcement Administration and the banking sector present challenges. It was only recently the Biden administration requested that marijuana be reclassified from a Schedule 1 drug under the Controlled Substance Act (which currently places the plant in the same category as heroin and LSD). Changes at the federal level tend to progress slowly, making it unlikely to witness this modification until the end of 2024. This is important to note because banking institutions and credit card processors adhere to federal guidelines and their definitions of what is considered prohibited, negatively impacting businesses in the cannabis industry due to their association with more dangerous substances like heroin and LSD. As a result, these categorizations can obstruct funding for these businesses. Due to inadequate funding, 70% of cannabis-related companies remain cash-only. This condition is attractive to criminals and unattractive to insurers (Safe Harbor, 2022). In addition to theft, cannabis-related operations face a multitude of risks. These include general liability, manufacturing, agriculture, property, and other hazards. Insufficient data for these risks makes it challenging for standard insurers to confidently write them. Only 30 U.S. insurers have tossed their hats in the ring to cover the cannabis industry, according to a 2021 report by New Dawn Risk. There's not much to roll the dice on for writing business-owners packages; however, there's another path to explore if you want to grow your book with cannabis, and that is Lessor's Risk.

Dispensing LRO Packages for Cannabis Exposures

Cannabis operations can be intimidating to standard markets due to the lack of extensive data, making loss prediction challenging. However, property aspects are more predictable. Through technology and analytics, insurers can accurately predict patterns across states to determine risk-loss ratios. The E&S market is taking the lead in insuring commercial property owners with cannabis-related tenant operations. Remember, it's a slow rollout, as many carriers remain cautious and conservative regarding cannabis-related matters. The good news for agents is that you have Pathpoint, which collaborates with industry pioneers like Nautilus and Westchester. Both reputable carriers are paving the way for quoting various tenancies, including dispensaries, CBD retailers, and manufacturers. Writing LRO accounts can be complex, especially with cannabis exposures. Pathpoint simplifies this process with the Mix and Match quoting feature for LRO classes and an improved automatic quoting experience, increasing agents' chances of securing property packages by 20%. Agents benefit from a fully digital platform where they can upload forms like insurance certificates, typically requested when armed security guards are on-site, a common scenario for dispensary tenants. This feature speeds up the quoting process, which would otherwise slow the quoting turnaround. Pathpoint's automation ensures quick, effortless quotes, and e-signable binding at the end makes quoting for these LRO cannabis risks straightforward.

Conclusion: Gateway to Greener Pastures

The cannabis industry presents a unique opportunity for insurance agents. Despite the present challenges, Pathpoint is well-equipped to assist with navigating Lessor's Risk insurance for cannabis-related tenant operations and more. With industry-leading partners, easy-to-use features, and a digital platform that enhances the quoting process, securing packages has never been faster and more efficient! Take advantage of this lucrative opportunity. Start quoting LRO accounts with Pathpoint today and accelerate your business growth.

Want to learn more about writing Lessor's Risk for cannabis operations? Watch our webinar on-demand here or download our appetite guide.

(2022). Are Cannabis Businesses Forced to Be Cash Only? Safe Harbor Financial. Retrieved November 13, 2023, from here.

Hudak, J. (2022, September 27). Congressional candidates’ silence on cannabis reform. The Brookings Institution. Retrieved November 13, 2023, from here.

Jergler, D. (2023, February 22). Hopeful Cannabis Sales Data an Encouraging Sign for Insurance Specialists. Insurance Journal. Retrieved November 13, 2023, from here.

New Dawn Risk. (2021). US cannabis report. New Dawn Risk. Retrieved from here.

Saad, L. (2023, November 8). Grassroots Support for Legalizing Marijuana Hits Record 70%. Gallup. Retrieved November 13, 2023, from here.